February 15, 2006

Global Air Cargo Probe Widens to Asia

By Sachi Izumi

TOKYO -- A global probe into possible price-fixing in the air cargo industry widened to Asia on Wednesday as authorities searched for information at offices of Japanese, South Korean and Hong Kong airlines.

The investigation started on Tuesday when the European Union's executive arm and the U.S. Justice Department raided a number of air cargo carriers on both sides of the Atlantic, while other airlines were asked for information related to the probe.

The case could threaten to put a brake on recent growth in the $50 billion global air cargo market, which U.S. aircraft maker Boeing Co. has estimated will expand at an average annual rate of 6.2 percent in the next two decades, exceeding the expected growth rates of passenger traffic and the world economy.

The cargo business accounts for some 12 percent of revenue in the global commercial aviation market, according to the International Air Transport Association.

Scandinavian airline SAS said it had been raided and authorities were investigating whether airlines had illegally cooperated to limit competition in European and other routes.

The alleged activity, mainly involving various surcharges such as for fuel and for security measures imposed after the September 11, 2001, attacks on the United States using hijacked airliners, has supposedly been carried out since 2000, SAS said.

War-risk surcharges that were applied after the U.S-led invasion of Iraq in 2003 were also involved, it said.

The European Commission said in a statement, "The Commission has reason to believe that the companies concerned may have violated (a European Union) treaty, which prohibits practices such as price fixing." It declined to name the targets.

Marc Boudier, executive vice president of Air France Cargo, said on Wednesday at the Air Freight Asia 2006 show in Shanghai that officials came to his office in Paris to look at papers and the company was cooperating.

"We are surprised because this is a very heavy procedure," he said.

Asia's biggest airline, Japan Airlines Corp., said European authorities had searched its Frankfurt offices, while two South Korean airlines, Korean Air Co. and Asiana Airlines Inc., said they were raided by the local antitrust watchdog.

Boeing said in September that brisk traffic in the Asian markets would lead the expansion of the global air cargo market, adding that the freighter fleet would nearly double over the next 20 years to 3,530 airplanes.


A JAL spokesman declined to comment on alleged cartel activity but said, "We are fully cooperating with the probe."

The cargo business, supported by strong exports from Japanese companies, has been a bright and growing segment for struggling JAL, which expects a net loss this business year due to high fuel prices and a series of safety problems.

Korean Air spokesman Lee Hyoung-woo said South Korea's Fair Trade Commission officials interviewed the company's executives in charge of cargo businesses and removed documents. He added its offices in Europe and the United States were not raided.

Among airlines, Korean Air is the world's top cargo carrier, based on 2004 data, although it ranks behind specialist carrier FedEx Corp. in total volume flown.

South Korea's FTC declined to comment, citing standard policy on investigations.

An Asiana official who declined to be named said cartel team officials from the FTC came to the airline's office and conducted an investigation, initiated by a request from abroad, in relation to fuel surcharges and price-fixing practices.

Hong Kong's Cathay Pacific Airways said EC and U.S. Justice Department officials had visited the company's offices in Frankfurt, Los Angeles and San Francisco.

The world's leading carriers also acknowledged they had been contacted by authorities.

British Airways Plc and freight airline Cargolux had said they were asked for information related to alleged cartel activity, and American Airlines and United Airlines both said they had received inquiries as part of the probe.

All Nippon Airways Co., Japan's No. 2 airline, said it outsources cargo operations in Frankfurt to unlisted Nippon Cargo Airlines Co., which said it had not been raided.

A spokeswoman said ANA's offices, including ones in Paris and London, had not been searched.

Although shares in JAL closed down 0.6 percent, other Asian airlines rose, including Cathay Pacific, Korean Air and Asiana, as oil prices slipped below $60 to their lowest level this year after heavy losses a day earlier as dealers anticipated a big jump in already healthy U.S. oil inventories.

(Additional reporting by Cheon Jong-woo in Seoul, Alison Leung and Donny Kwok in Hong Kong and Jerker Hellstrom in Shanghai)