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British, Korean airlines guilty

The Baltimore Sun

WASHINGTON -- British Airways PLC and Korean Air Lines Co. Ltd. were each fined $300 million in a federal District Court yesterday after admitting they reached secret agreements with competitors in setting fuel surcharges.

Both companies cooperated with investigators and escaped penalties that could have been two to three times higher, said U.S. District Judge John D. Bates.

Yesterday's guilty pleas, announced Aug. 1, end the first criminal prosecutions arising from a multinational antitrust investigation of the air transportation industry.

European and U.S. regulators are probing at least 11 other companies including AMR Corp.'s American Airlines, Air France-KLM Group, Europe's largest, and Japan Airlines Corp. for possible price fixing.

"We wonder what is yet to come from larger carriers in the cargo industry," wrote Chris Avery, an analyst for JPMorgan in London, in an e-mail.

British Airways, Europe's third-largest airline, set aside 350 million pounds ($701 million) on May 18 to settle "all known claims in relation to these matters." This included civil claims in the U.S., the airline said.

British Airlines and Korean Air pleaded guilty to two criminal counts of conspiracy in setting extra charges on passenger and cargo flights to help offset rising fuel costs.

"Both counts involve considerable commerce and reflect long-term, widespread conduct that involves several major airlines," Bates said in court. "These are very serious charges."

British Airways' fuel surcharge on round-trip passenger flights between the U.S. and the United Kingdom rose to $110 per ticket in 2006, from $10 in 2004, the Justice Department said Aug. 1.

British Airways could have been fined as much as $894 million, while Korean Air faced a possible fine of as much as $633 million, the judge said. The Justice Department's Antitrust Division recommended the lower penalties after plea negotiations, saying the carriers aided the investigation.

"Any anti-competitive behavior is to be condemned at British Airways or at other companies," British Airways Chief Executive Officer William M. Walsh said in a statement after the hearing. "It will not be tolerated and we remain vigilant in this respect."

British Airways, based in London, was accused of fixing prices on air cargo as early as March 2002 and on passenger flights starting in August 2004.

Korean Air, which has its headquarters in Seoul, the South Korean capital, was charged with fixing cargo and passenger prices starting in January 2000.

Virgin Atlantic Airways disclosed the passenger fare price-fixing with British Airways, while Deutsche Lufthansa AG, Europe's second-biggest airline, reported participating in cargo price-setting with British Airways and Korean Air, the Justice Department said in announcing the plea agreements Aug. 1.

Virgin Atlantic and Lufthansa will have to make restitution to U.S. victims, but won't face charges, the Justice Department said. At least 11 other carriers have said they were asked for information about possible price fixing or are under investigation by U.S. and European authorities.

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