1st Aug 2007 07:05
British Airways PLC01 August 2007 OFT/DOJ COMPETITION INVESTIGATIONS RESOLVED British Airways announced today (August 1) that it has agreed a resolution withthe UK Office of Fair Trading (OFT) and entered into a plea agreement with theUnited States Department of Justice (DoJ) on fines relating to anti-competitiveactivity in the company's longhaul passenger and cargo businesses. Under the terms of the agreements, British Airways has agreed to pay a fine of£121.5 million to the OFT and a DoJ fine which will be announced by the DoJearly this afternoon. The sum of the combined fine is consistent with ourguidance and provision of £350 million. This resolves the OFT's and the DoJ's investigation of British Airways. British Airways' chief executive, Willie Walsh said; "I want to reassure ourpassengers that they were not overcharged. Fuel surcharges are a legitimate wayof recovering costs. "However this does not in any way excuse the anti competitive conduct by a verylimited number of individuals within British Airways. "Anti-competitive behaviour is entirely unacceptable and we condemn itunreservedly. "We have a long standing competition compliance policy which requires all staffto comply with the law at all times. I am satisfied that we have the rightcontrols in place. However, it is deeply regrettable that some individualsignored our policy." The OFT's investigation turned on conversations between individuals at VirginAtlantic and British Airways' during which information was exchanged on proposedchanges to their respective longhaul passenger fuel surcharges in response tofluctuating oil prices. In 2006 Virgin Atlantic went to the OFT and revealed its part in theseconversations. As the first applicant under the terms of the OFT's leniency policy, VirginAtlantic qualified for conditional immunity and as a result has not beenrequired to pay any penalty. British Airways responded swiftly to the investigation co-operating fully withthe OFT and the penalty has been reduced to reflect this. Fines for breaches of UK competition law are calculated in accordance with theOFT's Fining Guidelines, and may be up to 10 per cent of a company's worldwideturnover. The fine based on these Guidelines, represents just over one per centof British Airways' group turnover. In parallel, the US plea agreement with the DOJ brings to an end theirinvestigations of British Airways with respect to its long haul passenger andcargo businesses. The OFT and DoJ continue with their criminal investigation into the conduct ofindividuals. ends August 1, 2007 079/KG/07 Note to editors: The detailed analysis of the fines will be made public by the OFT and DOJ in duecourse. Under the US law, criminal fines for Sherman Act infringements cannot exceed asum which is the greater of: • $100 million • twice the pecuniary gain derived from the violation • twice the pecuniary loss suffered by consumers The OFT's investigation was conducted under the Competition Act 1998 which givesthe OFT the power to impose penalties on companies of up to 10 per cent of theirworldwide turnover for price fixing and other forms of anti competitivebehaviour. Under IAS 37, the airline made a provision of £350 million for settlement of thecompetition investigations in its 2006/7 accounts. The provision in respect of competition investigations relates topotential Government fines in the following jurisdictions in relation to cargofuel surcharges: USA, Europe, Australia, Canada, New Zealand and South Africaand, in relation to long haul passenger fuel surcharges: USA and the UK. It alsorelates to civil claims in the USA, Australia and Canada. Under IAS 37 theprovision represents the estimate of the amount to settle competition authorityand civil claims at the Balance Sheet date, but recognises that the final amountrequired to pay all claims and fines is subject to uncertainty Summary Statement of Facts These are the essential matters admitted by BA as to its infringement of civilcompetition law. Neither the names nor positions of any individuals involveddirectly or indirectly in the contacts are or will be disclosed by BA in view ofthe OFT's ongoing criminal investigation. Communications were made by a limitednumber of individuals. Introduction of the PFS, May 2004 1. The introduction by each of BA and VAA of the long-haul passenger fuelsurcharge ("PFS") in May 2004 is not alleged to have been the subject ofcollusive contacts. First Increase, August 2004 2. BA and VAA exchanged information on Friday 6 August 2004 regarding theintentions of their respective organisations to increase the PFS. BA told VAA ofBA's intention to increase its PFS to £6. 3. Thereafter, on Monday 9 August 2004, both BA and VAA announcedincreases in their respective PFS to £6, as they had discussed, with effect from11 August 2004. Second Increase, October 2004 4. BA understands that there may have been attempts by VAA to contact BAprior to the second increase, but these were not successful. 5. BA announced on 8 October 2004 an increase in its PFS to £10. VAAannounced a corresponding increase in its PFS to £10 on the same date. Third Increase, March 2005 6. In two sets of calls on 21 March 2005, BA and VAA exchanged informationconcerning proposed increases in their respective organisations' PFS. BAinformed VAA that BA intended to increase its PFS to £16. VAA confirmed to BAthe timing and amount of the PFS increase which VAA was going to announce. 7. Later on 21 March 2005 VAA announced to the press an increase in itsPFS to £16 with effect from 24 March, as had been discussed. On the followingday, BA announced an increase in its PFS by the same amount with effect from 28March 2005. Fourth Increase, June 2005 8. BA informed VAA on 23 June 2005 that BA was going to announce thefollowing morning an increase in its PFS to £24. 9. On Friday 24 June 2005 BA announced an increase in its PFS to £24, asBA had informed VAA, with effect from 27 June 2005. Later the same day, VAAannounced an identical increase in its PFS to £24. 10. An email was sent from VAA to BA shortly before VAA's announcement, towhich BA replied early the following morning. Fifth Increase, September 2005 11. On 5 September 2005, VAA informed BA during a telephone call that VAAintended to increase its PFS and to be the first to announce the increase onthis occasion. It is likely that VAA informed BA that VAA would increase its PFSspecifically to £30. 12. On 6 September 2005 VAA announced an increase in its PFS to £30 witheffect from 7 September, as VAA had informed BA. On 8 September 2005, BAannounced an increase in its PFS to £30, with effect from 12 September 2005. VAA Reduction, November 2005 13. VAA informed BA on 18 November 2005 that VAA was about to announce areduction in its PFS to £25. 14. Shortly afterwards, VAA announced a reduction in its PFS to £25, as VA hadinformed BA. 15. A further contact from VAA to BA relating to this reduction took placefollowing the announcement. VAA Increase, January 2006 16. VAA informed BA on 6 January 2006 that VAA intended to increase its PFS to£30. 17. Later that same day VAA announced an increase in its PFS to £30, as VAAhad forewarned BA. BA did not adjust the level of its PFS in response. Certain information included in these statements is forward-looking and involvesrisks and uncertainties that could cause actual results to differ materiallyfrom those expressed or implied by the forward looking statements. Forward-looking statements include, without limitation, projections relating toresults of operations and financial conditions and the Company's plans andobjectives for future operations, including, without limitation, discussions ofthe Company's Business Plan programs, expected future revenues, financing plansand expected expenditures and divestments. All forward-looking statements inthis report are based upon information known to the Company on the date of thisreport. The Company undertakes no obligation to publicly update or revise anyforward-looking statement, whether as a result of new information, future eventsor otherwise. It is not reasonably possible to itemize all of the many factors and specificevents that could cause the Company's forward looking statements to be incorrector that could otherwise have a material adverse effect on the future operationsor results of an airline operating in the global economy. Fuller information onsome factors which could result in material difference to the results isavailable in the company's Annual Report for the year ended 31 March 2007, whichis available on www.bashareholders.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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