Air NZ faces $7.5m penalty hit

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Air New Zealand and the Commerce Commission have buried the hatchet after a long-running legal battle, with the national carrier agreeing to pay a $7.5 million penalty for cargo price-fixing breaches of the Commerce Act.

In the High Court at Auckland, the parties agreed on the size of the penalty, which was for breaches of the act by Air NZ from 2001 to 2006.

The commission also sought to recover $300,000 in investigation costs.

Justice Geoff Venning reserved his decision on the size of the penalty and a final decision is expected within a fortnight.

The airline this week agreed to settle its long-running air cargo case with the commission, despite an earlier eleventh hour bid to cancel the deal.

Air NZ has long fought the charges while 10 other airlines charged with similar offences have quietly settled, paying a total of $35 million in penalties.

The commission alleged that the airlines colluded to impose fuel and security surcharges for air cargo shipments to and from New Zealand.

In yesterday's court proceedings, the Queen's Counsel for the commission, Brendan Brown, said the consumer watchdog's "start point" was for a $9 million to $9.75 million penalty. But he said mitigating factors, such as the fact that there had been no previous contraventions by the airline, meant a 20 per cent discount should apply.

The charges related to inbound cargo services on three routes - Japan, Malaysia and Australia. Air NZ admitted liability to charges relating to the Japan and Malaysia routes.

On the Australian charges, the airline did not contest them but did not admit them either.

The airline's Queen's Counsel, Alan Galbraith, said the fuel and security surcharges were imposed during "extenuating circumstances" at the time of very high fuel costs, which were made worse by the impact on the aviation industry of the September 11, 2001, terrorist attacks on the United States.

Galbraith said Air New Zealand's insurance costs went from US$3 million just before the attacks to US$28.3 million immediately afterwards. Four years later, they were still high at US$13.8 million. He said no commercial gain was involved and the level of surcharge was small.

In April, the High Court ordered three airlines to pay a combined total of $9.6 million in penalties for their role in the air cargo cartel case brought by the Commerce Commission, bringing the total penalties in the case at that time to $35 million.

The action stemmed from raids by regulators on airlines around the world in 2006 following allegations that they colluded to increase freight charges and impose a security surcharge after the 2001 terror attacks on the United States.

Since then, airlines have paid billions of dollars in fines and costs in other countries.

Across the Tasman, Air NZ still faces action by the Australian Competition and Consumer Commission, which alleges that between 2002 and 2006, it entered into arrangements or understandings with other international air cargo carriers that had the purpose or effect of fixing the price of a fuel surcharge and a security surcharge that were applied to air cargo.

APNZ