Impact of price-fixing fine on CAL to be limited


TAIPEI, Taiwan — The US$40 million fine China Airlines (CAL), Taiwan’s largest carrier, has agreed to pay to settle a price-fixing case in the United States is expected to have only a limited impact on the carrier’s bottom line, an analyst said yesterday.

“With the recovery of the international airline sector, China Airlines has turned a profit in the first half of this year,” Hua Nan Securities analyst Henry Miao said.

“The carrier is expected to continue to ride the improving global economy in the second half of this year, so the fine it will pay to the Department of Justice is unlikely to affect the company too much,” Miao said.

On Monday, China Airlines reached an agreement with the Department of Justice (DOJ) to plead guilty and pay a criminal fine for a conspiring to fix the cargo rate charged to customers on international cargo shipments to and from the U.S., from as early as January 2001 to at least Feb. 14, 2006, a DOJ statement said.

The DOJ said CAL carried out the conspiracy by agreeing during meetings and other communications with other airlines on certain components of the cargo rates. It also monitored and enforced adherence to the agreed-upon cargo rates.

In the first half of this year, China Airlines had net income of NT$6.27 billion (US$205 million) after posting net losses of NT$3.8 billion for all of 2009 and NT$32.35 billion for 2008.

Miao said the fine is expected to reduce CAL’s earnings per share by about NT$0.3 if the company pays the fine by the end of this year.

“Before the agreement was reached, China Airlines was expected to post an EPS of NT$2.7 for 2010. The NT$0.3 cost will not affect the company’s financial situation,” Miao said.

After news of the settlement emerged, China Airlines shares fell 1.57 percent to NT$22.00 as of 12:06 p.m. Tuesday, while the weighted index was up 0.13 percent at 8,202.56.

“The fall was simply a knee-jerk reaction to the news. I suspect many investors just seized the opportunity to lock in a profit after the recent strong showing of the stock on the carrier’s improving earnings, “Miao said.

Miao said that if Taiwan and China allow individual Chinese tourists to visit the island in the near future, Taiwan’s carriers will benefit further.

Apart from China Airlines, other airlines that have pleaded guilty, or have agreed to plead guilty, as a result of the DOJ’s investigation into the air cargo industry include British Airways, Korean Air Lines, Qantas Airways, Japan Airlines, Cathay Pacific Airways, KLM Royal Dutch Airlines and Northwest Airlines.