By Justin Bachman | Bloomberg
Airlines have a question for U.S. regulators: Mind if we collude a bit? The carriers have made an unusual request of the U.S. Department of Transportation: They want antitrust immunity for one year so they can collectively discuss ways to retrieve $3.8 billion currently held hostage by Venezuela’s deep economic slide.
Since 2013, Venezuelan officials have virtually halted the repatriation of past ticket sales made in bolivars, the local currency. Inflation has soared and foreign currency reserves have dwindled to $12 billion, as the government of President Nicolás Maduro imposed various currency exchange rates and the economy fell into disarray and food shortages. As a result, the flow of money homeward has slowed to a trickle for many multinational corporations operating in Venezuela.
Authorities first required government approval for the repatriation of foreign company sales in 2003. Over the past 21 months, Maduro’s government allowed only two small payments to a pair of foreign carriers, said Jason Sinclair, a spokesman for the International Air Transport Association. Airlines that previously negotiated for payment individually are now hoping a united front can offer more leverage.
“Individual airline approaches to the Venezuelan government thus far have been unavailing,” IATA’s general counsel, Jeffrey Shane, wrote in a Sept. 22 filing with the DOT. Antitrust immunity “would permit the airlines to consider approaches to the problem, which they have not been permitted to explore together before now.”
U.S. airlines are particularly sensitive to antitrust concerns as the Department of Justice began an inquiry more than a year ago into whether they had colluded on pricing through their comments about the industry’s capacity discipline. Airlines can command higher fares when seat inventory declines. All four of the largest U.S. carriers have said they are cooperating with the government’s inquiry.
We promise, only about this
American Airlines Group Inc., which had been the largest carrier by capacity to Venezuela, took a $592 million special charge late last year to write down the value of its ticket sales in bolivars. The No. 2 international carrier to the nation, Panama-based Copa Holdings, S.A., once had about 10 percent of its revenue tied to Venezuela, where the airline is trying to recover almost $500 million. Delta Air Lines Inc. and United Continental Holdings Inc. have also written down the value of their past Venezuelan sales in bolivars. All three U.S. carriers still fly to Caracas, although they have cut service dramatically since 2014. Airlines are trying to repatriate the money at the official exchange rates in place when the tickets were sold. International airlines now sell their tickets to or from Venezuela in dollars, which has virtually halted local demand.
The airlines have told U.S. officials that if they get the antitrust waiver, they’ll restrict their discussions to Venezuela and include only carriers that have funds there. They also offered to seek DOT approval for any actions the group eventually decides to pursue. A department spokeswoman said on Oct. 5 that the request remains under review.
The airlines made their immunity request in April, shortly before Venezuelan authorities began requiring international airlines to pay expenses such as catering, landing fees, and local aircraft maintenance in U.S. dollars. That change represented “the breaking point” for IATA members, which previously could use their bolivars to pay such local expenses, said Peter Cerda, the trade group’s regional vice president for the Americas.
“They can’t take [money] out and now they’re being asked to pay in dollars,” he said in a telephone interview. “It’s almost comical to the point of, now you’re asking us to bring dollars into the country.” Venezuelan officials couldn’t be immediately reached for comment.
However, even if regulators offer antitrust immunity to discuss Venezuela, it’s far from certain that the airlines owed money would gain any substantial advantage in their talks with Venezuela. The carriers could threaten further service cuts, although many have unilaterally quit the country, given its financial travails. Since 2013, airlines have shrunk capacity to Venezuela by more than 60 percent, with only nine international carriers still offering scheduled service.
This summer, Chile-based LATAM Airlines Group suspended Caracas service from Brazil, Chile, and Peru; Grupo Aeromexico SAB ended flights to Mexico City; and Deutsche Lufthansa AG dropped its flights from Frankfurt. Air Canada left Caracas in March 2014, citing civil unrest that had “exacerbated the challenges of doing business in Venezuela.”
“Connectivity to the country is very quickly shutting down,” Cerda said. Thus far, however, the removal of air service to and from Venezuela has’t given airlines any traction in efforts to get their money back.
One reason some have been reluctant to quit this nation of 30 million people, which has the world’s largest crude oil reserves, is an ultimatum by Maduro. He has threatened to expropriate funds for any carrier that leaves the country and to prohibit them from returning. Moreover, Venezuela has historically been a source of airline profit, given strong travel to the U.S. and Europe.
Going the legal route
The carriers could also pursue a legal case and—potentially—obtain a judgment from a U.S. federal court. While enforcing any kind of ruling against Venezuela might prove nettlesome, a favorable court decision could prove “useful as a means of applying pressure,” said Anna Gelpern, a professor at Georgetown University’s law school. Even if airlines aren’t interested in scouring America or the globe for Venezuelan assets to seize, the nation’s bondholders and other creditors would likely take notice.
“The relative benefit of [a] judgment is that it can disrupt access to foreign commercial capital markets,” said Mark Weidemaier, an associate professor at the University of North Carolina School of Law who has studied international dispute resolution.
On its own, however, a judgment won’t get airlines paid any time soon. In 2014, Exxon Mobil Corp. won $1.6 billion from an arbitration panel for assets Venezuela had seized seven years earlier under President Hugo Chavez. The oil giant originally sought almost $15 billion for its losses.
IATA officials didn’t cite potential litigation, or other possible actions, in their DOT filings, and Cerda said airlines are only at the exploratory stage. The carriers have been working with Venezuela’s opposition lawmakers, though, seeking to get billions of dollars in foreign company funds legally recognized as a debt for which the government is responsible, Sinclair said.
While the airlines seek an exception to federal antitrust rules, some of the big U.S. airlines already enjoy immunity for their trans-Atlantic service, which involves three joint ventures with European airlines. The immunized partnerships allow the carriers—Delta and Air France-KLM, American-British Airways, and United-Lufthansa—to coordinate flight schedules and fares.
The issue of funds blocked in Venezuela isn’t altogether unique, although the large sum is. In June, airlines complained about their inability to repatriate almost $1.5 billion from four African countries, where the collapse of oil prices and civil strife damaged local economies. Yet with the proposed discussions on Venezuela, Cerda said, airlines are “going into territory that’s uncharted. We’ve never had this situation before.”