Travelport says it will take a $19.7 million "extraordinary cash charge" in the fourth quarter because of an arbitrators' decision which favored a former national distribution company partner.
While disagreeing with the arbitrators' decision, made Nov. 18, Travelport says the ruling is binding.
Over the years, Travelport has entered into marketing agreements with independently owned NDCs to market Galileo and Worldspan GDS services to travel agents in parts of Europe, Asia, the Middle East and Africa. Often the NDCs, which earn commissions from Travelport and subscriber fees, are independently and locally owned travel companies or airlines.
When a competitor, such as Amadeus, may team with an airline in a particular country to market its GDS services, Travelport may partner with a third-party marketing company to better compete with Amadeus.
Travelport declined to identify the NDC which won the arbitrators' decision.
However, in 2009, Travelport decided to transition from the NDC model to wholly owned operations in the United Arab Emirates, Saudi Arabia and Egypt, and earlier this year indicated that "the company is involved in disputes with certain of its former NDC partners [in the Middle East] regarding the payment of certain disputed fees."
In recent years, Emirates, Saudi Arabian Airlines and EgyptAir served as NDCs for Travelport's Galileo GDS so perhaps the arbitrators' ruling involved one of these three airlines.
Transitioning to wholly owned direct sales and marketing organizations from NDCs cost Travelport GDS marketshare in the Middle East, but it notes it gains higher margins because it doesn't have to split revenue and fees with third parties.
In announcing the adverse decision by the arbitrator, Travelport notes that during the fourth quarter of 2010, it won an arbitrators' decision against another NDC.
While three such disputes were in play, Travelport has one pending.
"The dispute with respect to the last remaining partner remains outstanding but is of a lesser magnitude than the aforementioned adverse ruling," Travelport says in a financial filing. "Although no assurances can be given due to the inherent uncertainty of arbitration and litigation, we believe such claim is without merit."
Travelport declined to comment further on the adverse ruling.