OST 97-2548 / FedEx, Arrow and FWIA / Answer of Polar / June 2, 1997

Joint Application of

for approval of a transfer of frequency allocations pursuant to 49 U.S.C. § 41105 (U.S.-Argentina All-Cargo Frequencies)

DATED: June 2, 1997

1/ Two narrow-body frequency allocations are held and utilized by Polar Air Cargo. Two other frequency allocations were made to Challenge Air Cargo. It appears that these frequencies may have been unused for more than 90 days.

2/ As Fed Ex concedes, the statutory provision cited in its application (49 U.S.C. § 41105) deals only with certificate transfers. While that provision has been interpreted to apply as well to transfers of exemption authority with the accompanying frequency allocations needed to operate them, Polar Air knows of no instance in which the Department has sanctioned stand alone sales of such allocations. Indeed, by placing 90-day "use or lose" conditions on these frequencies, the Department clearly contemplated its own expedited reallocation of dormant authorizations. Since this is a matter of first impression, the Department may wish to consider whether, as a matter of policy, it should sanction the buying and selling of these limited rights, and specifically the effect that such a policy would have on future allocation proceedings and on competition in general.

consequence of the proposed transfer would be the elimination of scheduled U.S.-flag freighter competition between the U.S. and Argentina. Moreover, with foreign freighter competition limited to flights operated with Stage 2, B-707F equipment, (Exhibit JA-6), it is likely that Federal Express could soon gain an absolute monopoly on scheduled freighter lift in this key market.

For these reasons, more fully explained below, Polar Air Cargo urges the Department to deny the Joint Application and to reassign the Arrow and Florida West frequency allocations to a carrier or carriers on the basis of a public interest determination. In the alternative, Polar Air Cargo requests the Department to withhold approval of the Fed Ex transaction until sufficient frequencies are available to allow Polar Air Cargo to operate the minimum economically sustainable level of competitive all-cargo services in the market -- two round trip B-747F frequencies per week. /3

Since inaugurating scheduled freighter service to Argentina in October, 1995, Polar Air Cargo has been limited to two narrow-body frequencies per week, permitting it to operate a

3/ This would require the allocation to Polar Air Cargo of two additional narrow-body frequencies.

single weekly B-747F flight. The inability to offer any additional service has made it extremely difficult for Polar Air to secure a foothold in the market and the company has suffered $3 million in losses in its efforts to develop the route. Management has concluded that those losses cannot be reversed so long as it remains restricted to a single weekly 747 frequency. Moreover, Polar Air faces the prospect of even more severe losses if Federal Express were now able to offer shippers comparable wide-body lift on a five-day-per-week basis while Polar Air Cargo remain restricted to a one-day-per-week operation. Under those circumstances, Polar Air Cargo could well be forced to abandon the route.

Foreign flag all-cargo operations, limited to antiquated and soon to be obsolete B-707F equipment, offer little in the way of a competitive presence in this market. While Federal Express is correct in including them in its capacity analysis, their competitive impact is not significant. Major shippers would confirm that belly capacity of passenger aircraft, which is also included by Fed Ex in its market analysis, is an inferior and often unreliable alternative to dedicated freighter lift, particularly on international routes. /4 Thus, if because of an inability to expand, Polar Air Cargo is unable to remain competitive with Federal Express in Argentina, it will result in a serious net loss to shippers and consignees in both countries. The contentions of Fed Ex notwithstanding, the disadvantages to the public and the damage to competition that

4/ Freight capacity on passenger aircraft is dependent upon the space remaining after the priority boarding of passenger baggage and mail. Often this means that shipments must be split among several flights. Frequently baggage and mail demands can preclude the acceptance of any freight on a passenger flight. These uncertainties pose major problems for large shippers and forwarders.

would result from that carrier's proposal would not be offset by a corresponding increase in benefits available through Federal Express.

Federal Express does not intend to use the three new frequencies to add any flights. Rather, it would convert existing narrow-body operations to wide-body. /5 No doubt this would be helpful to the Fed Ex operation, but the load factor data it supplied does not demonstrate that the situation is critical or that it justifies the Department taking action that would place competition at risk.

All-cargo flights typically operate at high-load factors, and the averages shown by Fed Ex in its Exhibit JA-4 are not extraordinary. During March, its average onboard load factor from Sao Paulo to Buenos Aires was below 80%. In April, its load factors were 84.6 % on the weekday flights and 80% on the Saturday departure. During these same months, Polar Air's load factors on its U.S. to Argentina flights averaged 89%. In short, there does not appear to be any compelling public interest need for the Department to act in accordance with Fed Ex's schedule, if by so doing it could jeopardize the continuation of competitive U.S. flag freighter services in the market. Indeed, the Fed Tic data suggest that Polar Air has a more pressing need for added capacity than does Fed Ex. /6

6/ Pursuant to the Department's Notice served August 5, 1994 in Docket 49707, Polar Air Cargo requested four weekly all-cargo frequency allocations so that by December 1996 it could be operating twice weekly B-747F service. The Department's decision to award two of the four frequencies to Challenge left Polar Air dependent for expansion either upon a modification of the frequency cap or the ability of DOT to reallocate frequency authorizations that had gone dormant.

According to the Joint Applicants, Arrow Air terminated Argentina scheduled services on March 25. /7 Under the provisions of the Department's allocation to Arrow, those frequencies will automatically revert to the Department for reassignment once the dormancy period has exceeded 90 days. The Fed Ex intervention and purchase, if approved, would deny the Department the opportunity to reallocate those resources in the manner that it, not Federal Express, determines best serves the public interest. In such a reallocation procedure, Polar Air Cargo would contend that the public would be better served by an award of two frequencies to it, allowing it to double its operations, and it would have an opportunity to prove that contention.

Polar Air has no interest in frustrating the business development plans of Federal Express but it cannot acquiesce in them if it means foregoing the expansion Polar Air Cargo needs to remain in Argentina. That is the position in which Polar Air finds itself today. As Polar Air stated, it would not object to the proposed Fed Ex purchase so long as it had an opportunity to add the second weekly flight it needs to be competitive. To that end Polar Air has pending before DOT a request that would allow it such an opportunity for expansion. Polar Air has filed a request that the two Argentina frequency allocations which were held but apparently not used by Challenge Air Cargo, Inc. for more than 90 days, be reallocated to Polar Air Cargo. /8 If that application is granted, the issues raised by Polar Air Cargo here would be moot. If,

however, Polar Air's application cannot be granted, then the frequencies unused or unusable by Arrow and Florida West should be reallocated by the Department in a manner consistent with the public interest.

Fed Ex concedes that the proposed transfer may only be approved if it is found to be consistent with the public interest. /9 So long as the likely consequence of approval remains the reduction from three to one in the number of U.S. scheduled all-cargo carriers serving the Argentina market, Polar Air believes that such a finding cannot be made.

WHEREFORE, Polar Air Cargo, Inc. respectfully requests the Department to deny the Joint Application of Federal Express, Arrow Air and Florida West and instead institute a proceeding to reassign the unused and/or unwanted frequency allocations of Arrow and Florida West to a carrier or carriers that the Department determines will put them to a use most beneficial to the public, or in the alternative, to defer acting upon the Joint Application until

such time as Polar Air Cargo is authorized to operate a second weekly B-747F in the U.S.-Argentina market.

Respectfully submitted,

Alfred J. Eichenlaub

Ginsburg, Feldman and Bress, Chartered

1250 Connecticut Avenue, N.W.

Suite 800

Washington, D.C. 20036

(202) 637-9034

Attorney for POLAR AIR CARGO, INC.

DATED: June 2, 1997