OST-97-2764 / Federal Express and FWIA / Joint Reply / August 27, 1997

Joint Application of:

FEDERAL EXPRESS CORPORATION and FLORIDA WEST INTERNATIONAL AIRWAYS, INC.

for approval of a transfer of route authority pursuant to 49 U.S.C. §41105 (U.S.-Colombia All-Cargo)

August 27, 1997

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I MOTION FOR LEAVE TO FILE.

Section 302.1720 of the Rules of Practice of the Department does not provide for the filing of a Reply to an Answer filed in response to a Subpart Q Application. Rule 4(f) of the Rules of Practice, however, provides that the Department will consider accepting an otherwise unauthorized document for filing if it is accompanied by a Motion for leave to file for good cause shown.

The Joint Applicants submit that receipt and consideration of the within Joint Reply will clarify the issues in this proceeding, will assist the Department in reaching a sound result in this case, and will not delay the processing of the Joint Application. Accordingly, Joint Applicants hereby move the Department to accept the within Joint Reply as an otherwise unauthorized document.

II. JOINT REPLY.

The dominant theme /1 and sole basis for Fine Air's assertion that FWIA's Colombia certificate authority should not be transferred to Federal Express is Fine Air's assertion that FWIA has voluntarily failed to utilize its Colombia certificate authority. In that circumstance, Fine Air asserts -- without citation to any statutory provision, case law precedent or announced DOT policy -that FWIA should not be permitted to sell its "unused" authority. Rather, Fine Air asserts that the Department "should reclaim FWIA's unused authority and

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The most fundamental flaw affecting FWIA's argument is that it is factually wrong.

FWIA's predecessor corporation, Florida West Airlines, Inc., was first awarded Colombia certificate authority in May 1984 (Order 84-5-42). FWIA's predecessor utilized that authority continuously until 1995, when it was forced to suspend all operations as a result of its bankruptcy and insolvency. After extended bankruptcy proceedings and corporate reorganizations, the Colombia certificate authority issue was transferred to FWIA in August 1996 (Order 96-8-38, served August 30, 1996; subsequently reissued by Order 97-2-19, served February 24, 1997). Ever since that date, FWIA has been continuously and diligently engaged in the process of attempting to obtain authority from the Government of Colombia to resume its interrupted scheduled cargo operations serving Colombia. FWIA has been prevented from resuming service to Colombia to date due to the policy of the Colombian government to require that a carrier which has suspended operations for any reason must undergo a formal hearing and lengthy administrative process before it may resume operations. Despite FWIA's diligent best efforts, FWIA has not yet received Colombian authority to resume operations, although the formal hearing has occurred and the issuance of that authority now appears to be imminent.

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Thus, contrary to Fine Air's frequently-repeated, but erroneous, assertion, FWIA's inability to resume its scheduled cargo service to Colombia has been wholly involuntary. On numerous occasions, the Department has recognized that such circumstances as the delay of foreign government licensing does not constitute a neglect or dormancy warranting forfeiture of a carrier's limited-entry route authority. See, e.g., Polar Air Cargo, Order 97-2-14, served February 21, 1997 (delay in receipt of foreign operating authority); Evergreen International Airlines, Order 93-6-31, served June 29, 1993; Order 93-8-31, served August 27, 1993; Order 93-12-13, served December 10, 1993 (delay in receipt of foreign operating authority); United Parcel Service Co., Order 91-1-50, January 25, 1991 (delay in completion of operational arrangements).

Fine Air's theory that the Department may simply "reclaim" and "reallocate" dormant certificate authority reflects an imperfect understanding of the conditions applicable to Fine Air's Colombia certificate, the statutory limitations on termination of certificate authority, and DOT precedents relating to the sale and transfer of dormant authority.

First, Fine Air's Colombia certificate is not subject to a "use-it-or-lose-it" condition, wholly apart from the fact that the current dormancy of that authority is wholly involuntary. Thus, unlike the circumstance of temporary frequency allocations, which are virtually always made subject to a 90-day dormancy condition, no such condition is applicable to FWIA's Colombia certificate.

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The second defect in FWIA's rationale is contained in Section 41110 of the Federal Aviation Statutes, which provides that "a certificate to provide foreign air transportation may not be amended, modified, suspended or revoked under Section 41111 of this title [without a hearing] if the holder of the certificate requests an oral evidentiary hearing . . ." (49 U.S.C. § 41110(a)(4)). See also, CAB v. Delta Air Lines, 367 U.S. 316, 320-23, 330 (1961).

Third, Fine Air appears to be unaware that the Department has approved the transfer of dormant and underutilized route authority on a number of occasions, where the transferee carrier is demonstrably ready, willing and able to make more effective use of that authority. American-TWA Route Transfer (Transatlantic), Order 91-3-28, March 14, 1991, finalized by Order 91-4-47, April 24, 1991; United-Pan Am Route Transfer (Transatlantic) Order 91-1-11, January 8, 1991; finalized Order 91-2-5, February 6, 1991; America West-Northwest Route Transfer (Honolulu-Nagoya?, Order 92-1-39, January 23, 1992; finalized by Order 92-3-47, March 16, 1992; TWA-USAir Route Transfer (U.S.- London), Order 92-3-51, March 24, 1992; finalized by Order 92-4-49, April 23, 1992. Indeed, the Department has specifically stated in numerous cases since 1978 that "the marketplace is generally a far better allocator [of route authority] and provides a far more efficient solution in the long term than does government interference" (Delta-PanAm Route Transfer, Order 92-4-33, April 19, 1992, at p. 20). The Department has even allowed a carrier to sell a recently-awarded route in the highly-restricted U.S.-Japan market, even though the selling carrier had never

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implemented its newly-granted route authority prior to its sale to another carrier which had been an unsuccessful applicant for the same authority in the recently-concluded carrier-selection proceeding. Northwest-Hawaiian (Honolulu-Fukuoka Route Transfer), Order 92-8-53, August 28, 1992; finalized by Order 92-9-59, September 24, 1992).

Federal Express was confronted by exactly the same impediment following its receipt of U.S.-Colombia exemption authority from the Department in June 1996 (Order 96-6-38, served June 24, 1996). As the Joint Application makes clear, Federal Express responded to that obstacle by seeking out, and negotiating to purchase, the existing U.S.-Colombia authority (and designation right) held by FWIA. That course of action is a time-honored and frequently-used means by which numerous carriers have overcome bilateral restrictions which barred their entry into limited-entry international markets. Em, e:, On Am-United Pacific Division Transfer, Order 85-11-67, November 26, 1985; Federal Express-Flying Tigers Merger, Order 89-5-10, May 2, 1989; American-TWA Route Transfer (U.S.-London), Order 91-4-4?, April 25, 1991; America West-Northwest Route Transfer, Order 92-3-47, March 16, 1992.

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The most conspicuous omission from Fine Air's Answer is its total failure to acknowledge -- let alone attempt to refute -- the extensive citations of statutory law, case precedents and policy pronouncements cited and discussed in the Joint Application which conclusively demonstrate that approval of the certificate transfer at issue in the Joint Application is consistent with, and required by, that uniform body of law, precedent and policy.

In summary, Fine Air's Answer is no more than an expression of Fine Air's dissatisfaction with the failure of Colombia to allow it to operate service to Colombia at the present time. Fine Air is, of course, wholly free to compete for its selection to be designated as the next U.S.-flag cargo carrier which Colombia has agreed to accept in September 1998 -- exactly one year hence. Fine Air has utterly failed to present any cognizable argument of fact, law or policy establishing that the Joint Application should not be approved forthwith. III. CONCLUSION.

In summary, Fine Air has failed to present any consideration of fact, law or policy demonstrating that the Joint Application should not be granted. Approval of the Joint Application will result in immediate and substantial benefits to the shipping public, and a significant enhancement of the U.S. competitive presence in the U.S.-Colombia market.

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WHEREFORE, for the reasons discussed in their Joint Application, Federal Express and FWIA urge the Department to issue a Final Order approving the proposed transfer of the U.S.-Colombia all-cargo certificate authority now held by FWIA to Federal Express.

Respectfully submitted,

Marshall S. Sinick

SQUIRE, SANDERS & DEMPSEY for FWIA

Nathaniel P. Breed, Jr.

SHAW, PITTMAN, POTTS & TROWBRIDGE for Federal Express