[Federal Register: January 21, 2005 (Volume 70, Number 13)]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
DEPARTMENT OF TRANSPORTATION
Office of the Secretary
14 CFR Part 212
[Docket No. OST-2002-11741]
Charter Rules for Foreign Direct Air Carriers
AGENCY: Office of the Secretary.
ACTION: Notice of proposed rulemaking.
SUMMARY: The Department seeks comment on a proposal to revise its rules
on charter operations. This proposal arises from a petition filed by
the National Air Carrier Association (NACA). NACA seeks to make changes
to the definitions and standards the Department uses to determine
whether to grant or deny foreign air carrier requests to conduct
certain types of international charter flights.
The Department grants NACA's petition, and proposes to make some,
but not all of the changes sought by NACA. The Department proposes to
make revisions to definitions relating to charter types, and to modify
the Department's current charter application form so as to require
updated reciprocity information as well as numbers of U.S.-homeland
services vs. U.S.-non-homeland services. The Department does not
anticipate adopting NACA's requests to impose a reciprocity standard
that ensures substantially equivalent opportunities for U.S. carriers
in the homeland of the applicant, or to accord U.S. carriers a right of
``first refusal'' over foreign carrier requests to conduct certain
U.S.-originating charter operations.
Specifically, the Department proposes to clarify the definition of
``fifth freedom charter'' by adding definitions of ``sixth- and
seventh-freedom charters.'' The Department also proposes modifications
to OST Form 4540 (Foreign Air Carrier Application for Statement of
Authorization). Specifically, the Department proposes to require an
updated reciprocity statement by foreign carriers for a statement of
authorization to allow us to ensure that our reciprocity standards have
been satisfied and are properly supported. The Department also proposes
to require that foreign carrier applicants for a statement of
authorization include historical data relative to the applicant's U.S.-
home country operations to allow the Department to readily evaluate
levels of third- and fourth-freedom versus fifth-, sixth-, and seventh-
freedom operations. This data will allow the Department to satisfy any
concerns we might have as to the applicant's reliance on fifth-, sixth-
and seventh-freedom operations. These proposed modifications will
ensure that the Department has the most current information on the
state of reciprocity for each foreign carrier applicant for fifth-,
sixth-, or seventh-freedom charter authority.
DATES: Comments should be received by March 22, 2005. Late-filed
comments will be considered to the extent practicable.
ADDRESSES: To make sure your comments and related material are not
entered more than once in the docket, please submit them (marked with
docket number OST-2002-11741) by only one of the following means:
(1) By mail to the Dockets and Media Management, U.S. Department of
Transportation, M-30, Room PL-401, 400 7th Street SW., Washington, DC
(2) By hand delivery to room PL-401 on the Plaza level of the
Nassif Building, 400 7th Street SW., Washington, DC 20590, between 9
a.m. and 5 p.m., Monday through Friday, except Federal holidays. The
telephone number is 202-366-9329.
(3) Electronically through the Web Site for the Docket Management
System at http://dms.dot.gov. [Comments must be filed in Docket OST-
2002-11741, U.S. Department of Transportation, 400 7th Street SW.,
Washington, DC 20590.]
Due to security procedures in effect since October 2001 on mail
deliveries, mail received through the Postal Service may be subject to
delays. Commenters should consider using an express mail firm to ensure
the timely filing of any comments not submitted electronically or by
FOR FURTHER INFORMATION CONTACT: Gordon H. Bingham, Office of
International Aviation (X-40), U.S. Department of Transportation, 400
7th Street, SW., Washington, DC 20590; (202) 366-2404.
SUPPLEMENTARY INFORMATION: Under current Department charter regulations
in 14 CFR Part 212, foreign air carriers must obtain prior Department
approval for all ``fifth-freedom'' charters. The standard for grant of
such authority is a public interest test, with reciprocity on the part
of the applicant's home country being the primary criterion. Under the
Department's regulations, ``fifth-freedom'' charters include all
charters operated between the U.S. and a third-country point, either
via the foreign carrier's home country or absent any nexus to the
foreign carrier's home country. Because almost all charter flights
processed by the Department under Part 212 are conducted as point-to-
point services, in practice the ``no nexus'' case represents the norm.
On March 4, 2002, NACA, on behalf of its member carriers (Air
Transport International, American Trans Air, Express.Net Airlines,
Falcon Air Express, Gemini Air Cargo, Champion Air, Miami Air
International, North American Airlines, Omni Air International, Ryan
International Airlines, USA 3000 Airlines, and World Airways, Inc.)
filed a petition for rulemaking in which it requested that the
Department change certain provisions of 14 CFR Parts 200 and 212. NACA
asserted that the current definition of fifth-freedom passenger
charters in Part 212 is inaccurate, and most of what the Department
authorizes as fifth-freedom charters are in fact seventh-freedom
operations because they involve no nexus with the foreign carrier's
home country. NACA asserted that a true ``fifth-freedom'' charter would
involve an airline carrying traffic that originates and terminates in a
country other than its home country, provided the flight originates,
terminates or changes gauge in the home country of the airline.
Similarly, true ``sixth-freedom'' charters, according to NACA, involve
the right of an airline to carry traffic that originates and terminates
in a country other than its home country, provided the flight operates
via the home country of the airline. NACA asserts that most foreign
countries do not provide U.S. carriers reciprocal ``seventh-freedom''
passenger charter rights, and thus, the Department should scrutinize
more closely the ``seventh-freedom'' charters it approves. Finally,
NACA states that U.S. charter carriers have been adversely affected
financially by competition from foreign carriers, particularly since
the events of September 11, 2001, and that foreign carriers have been
dumping their excess capacity into U.S. charter markets.
To remedy its concerns, NACA proposes changes to the definitions
and standards the Department uses in determining whether to grant or
deny foreign air carrier requests to conduct certain types of
international charter flights. Specifically, NACA requests that we (1)
add to and amend the Part 212 definitions concerning charter types so
as to ensure, inter alia, that what it
regards as seventh-freedom passenger operations are identified as such;
(2) amend the existing Part 212 reciprocity standard so that prior
approval requires a finding of ``substantially equivalent'' reciprocity
in the charter market of the applicant's home country; (3) alter the
Department's methodology for measuring fifth-freedom traffic so that it
more accurately reflects the realities in the marketplace and provides
the Department with a better basis for resolving ``undue reliance''
issues; and (4) accord U.S. carriers a right of ``first refusal'' with
respect to U.S.-originating fifth-freedom (seventh-freedom) passenger
On March 21, 2002, the Department published a Notice in the Federal
Register (67 FR 55, March 21, 2002) inviting interested parties to
comment on NACA's petition. Comments to the petition were due May 6,
2002, and reply comments were due by June 4, 2002.
Comments of Interested Parties
The Department received a large number of comments in response to
NACA's petition. A complete summary of those comments follow.
Comments Filed in Support for NACA's Petition
Comments in support of NACA's petition were filed by eight NACA-
member carriers and approximately 1,600 employees from two NACA-member
carriers. Other comments in support of NACA's petition were filed by
the International Brotherhood of Teamsters (IBT), the Air Line Pilots
Association (ALPA) and the Aviation Suppliers Association, MLT
Vacations Inc. (a U.S. indirect air carrier), Eagle Aircraft Supply and
AAR Aircraft Services(aircraft sales and service companies), and P&C
Engineering Consultants. Sen. Ernest F. Hollings (D-SC), Rep. John L.
Mica (R-FL), Rep. William O. Lipinski (D-IL), Rep. Jerry Moran (R-KS),
Rep. Jim Ryun (R-KS), Rep. Todd Tiahart (R-KS), Rep. Brad Carson (D-
OK), and Rep. John Sullivan (R-OK), have written the Department urging
us to review NACA's recommendations and, if warranted, make changes to
our charter rules that give foreign airlines an unfair competitive
advantage over U.S. carriers. Senator Hollings requests that we support
the changes proposed by NACA.
NACA's supporters argue, generally, that the Department's current
charter regulations undermine the ability of U.S. carriers to compete
commercially; that limited fifth-freedom opportunities exist for U.S.
carriers abroad; and that adopting a ``first refusal'' policy would
promote U.S. charter viability. They believe that (1) NACA's proposals,
if adopted, will remove the anomaly under which seventh-freedom
passenger charter flights by foreign carriers are defined and regulated
by the Department as fifth-freedom charter flights; (2) the
Department's approval of large seventh-freedom charter programs (which
the supporters believe are often indistinguishable from scheduled
service) is contrary to the Department's longstanding policy of not
granting scheduled seventh-freedom scheduled rights to foreign
carriers; (3) the Department's definition of fifth-freedom charter
flights is inconsistent with definitions used by our foreign trading
partners for similar charter services and should be corrected; (4) U.S.
carriers are placed at a competitive disadvantage when the Department
provides economic opportunities to foreign carriers that exceed rights
the U.S. has negotiated for U.S. carriers; and (5) the Department
should revise filing procedures for its T-100 reporting data to more
accurately measure levels of foreign carrier third- and fourth-freedom
operations versus levels of fifth-freedom operations.
Commenters supporting NACA's petition also share NACA's view that
the Department should give U.S. charter carriers ``first refusal''
rights to assist the ability of U.S. carriers to compete commercially
and to remain viable supporters of the Civil Reserve Air Fleet (CRAF)
program. They also believe that current DOT practice favors U.S.
scheduled carriers by subjecting U.S. charter carriers to competition
by foreign carrier charter operators while protecting U.S. scheduled
carriers against competition by not allowing seventh-freedom scheduled
operations by foreign carriers. They believe that because comparable
rights for U.S. carriers may not be available in the home country of an
applicant foreign carrier, ``first refusal'' would place U.S. charter
carriers on an equal footing with U.S. scheduled carriers. They also
state that ``first refusal'' would not interfere with foreign carrier
third and fourth-freedom charter services, and will allow foreign
carriers to conduct U.S.-originating seventh-freedom charters where no
U.S. carrier lift is available. The IBT believes that ``first refusal''
should be extended to cover U.S.-originating seventh-freedom all-cargo
charter flights as well.
Many of the commenters agree with NACA that the Department's
reciprocity test does not go far enough because it does not take into
account whether a commercially viable charter market actually exists in
a foreign carrier's home country. They point out that the Department's
existing reciprocity test requires nothing more than the apparent
willingness of a foreign government to grant fifth-freedom charter
rights to U.S. carriers, regardless of the size of the market or the
existence of meaningful charter opportunities in the market. They
believe that NACA's proposal will bring clarity to the standards for
demonstrating reciprocity which they believe should be based on
measurable traffic volumes or ``substantial equivalency''.
Other commenters suggest that foreign carriers enjoy a cost
advantage over U.S. carriers because foreign carriers enjoy lower
safety and security requirements and that cost and time burdens
associated with the disparate safety and security requirements place
U.S. carriers at a competitive disadvantage.
Comments Filed in Opposition to NACA's Petition
NACA's petition is opposed by the Air Transport Association (ATA);
three trade associations (Airports Council International-North America,
United States Airports for Better International Air Service, and the
Washington Airports Task Force); seven U.S. indirect air carriers (Cuba
Travel Services, Marazul Charters, Inc., TNT Vacations, Suntrips, Inc.,
Vacation Express, GWV Travel, and the Apple Companies); Atlas Air, Inc.
(a U.S. all-cargo carrier); Port of Portland (a U.S. airport operator);
eleven foreign direct air carriers (Condor Flugdienst, Grupo TACA
representing six foreign carriers from Latin America; Skyservice
Airlines, Inc., Lineas Aereas Allegro, S.A. de C.V., Antonov Design
Bureau, and JMC Airlines Limited); and one individual.
Those opposing NACA's petition maintain that U.S. charter carriers
provide the majority of flights in the U.S.-origin charter market in
spite of the number of U.S-originating charter flights by foreign
carriers authorized by the Department. They state that based on charter
approval numbers offered by NACA, Department approvals of U.S.-
originating charter flights by foreign carriers (with no home country
nexus) since 1999, amount to less than seven flights per day throughout
the U.S. TNT Vacations states that over the past several years it has
been increasingly difficult to locate lift at rates enabling it to
offer charter packages at prices competitive with vacation packages
available through scheduled service. TNT states that the ``saving
grace'' has been the competition provided by non-U.S. carriers in both
home country- and
non-home country markets. TNT further states that NACA-member carriers
have received over $90 million in taxpayer support under compensation
legislation related to the events of September 11, 2001, and now,
through NACA's petition, seek to impose additional financial burdens on
the traveling public in the form of higher international charter
ATA, the principal trade association of the U.S. scheduled airline
industry (representing 21 U.S. carrier members and 4 foreign carrier
associate members), believes that adoption of NACA's recommendations
would effectively re-regulate international charter services, a result
its membership opposes. ATA supports the current U.S. policy of placing
maximum reliance on competitive forces to determine price, level and
quality of air transportation services. ATA (as well as other
commenters), opposes NACA's efforts to add new operating restrictions
to charter services, whether by redefining definitions or by any other
means, believing that any restrictions adopted by the United States
will be applied reciprocally to U.S. carriers around the world. ATA
contends that NACA's request for commercial equivalency is inconsistent
with U.S. reliance on competition and should be rejected, arguing that
U.S. aviation policy is intended to open foreign markets to
competition, not to guarantee reciprocal access to similarly-sized
markets for U.S. carriers. It argues that the Department's resources
should not be used to protect U.S. carriers from foreign competition
merely because a particular home country market is small, but should be
used to open restricted markets to both U.S. charter and scheduled
carriers. It states that NACA's request for ``first refusal'' is
inconsistent with longstanding Department policy and U.S. efforts to
liberalize the global aviation market, and, like Atlas Air, believes
that vigorous enforcement of the public interest factors currently used
by the Department are sufficient to ensure fair treatment of U.S.
carriers without having to resort to ``first refusal''.
GWV states that while U.S. carriers have long been an integral part
of its charter programs, it has been unable to obtain sufficient and
competitively priced lift from U.S. carriers ``alone'' to meet its
operational needs. GWV further stated that charter operators develop
charter markets to serve a particular leisure market at the most
economical cost, and adds that careful selection of aircraft, schedules
and competitive rates are vital to a charter program's success. In that
regard, foreign carriers play an ``indispensable'' role in supporting
U.S. public charter programs and that adoption of NACA's petition would
have a ``chilling'' effect on the willingness of foreign carriers to
invest time or resources in bidding for U.S. tour operator charter
contracts. GWV adds that if the Department adopts NACA's
recommendations, and substitutes its judgment for the business judgment
of GWV and other tour operators, it should also be prepared to assume
the financial consequences and costs that could result from such a
Many of the commenters believe that the regulatory modifications
NACA seeks are not necessary and can be better addressed by the
Department through vigorous enforcement of existing regulations rather
than by amending the current regulatory structure. They also suggest
that NACA's concerns can be resolved through, among other things,
Department efforts to ensure that foreign governments do not impede the
ability of U.S. carriers to operate charter services, and by monitoring
foreign carrier services to ensure that they do not place undue
reliance on non-home country (fifth-freedom) charter operations. Atlas,
as well as others, suggest that we should reject both NACA's call for
an ``equivalency test''--which Atlas believes would preclude foreign
carriers from small countries from operating any third-country
charters--as well as its request to give U.S. carriers ``first
refusal,'' which would invite foreign governments to apply a similar
retaliatory policy against U.S. carrier charter operations. Airports
Council International-North America (ACI-NA), United States Airports
for Better International Air Service (USA-BIAS), and the Washington
Airports Task Force (WATF) strongly oppose NACA's request. ACI-NA, on
behalf of 53 U.S. participating airports, opposes NACA's petition,
arguing that it would be detrimental to a wide range of U.S. interests.
ACI-NA maintains that NACA's request for commercial equivalency focuses
only on airline benefits and ignores the interests of airports and
their local economies, and the traveling and shipping public.
Similarly, ACI-NA, like many of the commenters opposing NACA's
petition, rejects NACA's call for ``first refusal,'' stating that
implementation of such a practice would take away a charterer's ability
to negotiate the service which best meet its needs, and ultimately
result in the loss of U.S.-originating charter programs because they
would be priced out of the market. The loss of these programs would, in
ACI-NA's view, be damaging to the traveling public, tour operators,
U.S. airports and the local economies they serve. USA-BIAS, on behalf
of 14 U.S. airports, states that NACA's petition looks only at the
narrow mercantile needs of its members and ignores the greater good
that international mobility brings to the U.S. economy, U.S. cities,
U.S. businesses and the traveling public. USA-BIAS states that it sees
no need for the ``hyper-regulatory'' approach sought by NACA,
suggesting that the Department possesses ample tools under its existing
regulatory framework to assess the public interest. ACI-NA, USA-BIAS
and WATF all believe that fifth-freedom charter services provide U.S.
airports with an opportunity to obtain new or competitive international
air services and oppose any new regulations that would add restrictions
to the ability of foreign air carriers to provide new services on
WATF states that history has demonstrated that the people and the
economy of the United States benefit from a free and open air service
market, rather than from arrangements which confer commercial benefits
on a specific class of U.S. carrier. WATF further states that it would
be ``a gross irony'' for the United States to accept the offending
aspects of the NACA petition as it strives to negotiate ever more
liberal air service agreements with foreign governments.
The Port of Portland expresses its interest in expanding
international air services at its airport and is opposed to any
initiative to make the addition of new international services more
difficult, noting that Portland enjoyed the charter services of a
foreign carrier passenger charter program to Cancun during the past
winter season. Portland supports the strong opposition to NACA's
request set forth in the comments of Atlas and Condor, a foreign
carrier from Germany.
As noted above, eleven foreign carriers filed in opposition to
NACA's petition. Condor Flugdienst (Germany), Grupo TACA (representing
six foreign carriers from Latin America), Skyservice Airlines, Inc.
(Canada), Lineas Aereas Allegro (Mexico), Antonov Design Bureau
(Ukraine), and JMC Airlines Limited (United Kingdom). All believe that
NACA's proposal is anticompetitive and, if adopted, would deprive the
Department of its ability to consider the needs of all aviation and
Condor Flugdienst (Condor) states that if the Department adopts
NACA's recommendations, the Department will
be retreating from its support of liberalization as the cornerstone of
U.S. aviation policy by urging trading partners to embrace open skies
and move away from ``balance'' as a guide for trading opportunities.
Condor states that NACA should be careful of what it asks for, noting
that if ``economic balance'' is scrutinized, there is large category of
traffic where non-U.S. carriers are unable to compete because such
arrangements are prohibited under FAA rules (specifically, the wet
leasing of aircraft to U.S. carriers). Condor believes that the ability
to wet lease aircraft is of greater value than the seventh-freedom
charter flight issue NACA raises, and is particularly unfair given that
U.S. carriers face no similar restrictions from foreign regulatory
authorities when they wet lease aircraft to foreign carriers. Condor
also believes that NACA would be concerned if foreign governments were
to apply a strict ``reciprocity'' test with respect to such wet-lease
services against U.S. carriers.
Grupo TACA argues that changing the name of what the Department
defines as fifth-freedom charters to seventh-freedom charters would
neither alter the nature of the subject charter operations nor would it
impair the underlying justification for the Department's granting them.
Grupo TACA states that NACA's efforts to create a commercial
equivalency test would effectively prevent airlines from smaller
countries from participating in the charter business while at the same
time facing daily competition in their home countries from large U.S.
scheduled and charter carriers.
Skyservice Airlines, Inc. (Skyservice), a foreign air carrier from
Canada, states that the liberal and pro-competitive environment between
the United States and Canada has benefited carriers of both sides,
noting that during calendar years 1999-2001, the Canadian Transport
Authority (CTA) approved requests by U.S. carriers to operate a total
of 371 fifth-freedom charter flights (passenger and cargo) to and from
Canada. Skyservice believes that these services have benefited both the
traveling and shipping public in both the United States and Canada and
should not be overlooked in the context of NACA's petition. Skyservice
also questions NACA's ``equivalency'' test and asks if the Canada
market would qualify as ``substantially equivalent,'' and if not, which
nation would. Skyservice disagrees with NACA's contention that foreign
carriers enjoy cost or regulatory advantages over U.S. carriers.
Lineas Aereas Allegro S.A. de C.V (Allegro) states that the
Department's charter policy is well-founded and applied responsibly,
and therefore, it is not necessary to redefine the various charter
types as NACA requests. Allegro further states that NACA's
``equivalency test'' would be burdensome to implement and could
effectively prevent foreign carriers from operating any fifth-freedom
charter flights in U.S. markets. Allegro also believes that the relief
sought by NACA only considers the effect of its request on U.S. charter
carriers rather than the aviation industry as a whole. Allegro states
that NACA's suggestion that foreign carrier services to and from the
United States do not meet U.S. safety standards is unfounded and that
NACA provides no empirical data to support its claim. Allegro also
disagrees with NACA's suggestion that the Department should revise the
requirements for traffic data submitted by foreign carriers, believing
that instead of relying on T-100 data, the Department would be better
served by comparing the actual number of third/fourth-freedom flights
with the number of fifth-freedom charter flights during a specified
Antonov Design Bureau (Antonov) believes that the Department's
rules require that the Department's actions on foreign carrier charter
flight requests to and from the U.S. to points other than the
operator's home country are reviewed and based on reciprocity and
defined public interest principles, and that NACA's distinction of
``fifth'' versus ``seventh'' is a distinction without a difference.
JMC Airlines Limited (JMC) states that NACA's petition is contrary
to the interests of the traveling public and is designed to eliminate
competition by disqualifying non-U.S. carriers from conducting fifth-
freedom charter flights. JMC believes that by adopting NACA's petition,
the Department would effectively lose the ability to consider the
interests and needs of other beneficiaries of charter services when
considering fifth-freedom charter requests by non-U.S. carriers.
The U.S. indirect air carriers mentioned above oppose NACA's
petition, believing it would have severe repercussions for their
industry and the traveling public, in the form of higher charter prices
and reduced service options. They believe that NACA's petition is
designed to carve out an exclusive market for NACA members and reduce
competition by barring foreign carriers from U.S. charter markets
through NACA's ``first refusal'' or ``equivalency test.'' If adopted,
NACA's proposal would make scarce resources scarcer and cause charter
prices to escalate, especially in Caribbean markets where some
countries have no carrier able to provide third/fourth-freedom
competition against large U.S. scheduled and charter carriers. They
also argue that NACA's proposal would have a ``chilling'' effect on
competition because non-U.S. carriers will not expend time or resources
pursuing U.S.-third country traffic when such opportunities could be
lost to a less competitive bidder under a ``first refusal'' policy,
ultimately diminishing the ability of indirect air carriers (tour
operators) to select the direct air carrier which best meets their
Reply comments were filed by NACA, the Transportation Trades
Department of the AFL-CIO (TTD), Amerijet International, Inc. (a U.S.
all-cargo carrier), three foreign air carriers (Antonov, Air 2000
Limited, and Allegro), the Apple Companies and 15 ARC-accredited travel
Reply Comments in Support of NACA's Petition
NACA believes that some of the commenters did not understand that
the proposed changes are narrow in scope, while other commenters
``vastly exaggerate'' the impact its proposed changes would have if
adopted. NACA states that its petition does not seek to re-regulate or
restrict competition and is intended to create fair and equal
regulatory treatment of U.S. charter and scheduled passenger carriers
with regard to seventh-freedom operations by foreign carriers. NACA
states that the Department has established a ``dichotomy'' of
regulatory treatment by giving the larger and stronger U.S. scheduled
carriers preferential regulatory treatment over the smaller and weaker
U.S. charter carriers by approving virtually all foreign carrier
seventh-freedom charter requests, while at the same time enforcing a
strict policy against allowing foreign carriers to operate seventh-
freedom scheduled flights.
NACA states that it does not believe that foreign governments will
take retaliatory action against U.S. carriers if its proposals are
adopted, nor does it believe that all of its concerns can be resolved
through vigorous enforcement of existing rules, as many of the
commenters state. NACA maintains that failure to correct existing
policies could have serious financial consequences on U.S. charter
carriers and result in possible national security concerns if
U.S. charter carrier contributions to CRAF are diminished.
The TTD, on behalf of the 34 transportation unions it represents,
supports NACA's petition and states that the Department's practice of
granting foreign carrier seventh-freedom charter requests weakens U.S.
charter carriers through lost revenues, and, therefore is a threat to
the viability of U.S. charter carrier industry. TTD supports NACA's
request that the Department subject foreign carrier charter requests to
a substantial reciprocity test as well as granting U.S. carriers
``first refusal'' rights on foreign carrier seventh-freedom charter
requests. TTD believes that by adopting NACA's recommendations the
Department will establish a meaningful standard for reforming current
regulations which TTD believes unfairly penalize U.S. charter carriers
and their employees.
Amerijet International, Inc. (Amerijet) also supports NACA's
proposal and believes that a review of the Department's charter
regulations should be undertaken to insure that their impact is
consistent with the goals of the Department and the Congress. Amerijet
contends that the Department has abandoned its longstanding policy of
not allowing foreign carriers to place undue reliance on fifth-freedom
services, and suggests that the NACA's petition serves to strengthen
that policy. Amerijet further states that following the events of
September 11, Congress made it clear that the U.S. carrier industry
requires a level of protection, and argues that that is all NACA and
its supporters are seeking in this proceeding.
Reply Comments in Opposition to NACA's Petition
The Apple Companies, ARC-accredited travel agencies, and three
foreign air carriers are unanimous in their reply comments in
opposition to NACA's petition.
The Apple Companies state that the parties supporting NACA's
petition represent a narrow sector of the industry; that those opposing
NACA's petition are unanimous in their view that current regulatory
mechanisms are sufficient to protect the public interest and that the
overall interests of U.S. aviation would be severely damaged by NACA's
protectionist and anticompetitive proposal; and, that foreign carrier
fifth-freedom charter operations represent a small portion of all
Public Charter flights operated annually in the United States.
The travel agencies believe that the changes proposed by NACA will
eliminate competition and either increase prices or reduce the
availability of charter vacation packages, to the detriment of the U.S.
travel agent community. The agencies further support the Department's
longstanding policy of letting the market set the price and quality of
charter transportation services.
Antonov notes that while only NACA members and certain labor
interests filed in support of NACA's request, groups such as tour
operators, U.S. airports and cities with interests closely aligned with
the needs of consumers and the traveling public oppose NACA's petition.
Antonov concurs with the comments filed in opposition to NACA's
request, and agrees with comments of USA-BIAS, Suntrips Inc., Vacation
Express, and ATA, which Antonov believes are representative of the
aviation community which stands to lose the most if NACA's petition is
Like Antonov, Allegro states that an analysis of the comments filed
in response to NACA's petition suggests that NACA's petition enjoys
little support outside its membership and the employees of some of its
members, while a much broader cross-section of the aviation community
opposes NACA's petition. Allegro believes that NACA's petition is
anticompetitive and would ultimately reduce competition between U.S.
and foreign carriers in the U.S. charter market to the detriment of the
U.S. traveling public.
Air 2000 Limited (Air 2000) states that NACA's petition is contrary
to international aviation policy and the interests of U.S. shippers,
airports and the traveling public. Air 2000 further states that NACA's
equivalency test would disadvantage U.S. airlines and U.S. workers, its
``first refusal'' proposal is anti-consumer and anticompetitive, and
revision of the definitions of the freedoms of the air would lead to
protecting only U.S. charter carriers from foreign carrier competition.
In its petition, NACA maintained that foreign air carrier charter
flights generate more benefit to the foreign carrier industry than the
U.S. carrier industry. It asserted that these flights now threaten the
survival of some of its members and weaken their ability to serve the
NACA proposes a number of remedies to address this situation,
including; revision of the definition of fifth-freedom charters;
adoption of a new, more restrictive reciprocity standard; and, creation
of an amendment to our regulations that would provide U.S. carriers
with a right of ``first refusal'' for certain U.S.-originating
passenger charter flights. In other words, ``first refusal'' in that
context would mean the right to prevent a foreign carrier from
operating any U.S.-originating fifth-freedom passenger charter (under
our existing definition) that a U.S. carrier wants to operate.
After carefully examining the comments and information in the
record, we have tentatively determined that it is in the public
interest to make modifications to Part 212 that would improve our
ability to assess the merits of applications filed under that Part.
Our bilateral aviation agreements do not cover the passenger
charter services that are at issue in this proceeding; \1\ therefore,
U.S. and foreign carriers operate these services only at the discretion
of the U.S and foreign governments. The Department's regulations
require foreign airlines to apply for permission to operate fifth-
freedom charters (14 CFR 212.9), and establish a ``public interest''
standard for considering these foreign carrier requests (Sec.
\1\ A number of our agreements state the parties will give
favorable consideration to such charters on the basis of comity and
reciprocity. While this certainly reflects a spirit sympathetic to
approval, it does not formally bind the parties to such a result.
Reciprocity on the part of the applicant's home country is the
primary criterion for approval (Sec. 212.11(b)(2)). The Department
also examines other factors that may be relevant in specific cases (for
example, the extent of the applicant's reliance on fifth-freedom
operations in relation to its third- and fourth-freedom services). In
making its public interest determination, the Department's approach
consistently has been to look not only to the interests of U.S. charter
carriers, but also to consider the needs and concerns of other parties
affected by its decision, notably the tour operator (frequently a U.S.
company), and members of the traveling public (often U.S. citizens).
The Department's longstanding policy has been to give charterers the
maximum flexibility possible to choose the airline services that best
meet their needs. The Department repeatedly has rejected according U.S.
carriers a right of ``first refusal''.
NACA asserts that the Department has permitted foreign airlines to
operate an excessive number of fifth-freedom passenger charter flights
under Part 212, and that our actions have harmed its members and
undermined their ability to serve the national defense. NACA
also maintains that the effects of the events of September 11, 2001,
have aggravated that harm and adverse impact on national defense, and
that foreign governments do not provide NACA members with reciprocal
charter opportunities. NACA has proposed several changes to Department
rules to meet its concerns. Specifically, it asks the Department to:
Add to and amend the Part 212 definitions concerning
charter types so as to ensure, inter alia, that what it regards as
seventh-freedom passenger operations are identified as such;
Amend the existing Part 212 reciprocity standard so that
prior approval requires a finding of ``substantially equivalent''
reciprocity in the charter market of the applicant's home country;
Alter the Department's methodology for measuring fifth-
freedom traffic so that, in NACA's view, it more accurately reflects
the realities in the marketplace and provides the Department with a
better basis for resolving ``undue reliance'' issues; and
Accord U.S. carriers a right of ``first refusal'' with
respect to certain U.S.-originating fifth-freedom (seventh-freedom)
passenger charter flights.
Proposed Modifications to OST Form 4540 and Amendments to Part 212
We are proposing two changes to Part 212 that are intended to
improve our ability to assess the merits of applications filed under
that Part. We believe that these changes will enhance the Department's
decision-making process without imposing an undue burden on applicants
or affecting the public benefits that our rules now provide.
First, we propose to amend the application form for charter
applications (OST Form 4540) as regards the information to be provided
on reciprocity. Specifically, we will add a note to the reciprocity
section of OST Form 4540 to establish, as an express requirement for
approval, that the applicant explicitly provide evidence that it has
verified that its home country government would accord reciprocal
treatment to comparable U.S. carrier requests. We will also require
that the applicant provide the date of such verification and with whom
the verification was made. This verification must come from an official
of the government of the homeland of the applicant.
Because we recognize that some applicants may file multiple
requests within a limited period, we will not require that each
successive request entail a new effort to secure the needed
verification. Under normal circumstances, we would consider 90 days a
reasonable period to rely on a previously-filed verification of
reciprocity, and our amendment to OST Form 4540 would so indicate. Of
course, if intervening events give cause to doubt the continuing
validity of such verification, we will expect applicants to seek a new
verification, even if their subsequent request is submitted within 90
days of a previous verification. Alternatively, we may advise them of
our inability to complete the processing of their application absent a
new reciprocity verification.
Second, we propose to amend OST Form 4540 to require applicants to
provide additional information regarding the extent to which they are
relying on fifth-freedom charter services to and from the United States
in relation to their overall services to and from the U.S. As noted
earlier, although this relationship is an important public interest
consideration in our determination of the merits of applications for
fifth-freedom charter authority, a number of commenters have expressed
concern that some applications for such authority do not contain facts
that adequately address this issue. In response to those concerns, we
propose to amend OST Form 4540 to expressly require that in Box 13
designated for ``Other information requested by DOT,'' (or, at the
applicant's preference, in a cover letter or attachment) applicants
shall specify the number of third- and fourth-freedom flights they have
provided over the preceding calendar year.\2\ This information should
be presented with sufficient clarity for any commenting parties and the
Department to readily evaluate the proposed services against the
historical data. Failure to provide the necessary information would be
expected to affect the processing of the application.
\2\ We are not, however, adopting NACA's proposal that we make
methodological changes regarding our T-100 traffic data. We
traditionally have based our undue reliance determinations on
flights rather than traffic, and NACA has presented no persuasive
reason to alter that approach.
We also propose revisions to our definitions. NACA asserts that
many of the flights fitting our definition of fifth-freedom charters in
Sec. 212.2 in fact would be understood throughout the world as
``seventh-freedom'' charter flights because ``they do not carry paying
passengers to, from, or via the homeland of the carrier.'' \3\ NACA
argues that it is misleading, confusing and bad policy for the
Department to continue to call all passenger charter flights that serve
countries other than the carrier's home country as ``fifth-freedom''
While we could point to various commenters who contend that the
charter community is so familiar with our longstanding regulatory
nomenclature as to render confusion unlikely, we nevertheless conclude
that even a limited degree of confusion is best avoided. Accordingly,
we propose to expand the definitions in Sec. 212.2 to expressly
differentiate between fifth-, sixth-, and seventh-freedom charters.
\3\ NACA Petition, at 4.
\4\ Id., at 5.
Vision 100--Century of Aviation Reauthorization Act
Our proposed revisions to Part 212 are consistent with Section 820
of the recently signed Vision 100-Century of Aviation Reauthorization
Act (the Act). Specifically, Section 820 of the Act provides the sense
of Congress that the Department should ``formally define `Fifth
Freedom' and `Seventh Freedom' consistently for both scheduled and
charter passenger and cargo traffic.'' As noted above, we are proposing
to expand the definitions in Part 212 to differentiate between fifth-,
sixth-, and seventh-freedom charters. The revisions we propose will
apply to both passenger and cargo services and will standardize the
definitions used by the Department for both scheduled and charter
While we are proposing the changes outlined above in response to
NACA's petition, we have concluded that the record does not provide
justification for adopting other changes proposed by NACA, as they
would in our view significantly reduce other important public benefits
now provided by our fifth-freedom charter rules. Therefore, we do not
anticipate adopting NACA's proposal to require a finding of
``substantially equivalent reciprocity'' in the charter market of the
applicant's home country, or to accord U.S. carriers ``first refusal''
for U.S.-originating fifth-freedom (seventh-freedom) passenger charter
flights. As more fully discussed below, we believe that the adoption of
either of these changes would not be in the public interest.
Part 212 allows U.S. tour operators to hire foreign airlines that
meet the requirements of that Part to provide foreign air
transportation for the tour operators. While U.S. tour operators rely
primarily on U.S. airlines for air service, they also use the option
provided by our rules to use the services of foreign
carriers in third-, fourth-, and fifth-freedom markets. The tour
operators have demonstrated that this option enhances their ability to
compete with airlines and cruise ship operators in the highly
competitive discretionary travel markets. We also recognize that tour
operators have made an important contribution to competition by
offering attractive price and service alternatives to the marketplace.
By contrast, it is likely that the changes proposed by NACA would
inhibit competition in markets served by U.S. tour operators. This is
especially true to the extent that they would prevent tour operators
from using foreign airlines by requiring, for example, the latter to
obtain NACA's permission before they may provide transportation for
U.S. tour operators in certain fifth-freedom and seventh-freedom
In calendar year 2001, the Department authorized foreign airlines
to provide 1490 roundtrip fifth-freedom charters on behalf of U.S. tour
operators, or fewer than five roundtrip fifth-freedom charters per
day.\5\ Yet, this relatively small number of authorizations is
important to a number of foreign airlines and their home countries. In
these circumstances, our rules promote good aviation relations with
other nations and support a liberal aviation environment that has
benefited our citizens and airline industry overall. This point is
illustrated by the fact that in 2001 we authorized airlines from Mexico
and Central America to provide 512 fifth-freedom roundtrip charters,
while U.S. airlines were providing nearly 140,000 flights--and carrying
two-thirds of the cargo and passenger traffic--in the U.S.-Mexico/U.S.-
Central America aviation markets.\6\
\5\ Foreign air carrier applications for statements of
authorization under 14 CFR Part 212 are on file in the Department's
Foreign Air Carrier Licensing Division, Room 6412, 400 7th Street,
SW., Washington, DC 20590.
\6\ Form T-100 data on file with the Department.
Furthermore, as the Air Transport Association (ATA), airlines, and
other concerned parties have pointed out, NACA's proposal could invite
retaliation against U.S. airlines by foreign governments because it
could remove valuable fifth-freedom charter opportunities now enjoyed
by their airlines. U.S. airlines providing scheduled service would be
vulnerable to retaliation because of the huge stake they have in the
bilateral aviation markets that would be affected. Also, such action
would expose U.S. airlines providing wet-lease services to foreign
airlines to a serious risk of harm because they are major providers of
wet-lease services around the world and because those services are
operated completely at the discretion of foreign governments.
The essence of NACA's position is that our rules permit foreign
airlines to conduct business in markets that should be reserved only
for U.S. airlines; however, the business which NACA is referring to
involves the provision of service to tour operators, many of which are
U.S. companies. Most of the tour operators participating in this
proceeding commented that there is no need to make major changes to our
fifth-freedom rules, and that those changes proposed by NACA would be
harmful to both their interests and competition. We believe that the
weight of the evidence supports that position.
NACA maintains that competition from the foreign charter operators
hired by U.S. tour operators has harmed NACA members and has undermined
their ability to serve the national defense. Our data shows, however,
that the number of fifth-freedom charter flights authorized by the
Department amount to a small percentage of the flights that NACA
members operate. In calendar year 2001, for example, that number was
less than 6% of the total number of civilian charters that NACA
carriers operated and reported to the Department. It is likely that
those authorizations had a smaller impact on NACA members than
Department records indicate, considering that: (1) It is likely the
foreign airlines did not use all of the authorizations for which they
obtained Department authority; (2) NACA members operated a large number
of military charters that are not reported to us; and, (3) NACA members
have benefited from the extensive fifth-freedom opportunities provided
by other governments.
NACA maintains that the rules have created a large aviation trade
deficit with other nations because our fifth-freedom charter markets
are significantly larger. We disagree. As noted above, our charter
rules have supported a liberal aviation environment that has allowed
U.S. airlines to capture traffic and revenues far in excess of the
traffic and revenues that have been achieved by foreign airlines
operating fifth-freedom flights, and has permitted our airlines to take
advantage of the extensive fifth-freedom and wet-lease opportunities
provided by other governments.
NACA also contends that the rules discriminate against its members
because our rules prohibit ``all 7th freedom scheduled passenger
flights by foreign carriers,'' while permitting what NACA refers to as
seventh-freedom charter flights by foreign carriers. We disagree with
this contention. The international aviation industry is still heavily
regulated. Most governments believe that charter service and scheduled
service are in separate product markets; therefore, they have created
different opportunities and have imposed different restrictions on each
class of service. Thus, while most nations permit U.S. airlines to
operate charter flights between their home countries and third
countries, they prohibit U.S. airlines from providing scheduled service
between their home countries and third countries. Our rules reflect the
realities of the still-regulated international aviation system. While
we would prefer to have a situation that imposes no restrictions on
international aviation services, we note the existing situation has
provided U.S. charter airlines with advantages that are not afforded to
U.S. scheduled airlines.
Regulatory Analyses and Notices
All comments received before the close of business on the comment
closing date indicated above will be considered and will be available
for examination in the docket at the above address. Comments received
after the comment closing date will be considered to the extent
practicable. In addition to late comments, the Department will also
continue to file relevant information in the docket as it becomes
available after the comment period closing date, and interested persons
should continue to examine the docket for new material.
Executive Order 12866 (Regulatory Planning and Review) and DOT
Regulatory Policies and Procedures
This rule is a significant regulation under Executive Order 12866
and DOT's Regulatory Policies and procedures because of public
interest. The NPRM was reviewed by the Office of Management and Budget
under Executive Order 12866. The rule will not impose any new costs on
applicant carriers. It simply would clarify the types of charters being
conducted. The change to OST Form 4540 is minor and will require no
additional burden on the applicant carriers.
Executive Order 13132 (Federalism Assessment)
The Department has analyzed this rulemaking action in accordance
with the principles and criteria set forth in Executive Order 13132 and
has determined that it does not have sufficient federalism implications
to warrant consultation with State and local officials. The Department
anticipates that any action taken will
not preempt a State law or State regulation or affect the States'
ability to discharge traditional State government functions.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601, et seq.) requires an
agency to review regulations to assess their impact on small entities
unless the agency determines that a rule is not expected to have a
significant impact on a substantial number of small entities. The
Department will analyze any action that might be proposed for the
purpose of the Regulatory Flexibility Act.
The Department certifies that this rule will not have a significant
economic impact on a substantial number of U.S. small businesses.
Because the rule is applicable to foreign air carriers, the proposed
changes in the NPRM will not have a significant impact on small
entities within the meaning of 5 U.S.C. 601, et seq.
Regulation Identifier (RIN)
A regulation identifier (RIN) is assigned to each regulatory action
listed in the Unified Agenda of Federal Regulations. The Regulatory
Information Service Center publishes the Unified Agenda in April and
October of each year. The RIN contained in the heading of this document
can be used to cross-reference this action with the Unified Agenda.
Unfunded Mandates Reform Act
The changes proposed would not impose any unfunded mandates for the
purpose of the Unfunded Mandates Reform Act of 1995.
Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501-3520,
Federal agencies must obtain approval from the Office of Management and
Budget (OMB) for each collection of information they conduct, sponsor,
or require through regulations. This rule contains information
collection requirements. As required by the Paperwork Reduction Act,
the Department will submit this requirement to the Office of
Information and Regulatory Affairs of the OMB for review, and
reinstatement, with change of a previously approved collection for
which approval has expired.
OST Form 4540 is a required Application for Statement of
Authorization for foreign air carriers to file with the Department
prior to engaging in certain charter operations to and from the United
States. The Department grants the authorization to the foreign air
carrier. Foreign air carriers file this form as often as necessary
whenever they have charter flights required by Part 212. This form is
required for all foreign air carriers seeking Department authority to
conduct certain types of charter flights, and does not require a
significant amount of time and is not burdensome to complete.
OMB Number: 2106-0035.
Title: 14 CFR Part 212--Charter Rules for U.S. and Foreign Direct
Burden hours: 1000.
Affected public: Business or other for-profit.
Description of Paperwork: The proposed changes to the rulemaking
and the form are intended to improve the Department's ability to assess
the merits of applications filed under Part 212, and will ensure that
the Department has the most current information on the state of
reciprocity for each foreign carrier applicant for charter authority
filed under Part 212. These proposed changes will also enhance the
Department's decision-making process without imposing an undue burden
on applicants or affecting the public benefits that the Department's
rules now provide. The collection of historical data relative to the
applicant's U.S.-home country operations will allow the Department to
satisfy any concerns it might have as to the applicant's reliance on
fifth-, sixth- and seventh-freedom operations.
List of Subjects in 14 CFR Part 212
Air carriers, Air transportation, Charter flights, Reporting and
For the reasons set forth in the preamble, the Department proposes
to amend Part 212 as follows:
PART 212--CHARTER RULES FOR U.S. AND FOREIGN DIRECT AIR CARRIERS
1. The authority citation for 14 CFR Part 212 continues to read as
Authority: 49 U.S.C. 40101, 40102, 40109, 40113, 41101, 41103,
41504, 41702, 41708, 41712, 46101.
2. Amend Sec. 212.2 by adding, in alphabetical order among the
existing definitions, a definition of ``Sixth freedom charter'' after
``Single entity charter,'' and a definition of ``Seventh freedom
charter'' after ``Part charter.''
Sec. 212.2 Definitions.
* * * * *
Sixth-freedom charter means a charter flight carrying traffic that
originates and terminates in a country other than the country of the
foreign air carrier's home country, provided the flight operates via
the home country of the foreign air carrier.
* * * * *
Seventh-freedom charter means a charter flight carrying traffic
that originates and terminates in a country other than the foreign air
carrier's home country, where the flight does not have a prior,
intermediate, or subsequent stop in the foreign air carrier's home
* * * * *
3. In Sec. 212.9, revise paragraph (b)(1) to read as follows:
Sec. 212 Prior authorization requirements.
* * * * *
(b) * * *
(1) Fifth-, sixth-and/or seventh-freedom charter flights to or from
the United States;
* * * * *
Issued this 10th day of January, 2005, in Washington, DC.
Karan K. Bhatia,
Assistant Secretary for Aviation and International Affairs.
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