OST Filings for January 10, 2001

In light of the legal necessity for further carrier-selection procedures in this case, Federal Express will limit this Consolidated Reply to three matters: (1) its views regarding the threshold procedural issues in this case, (2) a brief discussion of Federal Express' principal areas of disagreement with the various Answers filed in this proceeding, and the evidentiary and policy considerations that overwhelmingly support one additional Hong Kong fifth-freedom cargo frequency to Federal Express, and (3) the importance of attaching the highest priority to reaching an agreement in upcoming bilateral negotiations between the U.S. and Hong Kong to relax or eliminate the current severe and unjustified limitation on the ability of U.S. carriers to carry fifth-freedom cargo traffic to and from Hong Kong.

Federal Express will provide substantial evidence in the subsequent carrier--selection phase of this proceeding which will demonstrate that the award of an additional Hong Kong frequency to Federal Express is required by long-established carrier-selection -criteria, including the decisional criteria established by the Department to govern the 1996 Hong Kong Fifth-Freedom All-Cargo Proceeding in this docket. Award of an additional Hong Kong frequency to Federal Express will generate far broader public benefits than the award of a single Hong Kong frequency to any other applicant. In particular, Federal Express is prepared to demonstrate that the U.S.--Hong Kong-Subic Bay/Manila service operated, and proposed to be operated, by Federal Express provides a higher quality and broader array of air express and expedited air freight services benefiting a greater number of shippers and consignees, and generating greater benefits for the U.S. economy than the Hong Kong fifth--freedom cargo services proposed by any other applicant.

Evergreen International Airways, Inc. (Evergreen) has filed an application in this proceeding, but has not filed an Answer or Reply to any of the other applications and answers filed by the other applicants.

Counsel: Shaw Pittman, Nathaniel Breed, 202.663.8078

OST-95-764	January 10, 2001	Consolidated Reply of Northwest Airlines	Hong Kong- Manila
		Service List

Northwest Airlines, Inc. submits this consolidated reply solely to address the issue of the appropriate procedures the Department should invoke in making its frequency allocation in this proceeding.' Given the nature of the rights at issue and the fact that these rights already have been dormant for several months, Northwest urges the Department to adopt streamlined procedures and reach a decision in this matter promptly. Specifically, Northwest suggests that the Department promptly issue a notice directing the applicants to submit such additional information as the Department may require and setting dates for answers and replies thereto and then proceed to issue an order to show cause based upon those submissions.

Accordingly, Northwest suggests that the Department issue a notice directing the applicants to submit such additional information as the Department may require (as is discussed further below) and setting a schedule for answers and replies, and then proceed to issue an order to show cause on the basis of those submissions. If the Department believes that traffic data and forecasts are necessary to a determination in this case, it could direct the existing applicants to submit traffic forecasts and direct incumbent carriers to provide historical traffic data. In that regard, in the U.K. FFifth Freedom All-CAM Proceeding the Department directed the existing applicants to submit "supplemental information," including forecasts of beyond-U.K. traffic and of U. S. origin and destination traffic. Whichever procedures the Department adopts, the overriding purpose should be to allocate the three available frequencies as expeditiously as is reasonable.

Counsel: Northwest, Megan Rae Rosia, 202.842.3193

OST-95-764	January 10, 2001	Consolidated Reply of Polar Air Cargo	Hong Kong- Manila
		Service List

Five carriers, including Polar, have filed applications in the captioned docket for the three available frequencies. Polar remains confident that its proposed widebody Boeing 747 freighter service on a New York (JFK)-Chicago-Anchorage-Seoul-Hong Kong v.v. routing would generate greater public interest benefits than any other proposed operation. To fully and fairly analyze these mutually excusive applications, however, the Department must institute a comparative selection proceeding.

In. order to develop an evidentiary record comprised of accurate and comparable data, while maintaining the applicants in an equal procedural posture, Polar would again urge the Department to issue an instituting order fashioned after the initial allocation order in this proceeding (Order 96-2-14, Feb. 13, 1996). At minimum, such an order should include a similar evidence request (a copy of which was appended to Polar's December 20, 2000 Reply), supplemented to require the submission of information needed to assess the implications of joint operations currently underway or anticipated in the markets at issue. See Polar's December 21, 2000 Supplement. The expedited issuance of such an order will facilitate the allocation of the three frequencies at the earliest possible date, while ensuring that the competing applicants' due process rights are fully protected.

Polar would also note that there are several critical factual errors in filings submitted by other parties. Those errors will be addressed once procedures for this case are established.

Counsel: Wilmer Cutler, Jeffery Manley, 202.663.6670, jmanley@wilmer.com

OST-95-764	January 10, 2001	Consolidated Reply of United Parcel Service	Hong Kong- Manila
		Service List

From a review of the prior filings in this proceeding, it is clear that UPS is the applicant which will best meet the Department's criteria for maximizing public benefits and make best commercial use of the available frequencies. The award to UPS would result in far greater benefits, both to UPS and its shippers, than would an award to any Other Applicant.

In providing the original fifth freedom authority to Federal Express and Continental Air Micronesia, the Department defined its decisional criteria as follows: the contribution of each proposal to the carrier's international operations; the improvement to the carrier's market structure and competition; the ability of the carrier to offer air express, time--definite freight and general air freight services; the carrier's established presence in Asia; and the carrier's utilization of the award to connect to regional hub operations. (Order 96-8-35, page 3) The network structure and global operations of UPS enable it to best satisfy these criteria.

UPS urges that the Department institute a non-oral, competitive carrier selection proceeding and move forward as quickly as the complexity of this case permits.

Counsel: Kelley Drye, David Vaughan, 202.955.9864

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Polar Air Cargo, Inc.

OST-00-8392

Filed November 22, 2000
Issued January 10, 2000

Notice of Action Taken

All- Cargo Services Beyond the U.K.

Scheduled al1-cargo services beyond the United Kingdom with local (fifth-freedom) traffic rights.

Remarks: Under the provisions of the Air Services Agreement between the United States and the United Kingdom, the United States may authorize three airlines serving the U.S.-U.K. market to operate scheduled all-cargo services beyond the UK with local (fifth-freedom) traffic rights. The other two carriers that are currently authorized to use such beyond rights besides Polar are United Parcel Service and Federal Express.

This authority will give Polar the flexibility to continue using valuable fifth-freedom rights available under the U.S.-U.K. Air Services Agreement, as well as fifth-freedom rights that may be granted on an extra-bilateral basis by the U.K. government.

By: Paul Gretch

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U.S.- China Air Services (2001)

Order 1-1-6 OST-99-6323	Issued January 5, 2001 Served January 10, 2001	Final Order 4:30 pm Version of Final Order	U.S.- China
		Attachment: Certificate of Public Convenience and Necessity

We have decided to make final our tentative decision in Order 2000-11-24 and select UPS as the fourth airline authorized to serve China and allocate it six weekly frequencies for this service. We also make final our proposed additional frequency allocations to United, Northwest, and Federal Express.

Although the competing applicants for the new airline authorization have expressed disappointment with our tentative decision, no party has objected to our proposed selection of UPS to serve China or to our allocation of six weekly frequencies to UPS for its services. We therefore will make that selection final and will award UPS the necessary certificate authority and frequency allocation for its proposed services. The award to UPS will bring new all-cargo capacity to this valuable market. It will also provide consumers the benefit of carrier choice and a full range of competitive all-cargo services to the services now offered by Federal Express, as well as enhanced competition with the services offered by Chinese-flag carriers. This new airline service will serve our objective to increase the number of competitors in this market and to expand the range of price/service options available to consumers.

The principal objection to our tentative decision involved our allocation of the remaining four frequencies available on April I under the 1999 Protocol, with both Northwest and Federal Express contending that they should have been allocated more of the remaining frequencies. Both carriers have argued that such additional allocations to themselves would provide greater public benefits.

We have fully considered the arguments raised by Northwest and Federal Express and find that neither carrier has presented any new evidence or argument to warrant modifying our tentative allocations of the remaining four frequencies.

This case was instituted as the second phase of a major expansion of services provided for under the 1999 U.S.-China Protocol that enabled both sides to double the number of frequencies operated over a three-year period, and the allocations to incumbent carriers must be considered in the context of the overall expansion of services permitted. The first phase of the agreement enabled the three incumbent carriers to add 17 additional flights to the market. As a result of allocations made under the first phase of the agreement, Federal Express and Northwest each was allocated six additional flights and United was allocated five. In making those allocations, we recognized that the market had been restricted for many years and that all of the incumbent carriers had proposed services that would benefit the traveling and shipping public and respond to the pent-up demand for service. Collectively the incumbent carriers requested more frequencies than were available, reflecting the high demand for service and the need in both the cargo and combination segments of the market for additional new services. Recognizing the deficiencies in both segments of the market, we allocated the frequencies to ensure that all three carriers could expand their services and that both segments of the market would benefit.

Taking into consideration the combined frequency awards in both proceedings under the Protocol, each of the three incumbent carriers would be allocated a total of seven weekly frequencies to expand its operations in the market to meet the demands for service. We believe that these overall allocations meet our stated objectives of ensuring that all of the incumbent carriers be able to make substantial use of the service expansions under the Protocol and that both the combination and cargo segments of the market benefit from those service expansions.

Both Northwest and Federal Express have renewed service and structural arguments made prior to our tentative decision in arguing now for greater awards to each of them. Federal Express contends that its cargo proposal offers greater economic benefits and that an award for all-cargo service is more consistent with the Department's show-cause order. Northwest claims that its various proposals are better substantiated and supported, warranting a greater award. Both argue that they should be allocated more frequencies so that they can be more competitive in the market, with Federal Express arguing that it should get more since the majority of U.S.-China frequencies are used for combination services, and Northwest arguing that it needs a greater allocation because it holds fewer overall frequencies than United.

We agree with both Northwest and Federal Express that additional services by both would benefit the public. However, having carefully reviewed all of these renewed arguments, we do ot find, upon reviewing the record as whole and the combined awards under the Protocol, that any party has made a persuasive showing that the overall public interest would be better served by increasing one caffier's allocation over another's in this case. Our combined awards to the incumbent carriers, taking into account both phases of the allocation, ensure that the combination and all-cargo segments of the market benefit from the service expansions now available and that all carriers serving can participate and compete substantially in the markets at issue. As we said in our tentative decision, with the awards in this proceeding United will be able to increase its current nonstop services in the San Francisco-Shanghai market, one of the largest U.S.-China markets, to a daily service and offer enhanced competition with the code-share services of Northwest and Air China from San Francisco. Northwest will be able to increase either its passenger or all-cargo services in the market. Federal Express will be able to expand further its existing all-cargo services that now serve three Chinese cities. We remain convinced that these allocations best serve the public interest and no party has provided any persuasive arguments that warrant modifying our proposed allocations.

By: Susan McDermott

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