OST-97-2477, OST-97-2481, Undocketed / American and Aero California / Joint Response / July 8, 1997

Applications of

AMERICAN AIRLINES, INC. and AERO CALIFORNIA S.A. de C.V.

for exemptions under 49 USC 40109 and statements of authorization under 14 CFR Parts 207 and 212 (U.S.-Mexico code-sharing)

RESPONSE TO UNAUTHORIZED COMMENTS OF DELTA AIR LINES, INC.

Delta argues that if the Department "decides to consider" the American/Aero California code-sharing agreement, then Delta, its code-sharing partner, AeroMexico, and the other U.S. carriers with code-sharing arrangements in the U.S.-Mexico market have a right to seek "blanket" code-sharing authority comparable to that sought by the Joint Applicants. Delta further argues that the Department will need to determine the extent to which multiple blanket U.S./Mexico code-sharing services would be consistent with the bilateral agreement or accepted on an extra-bilateral basis and that any restrictions on the Department's ability to grant such authority resulting from designation limitations might give rise to an Ashbacker requirement for comparative evaluation of competing requests for broad code-sharing authority. /1

Delta, which already has broad code-sharing authority in the U.S./Mexico market and thus a competitive advantage over Joint Applicants, may be hoping to close the door behind it by suggesting that the American/Aero California application is more complex than is in fact the case. Like the Delta/AeroMexico, and the recently approved United/Mexicana code-share arrangements, the Joint Applicants have simply applied for code-sharing and related exemption authority, nothing more and nothing less. Consistent with Delta's announced support for "a policy that

1/ See Ashbacker Radio Co. v. FCC, 326 U.S. 327 (1945).

fosters and promotes the expansion of services of all types,.. the Joint Applicants seek authority that embraces more city pairs than either of the other code-sharing carrier partners chose to request. However, the fact that more points are included in the American/Aero California application than Delta or United (and their partner carriers) opted to include in their prior code-share arrangements (1) does not mean that different procedures should be applied by the Department for handling this application than would apply for any other code-share application in this market; (2) does not change the fact that consultations with the Mexican Government on designation and other issues may be appropriate here as would be the case with any code-share application in the U.S./Mexico market; and (3) most certainly does not give rise to Ashbacker rights with respect to hypothetical applications of other carriers for code-sharing that may overlap with the American/Aero California application.

Conducting a comparative application proceeding in this code-share case would not only be unprecedented (e.q., no such proceeding was conducted when Delta and AeroMexico applied for code-sharing authority between the numerous U.S.-Mexico points between which they now offer code-sharing services), but would result in undue delay and unfairness to the Joint Applicants, particularly since there is no pending Delta application that broadly overlaps with the American/Aero California applications. See American/Canadian, Order 96-7-21, July 16, 1996, p. 14 (Ashbacker does not require delay of a decision in a pending case in order to consider an application filed much later.) /2 Moreover, were Ashbacker invoked here, the Department could anticipate that future code-sharing applications in certain bilateral markets would become the subject of interminable proceedings to the detriment of entrepreneurial carriers such as the Joint Applicants and the traveling public.

Delta's code-share partner, AeroMexico, is well positioned (together with its commonly-owned affiliated carrier, Mexicana) as the largest Mexican carrier to persuade Mexican aviation authorities to adopt policies that would permit liberal code-sharing arrangements. /3 Delta (and AeroMexico) should focus their efforts in that direction instead of belatedly urging the Department to delay action on the pro-competitive American/Aero California agreement.

Delta also takes issue with the proposed "bumping" condition under which carriers that choose to initiate direct service with their own aircraft would attain priority over code-sharing services if both services could not be operated due to limits on the number of available designations. Contrary to

2/ To the extent that U.S.-Mexico code-sharing rights are deemed to be extra-bilateral rights, the Ashbacker doctrine is inapplicable in any event. See Application of Continental, Order 95-11-20, Nov. 20, 1995, p. 5.

3/ It is telling that Delta has chosen to comment only on the American/Aero California proposal, and has not sought review of the staff action approving the United/Mexicana applications. Mexicana is far larger than Aero California, but Delta has avoided challenging the arrangement with Mexicana, obviously because the Cintra Group, which owns both AeroMexico and Mexicana, will benefit from the United/Mexicana alliance.

Delta's submission, such a condition would not be inconsistent with Department precedent establishing that service operated by U.S. carriers should not be precluded by code-sharing services. See, e.q., American/South Africa Airways 92-10-19, Oct. 9, 1992, p. 5, n.9. Were such a condition imposed here (as Alaska Airlines has proposed), it should be applied even-handedly to all carriers operating in the U.S./Mexico market. The Joint Applicants are prepared to accept such a condition if doing so is determined to be a necessary pre-condition to approval of their code-sharing arrangement.

The Joint Applicants urge the Department to work with the Mexican aviation authorities to allow the broadest possible code-sharing arrangements to be established in the U.S.-Mexico market and to grant the pending applications so that they may compete with Delta, United and their respective code-sharing partners.

Respectfully submitted,

DAVID H. COBURN, Steptoe & Johnson LLP

CARL B. NELSON, Jr., American Airlines, Inc.

July 8, 1997