OST-98-3419 / 1998 U.S.-JAPAN COMIBINATION / CONSOLIDATED ANSWER OF DELTA AIR LINES / February 17, 1998

CONSOLIDATED ANSWER OF DELTA AIR LINES INC.

Delta Air Lines, Inc. ("Delta") hereby files this Consolidated Answer t( the applications filed by American Airlines, Inc. ("American"), Continental Airlines, Inc. ("Continental"), Continental Micronesia, Inc. ("Continental Micronesia"), Hawaiian Airlines, Inc. ("Hawaiian"), Trans World Airlines, Inc. ("TWA") and US Airways, Inc. ("US Airways"), for U.S.-Japan certificate authority and frequencies.

I . Delta opposes the above-captioned applications to the extent that the grant of those applications would prevent the Department from granting Delta's applications for U.S.-Japan authority and frequencies. However, Delta supports the application of TWA for the fourth designation to enable it to implement same country code-share service with Delta.

2. Delta strongly urges the Department to award authority and frequencies by the immediate issuance of a show cause order with respect to those applications that have submitted actual service proposals commencing

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during 1998. /1 This would include TWA's application for the fourth designation to provide same country code-share service with Delta in 1998. The Department should defer consideration of the award of post-1998 services for allocation on a year-by-year basis. All of the proposals involving service that will commence during 1998 can be fully funded with the available frequencies under the new U.S. -Japan bilateral agreement without the need for a carrier-selection proceeding, which would delay early sales and promotional efforts that are essential to ensuring the success of the new non-incumbent services.

3. In any event, regardless of the scope of the proceeding, the Department should immediately establish procedures to enable it to issue a final award of the 1998 proposals by no later that May 29, 1998, the date on which airline requests for winter 1998/1999 slots are due for consideration by the IATA Schedules Coordinating Committee at its June conference.

4. The prompt award of authority to implement the 1998 route proposals is required by the public interest "given the significance and value of these new rights and the fact that the incumbent U.S. carriers and Japanese carriers will be able to commence new services right away." See the Department's Notice dated February 3, 1998, at 2. The request for allocation of

1/ As discussed below, Continental seeks but does not need 14 frequencies, since Continental is uniquely able to switch up to 7 weekly frequencies to either Newark or Houston by coterminalizing Saipan and Guam under Section I. B. 3 e.2 of the MOC.

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opportunities involving post- 1998 services should not be allowed to delay prompt implementation of new services by non-incumbent carriers. As the Department stated, "the public interest calls for procedures that will facilitate the introduction of new services by MOU and new entrant carriers and that will maximize the early use of our newly acquired rights…" Notice at 2 (emphasis added). The numerous requests for rights covering future services were a response to the Department's invitation to carriers for applications for all 90 frequencies available through the year 2000. However, the proposals involving post-1998 service are inherently speculative, with several proposals not scheduled to begin until 2000, at the earliest.

5. It makes no sense for the Department to allocate opportunities for which there are no actual near-term service plans, given the dynamic and changing nature of the airline industry. To consider allocation of future route proposals would substantially delay implementation of important new competitive services by the non-incumbent carriers, while the incumbent carriers are free without restriction to increase services between the United States and Japan. Moreover, allocation of opportunities now for services not scheduled to begin for more than a year would create the real risk that frequencies will be wasted when carriers later decide they are unable or unwilling to operate the services. This is particularly true given the opportunity for the implementation

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and development of code-sharing alliances among U.S. and Japanese carriers, which may influence decisions for competitive service proposals in future years.

6. Delta strongly urges the Department to employ the phase-in approach utilized in allocating limited-entry Canadian authority, where the Department considered allocation of route opportunities on an annual basis for rights to serve the limited-entry Toronto, Montreal and Vancouver markets. Such an approach would insure that the Department has before it up-to-date proposals that are both realistic and likely to be implemented as proposed.

7. Delta supports the grant of TWA's application for the fourth designation and for 28 same country code-share frequencies to enable it to codeshare with Delta. TWA, Continental and US Airways have each requested allocation of all 28 same country code-share frequencies. Under the new U.S.Japan MOC, only two carriers are eligible as "Category A" airlines to provide same-country code-share service (either TWA or US Airways, whichever receives the fourth designation, and Continental). TWA should get the fourth designation over US Airways, because it plans to begin direct service with its own aircraft and thereby utilize valuable bilateral rights much sooner than US Airways. Assuming TWA is selected over US Airways for the fourth designation, the TWA/Delta proposal should receive a priority over Continental/Northwest and US Airways/American/United for the award of same

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country code-share frequencies. The award would inject TWA as a new entrant on four U.S.-Japan routes, enable it to establish a market presence between the United States and Japan and enhance TWA's ability to implement its own new service. The award would also enhance Delta's proposed new Portland-Japan services.

Northwest and United, as incumbent carriers, have unrestricted rights to serve U.S.-Japan. In light of the small number of available frequencies for same country code-share services, the Department should be loath to grant any frequencies for services involving an incumbent carrier, at the expense of enhancing opportunities for two non-incumbents. Moreover, there have been reports that Continental/Northwest plan on establishing a code-share relationship with a Japanese Category "A" carrier and therefore would not need same country code-share frequencies. Continental /Northwest should not be allowed to block the allocation of frequencies for TWA/Delta in the face of their planned arrangement with a Japanese carrier. US Airways plans to code-share with both American and United. While American is a non-incumbent carrier, it has been reported that American is about to enter into a code-share relationship with JAL, Japan's largest incumbent carrier. Any code-share arrangement involving United or JAL should not be authorized at the expense of the TWA/Delta proposal, which would strengthen two restricted non-incumbent carriers.

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8. Delta opposes granting Continental 14 weekly frequencies in light of Continental's ability to utilize 7 weekly frequencies for either Newark-Tokyo or Houston-Tokyo service pursuant to the switching provision contained in section I.B.3.e.2. of the MOC. Under that provision, Continental can coterminalize the Guam-Tokyo and Saipan-Tokyo routes and switch up to seven weekly frequencies for use "on any city-pair" (except the restricted city-pairs). Given this capability to access 7 frequencies, Continental should be required to exercise that frequency-switching flexibility before seeking frequencies from the 90-frequency pool. This would make more frequencies available for allocation by the Department in this proceeding.

9. In conclusion, Delta urges the Department to grant promptly its application for certificate authority and allocation of 22 weekly frequencies to enable it to operate its proposed 1998 nonstop U.S.-Japan services, to defer

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consideration of post-1998 service proposals, and to take action consistent with Delta's recommendations discussed above and in its application.

Respectfully submitted,

Robert Cohn

SHAW, PITTMAN, POTTS & TROWBRIDGE

2300 N Street, N.W.

Washington, D.C. 20037

(202) 663-8060

Counsel for DELTA AIR LINES, INC.