OST-98-3615 / US Airways against The Government of the United Kingdom / March 12, 1998

NOTICE: US Airways is requesting that answers supporting or opposing this Complaint be required no later than March 17, 1998.

Complaint of

Docket OST-98-3615

under 49 U.S.C. § 41310

British Airways today operates monopoly service between London (Gatwick) and Charlotte, North Carolina, in the exercise of the aviation rights of the United Kingdom under the current bilateral agreement (Bermuda II).

US Airways, Inc. has been granted authority to provide U.S. flag competitive service on this route, which the Department found to be "consistent with the aviation agreement between the United States and the United Kingdom" and an exercise of "valuable bilateral route rights not currently being used."

Notwithstanding US Airways' clear right under Bermuda IX to operate this service and the substantial public benefits it would generate, the Government of the United Kingdom has failed to meet its bilateral obligations to provide the access to Gatwick Airport necessary for US Airways to initiate this new competition with British Airways.

Therefore, in these circumstances, the Department has no choice but to impose sanctions to ensure that the United States' bilateral rights are enforced.

US Airways' planned startup date, May 7, is only eight weeks away. Immediate action is required. US Airways, therefore, seeks a shortened answer date of March 17 and the expedited issuance of an order approving US Airways' complaint and imposing sanctions.

Proportional sanctions, appropriate in this case, would be the suspension of British Airways' New York (JFK)-London (Gatwick) daily flight, effective on May 7, and continuing until such time as US Airways obtains timely and competitive access to Gatwick Airport. /1

Accordingly, US Airways files this Complaint pursuant to 49 U.S.C. § 41310 (formerly section 2(b) of the International Air Transportation Fair Competitive Practices Act of 1974, as

amended), referred to as "IATFPCA," seeking prompt redress for a serious violation of the Air Transport Agreement between the United States and the United Kingdom, as amended (the "Agreement"). Specifically, the Government of the United Kingdom is refusing to ensure that US Airways is provided the Gatwick Airport access it requires to operate its new Charlotte-London (Gatwick) daily service, which is scheduled to commence on May 7, 1998. The U.K.'s failure to allow US Airways to compete on this route cannot be justified and only serves to protect the British Airways monopoly to the detriment of Charlotte-area passengers, passengers travelling on US Airways' extensive Charlotte hub network, and the United States national interest.

US Airways has an absolute right under the current bilateral agreement to provide this service. If Gatwick slots are not immediately made available to US Airways, the Department, in US Airways' view, has little choice but to take proportional countermeasures against British Airways by suspending a British Airways daily flight to the U.S., just as US Airways' daily U.K. flight is not being allowed by the U.K. Government. So as not to penalize U.S. travellers in the Charlotte area, US Airways recommends that one daily British Airways flight between New York (JFK) and London (Gatwick) -- rather than its Charlotte-London monopoly flight -- be suspended as of May 7, the day US Airways' new competitive service is scheduled to commence.

The Department must not countenance the U.K.'s shackling of US Airways and protection of British Airways' monopoly. The United Kingdom for years has sought to enforce an imbalance in the air transportation relationship between our countries. While British Airways and Virgin Atlantic have no trouble in initiating new opportunities to the United States as they become available, U.S.-carrier requests for slots frequently have been treated adversarially. The present effort to limit new entrant US Airways' ability to compete in the U.S.-U.K. market is especially unfair -- US Airways cannot serve its preferred London airport, Heathrow, and now is penalized for seeking to develop its new U.K. services by operating to Gatwick. This situation demands expedited and firm action.

On September 12, 1997, US Airways was granted the authority to enter the U.S.-U.K. market with Philadelphia-Gatwick service and on October 21 timely requested six Gatwick slots (equivalent to three daily roundtrips) in support of its new service. In the November IATA Schedule Coordination Conference, US Airways was granted partial slots for this new service by the Gatwick slot coordinator, Airport Coordination, Ltd. ("ACL"). US Airways had requested slots for three round trips but was only granted one round trip at usable times, plus a second arrival at unusable times. A second departure and the third round trip thus were placed on a wait list. In January, US Airways agreed to remove the third Philadelphia round trip from the wait list and informed ACE that it was seeking a second Gatwick route, from Charlotte, for a May start-up.

In the meantime, US Airways made all diligent efforts to secure the second departure slot for Philadelphia and to improve the second arrival slot for Philadelphia. This included regular communication with the slot coordinator, attendance at slot exchange meetings and at least two individual meetings with the coordinator in London.

On February 25, 1998, the U.S. State Department designated US Airways to operate Charlotte-London.

On the day of the DOT award, US Airways informed the slot coordinator that it had been granted the authority to fly from Charlotte. This was done in conjunction with an official request for slots. Unofficially, US Airways pointed out to the slot coordinator that the slots Laker Airways formerly had used for its Ft:. Lauderdale-Gatwick service, which designation was withdrawn to facilitate US Airways' new Charlotte service, should be available to support the Charlotte flight. On February 25, however, the slot coordinator informed US Airways that it would not accommodate the request for slots and instead offered US Airways "0000" (no-slot) status, which is equivalent to being on the wait list.

At an extraordinary March 4, 1998 meeting of the Gatwick Airport Coordinating Committee, the Committee approved a compromise between Laker and ACL wherein Laker was allowed to keep its Miami-Gatwick slots, which Laker openly intends to "trade" to American Airlines, and wherein ACL retained the Laker Ft. Lauderdale slots. Rather than provide the Laker Ft. Lauderdale slots to US Airways, ACL said it would return those slots to the general pool; it acknowledged to US Airways that ACL had previously reallocated abandoned slots to another carrier operating the same route, but would not do so where one of the gateways changed. Thus, US Airways finds itself in the bizarre situation in which the U.S. Government has the right to switch a rover point from an unused U.S. gateway to a gateway where service is planned, but the Gatwick slot coordinator can and has refused to allocate the slots to the new gateway. Thus, in this situation, under the "famous" Bermuda II agreement, the U.S. Government has the bilateral right to award its carrier route authority but the carrier cannot utilize the authority because it is denied access to Gatwick. And at the same time, British Airways continues to operate its monopoly Charlotte-Gatwick service without interruption.

The United States Embassy has requested that ACL provide the slots to support Charlotte-London but that approach has been unsuccessful. The Government of the United Kingdom has refused to take any steps to require that such access is provided. Since US Airways has been denied the two daily Gatwick slots it requires to begin this service on May 7, the U.K. has denied de facto US Airways the ability to implement London (Gatwick)-Charlotte service and US Airways has been unable to plan, promote, or sell the new service (scheduled to commence in less than 2 months).

In these circumstances, the Government of the United Kingdom has plainly violated its obligations under the Air Transport Agreement and related understandings. By denying US Airways access to Gatwick, the United Kingdom is denying US Airways a fair and equal opportunity to compete under Article 11 of the Agreement. In contrast, a specific FAA regulation -- 14 C.F.R. § 33.217 -- requires the allocation of slots to foreign carriers serving U.S. slot-controlled airports. The Federal Aviation Act, moreover, now includes a provision (§ 41714) expressly authorizing the DOT to issue exemptions from the slot rules to a foreign carrier if necessary to permit the foreign air carrier to provide foreign air transportation.

Under 49 U.S.C. § 41310, the Department is authorized to take such action as it considers to be in the public interest to eliminate "an unjustifiable or unreasonable discriminatory, predatory or anticompetitive practice" against U.S. carriers. The Department is expressly authorized to "modify, suspend, For] revoke" foreign air carrier operating authority in response to a violation. In addition, under 49 U.S.C. § 41304, the Department, without a hearing, "may suspend summarily the permits of foreign air carriers . . . when the Secretary finds . . . the action is in the public interest . . . and the government . . . of the foreign country, over the objection of the United States Government:, has . . . limited or denied the operating rights of an air carrier [of the United States]." In its international air transportation policy, the Department expressly states that it will vigorously protect U.S. carrier rights under applicable bilateral agreements:

U.S. International Air Transportation Policy Statement, 60 Fed. Reg. 21841, 21845 (May 3, 1995). /2 The United Kingdom obviously is obtaining benefits under the Air Transport Agreement through the operations of British Airways and Virgin Atlantic as its designated airlines to serve between the United Kingdom and numerous points in the United States. Indeed, British Airways' summer schedule reportedly has approximately 333 U.S.-U.K. flights per week, including 87 to New York and Newark. (Aviation Daily, Feb. 20, 1998, at 293.)

The Department and its predecessor the Civil Aeronautics Board have consistently viewed a foreign government's failure to honor its bilateral commitments as a serious violation of the rights of U.S. airlines to a fair and equal opportunity to compete. See, e.g., Japan Air Lines and Nippon Cargo Airlines, Order 95-(,-21; Northwest Airlines v. Lufthansa, Order 94-1-23; American Airlines v. Lan-Chile, Order 93-11-22; Evergreen Int'l Airlines v. Air China Int'l Corp., Order 93-7-50; Northwest Airlines v. Government of Australia, Order 93-5-13; Iberia Permit Authority, Order 91-5-29; Flying Timer Line v. Government of

2/ Remedial action by the Department is also consistent with the recommendations in the final Report issued on August 20, 1993 by The National Commission To Ensure A Strong Competitive Airline Industry: "U.S. efforts to create a more open, competitive international aviation environment have been stymied repeatedly by nations determined to reduce the rights of more efficient U.S. airlines and defend their home airlines. To accomplish these objectives, we recommend: Enforcement of current bilateral aviation rights through all means, including renunciation and suspension of privileges and services when violations occur." (pp. 21, 23).

Japan, Order 88-9-20; United Air Lines v. JCAB, Order 81-12-9l. Moreover, the Department has emphasized that it "must protect U.S. carriers against discriminatory conduct by foreign carriers and governments." See Complaint of Evergreen Int'l Airlines against Air China Int'l Corp. and China Eastern Airlines, Order 93-9-26.

It further is well established that proportional countermeasures or sanctions are appropriate where one side has violated a bilateral agreement. See U.S.-France Change-of-Gauge Arbitration, 54 Int'l Law Reports 304, 308 (1978). As the Department stated several years ago in Japan Air Lines and Nippon Cargo Airlines, Order 95-6-21, where the Japanese aeronautical authorities had violated the U.S.-Japan Civil Air Transport Agreement by refusing to approve bilaterally authorized services despite repeated objections and warnings, "the United States Government has no alternative but to respond with appropriate countermeasures" (p. 3). See also Complaint of World Airways, Inc. Against El Al Israel Airlines, Ltd. and the Government of Israel, Order 94-6-4 (approving complaint against Government of Israel and proposing to reduce El Al's scheduled service between New York and Tel Aviv by three roundtrip nonstops per week); Complaint of American Airlines, Inc. against Lan-Chile, LADECO, LADECO Cargo, Fast Air Carrier, and the Government of Chile, Order 93-11-22 (approving complaint against Government of Chile and Chilean carriers and proposing sanctions against Lan-Chile and LADECO that would require them to reduce their Miami-Santiago services by "four and three weekly flights, respectively"); Complaint of Evergreen Int'l Airlines against Air China Int'l Corp. and China Eastern Airlines, Order 93-9-26 (concluding that the Chinese Government had violated its Air Transport Agreement with the AS. and finalizing sanctions against Air China and China Eastern Airlines to preclude them from providing any all cargo air services in the U.S.-China market); Complaint of Northwest Airlines Inc. against the Government of Australia, Docket 48611, 1993 DOT Av. LEXIS 289, and Order 93-5-31 (effectively requiring Qantas to discontinue three of its Sydney-Los Angeles nonstops).

Accordingly, to resolve this matter as expeditiously as possible, US Airways urgently requests that the Department:

• Require expedited answers to this Complaint by March 17, 1998 -- we are serving the Complaint by fax today on counsel for British Airways and on the British Embassy in the United States, and

• Issue, on an expedited basis, /3 an order approving

3/ Notably, British Airways seeks expedited consideration of its recently filed exemption application to initiate service to Denver in order "to begin sales activities and to enable it to complete the other preparatory activities required to enable it to inaugurate service on June 1, 1998." (BA Appl., at 3.) At the same time, US Airways is being denied slots at Gatwick, thereby preventing similar sales and preparatory activities for its Charlotte service, even though it seeks to commence London (Gatwick)-Charlotte service on May 7, 1998 -- almost a month before British Airways' proposed Denver service. US Airways' case for expedited redress is thus more compelling because US Airways is a new entrant with minimum market presence in the United Kingdom requiring sufficient lead-time to plan and market its new service, whereas British Airways is an entrenched incumbent with years of market presence and service in both the United States and the United Kingdom.

If the U.S. Government fails to take the action requested here, the U.S. Government would effectively permit British Airways to perpetuate its current monopoly service between London and Charlotte, and to continue receiving its extraordinary benefits under Bermuda II (while new U.S. entrants like US Airways are being frozen out of London service with the U.K. Government's tacit approval despite their designation by the U.S. Government).

Action by the Department is clearly required under 49 U.S.C. § 41310 in order to preserve U.S. carrier rights guaranteed by the Air Transport Agreement between the United States and the United Kingdom. Strong remedial countermeasures against the operating authority held by British Airways in the U.S.-London market should be undertaken without delay.

Respectfully submitted,

Donald T. Bliss

David T. Beddow

Patrick R. Rizzi

O'Melveny & Myers LLP

555 13th Street, N.W.

Suite 500 West

Washington, D.C. 20004

(202) 383-5300

Counsel for US Airways, Inc.

March 12, 1998