OST-98-3543 / US-Colombia All-Cargo / Answer of Fine Air / March 16, 1998

In the matter of

U.S.-COLOMBIA ALL-CARGO SERVICES / Docket OST-98-3543

ANSWER OF FINE AIR SERVICES, INC.

Fine Air Services, Inc., hereby files the instant Answer to the Objections of Polar to Order 98-2-24.

There is much in Polar's Objections with which Fine Air agrees:

Like Fine Air, Polar argues that the Department has failed to employ procedures necessary to develop a record sufficient to select among the competing carriers in this proceeding. Polar contends that the Department should have employed the procedures that are "normal in carrier selection cases" -- whereby, after applications are filed for reallocation of the dormant authority, the Department directs applicants to file supporting evidence and establishes procedural dates. Polar Objections at 7-8. Fine Air has similarly argued that the Department's failure to employ such standard procedures -- set forth in Subpart I of the Department's own procedural regulations -- renders the Department's tentative findings and conclusions in Order 98-2-24 invalid. Fine Air Objections at 3-8.

Like Fine Air, Polar argues that the Department's tentative determination that Atlas would offer the most total frequencies and capacity was not based "on any substantial evidence, since no such evidence was ever required by the Department to be submitted in the course of this proceeding." Polar Objections at 2. In fact, as Fine Air demonstrated in its Objections, Atlas would not offer the most frequencies or the greatest total capacity; with three times per day DC-8 service, Fine Air would. Fine Air Objections at 6-7.

Like Fine Air, Polar argues that awarding Millon's frequency to Atlas would not enhance competition in the U.S.-Colombia scheduled all-cargo market because Atlas has neither the resources nor the intent to compete actively as a scheduled carrier in this market. The evidence from Atlas's SEC statements, web site and press statements that Polar has adduced merely confirms what is widely known in the industry: Atlas does not compete against scheduled cargo carriers or freight forwarders. Atlas's contention that it will, for the first time, jettison its long-standing business plan in the U.S.-Colombia market and introduce true scheduled service in competition with the existing scheduled carriers in that market lacks all credibility. Atlas has neither the retail sales force nor the ground infrastructure necessary to conduct such an operation. Moreover, Atlas would be forfeiting a valuable ACMI market if it began actively competing for U.S.-Colombia traffic against the consolidators that currently retain Atlas (indirectly, through a "paper carrier" that holds U.S.-Colombia scheduled authority but does not possess the aircraft to service the market itself). /1

Lacking the retail infrastructure necessary to consolidate and process cargo on its own, Atlas's proposed scheduled daily B-747 service to Colombia is only commercially viable if the consolidators that currently are shipping their cargo on Atlas's ACMI services instead ship their cargo on Atlas's new scheduled service. The result will be that Atlas's scheduled services will simply replace (rather than supplement) its ACMI services in the U.S.-Colombia market. Consumers will in no way benefit from this change because it will not result in a new competitor or greater total capacity in the U.S.-Colombia all-cargo market. Rather, the sole beneficiary of this switch of ACMI for scheduled service is Atlas -- which will be able to save the transaction costs of having to deal with the consolidators through the "paper carrier."

While Fine Air agrees with these key points made by Polar, however, it disagrees with the two conclusions Polar draws from them: (1 ) that the Department should direct all carriers to submit additional evidence relating to their proposed services; and (2) that, in

1/ In Fine Air's Objections, Fine Air indicated that the primary consolidator served by Atlas is Aerofloral, Inc., a megaforwarder active in the region. Atlas nominally provides its services to LAS, a scheduled Colombian carrier with no aircraft of its own.

the alternative, the Department should select Polar to provide U.S.-Colombia scheduled all-cargo service effective September 1, 1998.

1 There is no need to file additional evidence; the Department should issue a final order selecting Fine Air as Millon's replacement. Despite the procedural irregularities that have characterized the instant proceeding thus far, the record is now sufficient to permit the Department to select Fine Air -- under the criteria which the Department belatedly established in Order 98-2-34 as determinative -- as the replacement carrier for Millon. After finding that there would be no meaningful difference among the applicants based on the type of cargo service and range of shippers to be served -- an erroneous conclusion with respect to Atlas, as demonstrated in Fine Air's and Polar's Objections -- the Department purported in Order 98-2-34 to select the carrier that offered the most frequent service and greatest total capacity. Noting that it had had no notice of this basis for selection until the Department announced it as part of its tentative award, Fine Air included a proposed service plan /2 as part of its Objections to that tentative award. Now, therefore,

2/ Lest Atlas or Polar argue that Fine Air should have presented its proposed service plan earlier, Fine Air would reemphasize the point made in its Objections: the Department never sought such information prior to Order 98-2-34. Atlas and Polar informed the Department of the aircraft they proposed to use and the number of frequencies they proposed to operate (together with other information that, based on Order 98-2-34, the Department has apparently considered irrelevant) as part of their applications for exemption authority to conduct scheduled service to Colombia. Already the holder of scheduled authority to operate to Colombia, Fine Air did not file such an exemption application; rather, it applied only for the transfer of Millon's designation. Nowhere in the Department's regulations is there any requirement that such an application requires the filing of a proposed plan of service, nor was Fine Air under any notice that the Department intended to select Millon's replacement based on

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the Department has before it the proposed service plans of all three carriers. Clearly, Fine Air's is superior: it offers the greatest total capacity and by far the greatest number of frequencies. /3 Simply stated, based on the criteria upon which the Department had tentatively proposed to award Millon's authority to Atlas, this decision does not require the submission of additional information. Rather, it demands the prompt allocation of Millon's authority to Fine Air to permit Fine Air to commence long-overdue scheduled services to Colombia.

2. The Department Should Not Select Polar for the Designation Available in September 1998. Polar contends that, given the Department's tentative conclusion in Order 98-2-34 that Atlas's and Polar's service proposals are superior to the proposal of

2/ (...continued)

the carriers' intended service plans. As soon as the Department put the carriers on notice that it considered the carriers' service plans relevant (i.e., in Order 98-2-34), Fine Air submitted its plan.

In any event, the Department cannot finalize its tentative selection of Atlas on the basis of a record that, at the time of that selection, was demonstrably incomplete. To ignore the clearly optimal service plan submitted by Fine Air on the basis of some ill-founded theory that Fine Air should have presented its service plan earlier would be plainly inconsistent with the public interest.

3/ Clearly, the decision as to what aircraft -- widebody vs. narrowbody -- is used to supply this capacity and operate these frequencies is not relevant, and as argued in Fine Air's Objections, is best left up to the carriers themselves. Any argument that the U.S.-Colombia market for some reason requires widebody aircraft -say, because of oversize cargo -- is simply implausible. As Fine Air noted in its Objections, and as is widely known, the primary traffic in the U.S.-Colombia market are perishable items -- specifically, cut flowers -- being shipped northbound. This cargo does not require widebody aircraft; rather it requires frequent service. Fine Air's proposal -- combining greater total capacity than the widebody carriers, with much greater frequency -- is optimal for the U.S.-Colombia market.

Fine Air, Polar should be selected for the U.S.-Colombia designation that becomes available to U.S. carriers in September 1998. The fact that the Department did not have before it Fine Air's service proposal renders its assessment of the relative merits of Fine Air's application compared to Polar's application just as invalid as its assessment of the merits of Fine Air's application compared to Atlas's application. Applying the Department's criteria to the service proposals of all three carriers now on the record, Polar's application clearly ranks a distant third. Accordingly, there is no basis to conclude that Polar merits the designation that will become available in September 1998. Rather, if for whatever reason Fine Air is not awarded Millon's authority in the instant proceeding, Fine Air should be awarded the designation that becomes available in September 1998 on the basis of its clearly superior service proposal.

Respectfully submitted,

Jeffrey N. Shane

Karan K. Bhatia

WILMER, CUTLER & PICKERING

2445 M Street, N.W.

Washington, D.C. 20037-1820

Tel. (202) 663-6000

Fax. (202) 663-6363

Counsel for FINE AIR SERVICES, INC.

Dated: March 16, 1998