OST-97-2965 / OST-98-3626 / Undocketed / OST-98-3640 / American and Iberia / Air Nostrum and Aviaco / Joint Answer of American, Iberia, Air Nostrum and Aviaco to Petition of United / June 1, 1998

Applications of:

for an exemption under 49 U.S.C. S40109 and statements of authorization under Parts 207 and 212 (reciprocal codeshare services)

Joint Application of:

for an exemption pursuant to 49 U.S.C. 40109

TO PETITION FOR REVIEW OF UNITED AIR LINES, INC.

United's petition is directed to staff action reflected in a Notice of Action Taken ("NOAT"), dated April 30, 1998. The NOAT granted statements of authorization to Iberia, Air Nostrum and Aviaco to display American's "AA" designator code on their services between Madrid, Spain and Rome, Italy.

United asserts that the staff action should be reversed because the Madrid-Rome service authorized by the NOAT is inconsistent with the present air transport agreement between the United States and Italy. The U.S.-Italy agreement permits third-country carrier code sharing but limits American to operation of seven weekly frequencies between the two countries. American currently operates daily service between Chicago and Milan.

United is not opposed in principle to award of extrabilateral authority but argues against allowing this particular one to stand. For support, it relies upon the Department's dismissal of United's 1994 exemption application to serve eleven points in Italy via Frankfurt under United's codeshare arrangement with Lufthansa. The dismissal was on the ground that the requested authority was not available under the U.S.-Italy agreement. /1 Either both codeshares should be approved or both dismissed, according to United. /2

The Department's dismissal of United's 1994 application does not provide a basis to reverse the award of

1/ Order 96-7-44, dismissing, inter alia, United's application in Docket 49597.

2/ Of course, United's application is not now pending before the Department.

authority in 1998 to Iberia, Air Nostrum and Aviaco to carry American's code between Madrid and Rome. There are two good reasons for this.

First, the extra-bilateral authority United sought in its 1994 application was of a far greater magnitude than the single-point (Rome) authority United wants withdrawn from Iberia, Air Nostrum and Aviaco. United applied for authority to serve nine extra-bilateral points in Italy /3 (Bari, Bologna, Catania, Florence, Genoa, Naples, Pisa, Venice and Verona) and two points named in the bilateral (Milan, Rome,). /4 United applied to serve these eleven Italian points from all U.S. points from which United and Lufthansa were serving Frankfurt.

Given the extensive extra-bilateral reach of United's 1994 application, it is not surprising that the Department did not approve it, especially in the restrictive bilateral climate that existed at the time.

Second, the U.S.-Italy bilateral climate is much more favorable now than it was in 1994 when United's application was before the Department. This is reflected in the fact that

3/ In contrast, service to Rome via Madrid is authorized by the U.S.-Italy bilateral.

4/ While the bilateral names Naples and Pisa, these points are available only for all-cargo service, and indeed only one can be served by a U.S. carrier at any given time.

representatives of the two governments shortly will begin formal talks looking toward establishment of an "Open-Skies'' aviation regime between the two countries. /5

The important move in the direction of a liberalized bilateral regime suggests that it would be premature and imprudent to overturn the modest award made in the NOAT. The award of Madrid-Rome authority was made on the basis of a finding that the planned service would be in the public interest. The Department should not in the present circumstances rush to foreclose the public benefits which it has found will flow from the operation on the assumption that Italy will reject it out of hand. The Department should at least give Italy the opportunity to consider this quite limited service on the basis of reciprocity under the present codeshare provision of the U.S.-Italy bilateral (set forth in Part "B" of the September 27, 1990 Memorandum of Understanding between the two governments).

5/ This distinguishes the Italian from the French situation. The NOAT withheld authority from American and Iberia to codeshare beyond Madrid to points in France because the recently concluded (April 1998) U.S.-France aviation agreement limited opportunities for U.S. carriers to serve France via a third country codeshare arrangement. NOAT at 5.

United's 1994 application to serve eleven points in Italy on a third-country codeshare basis involved a far different situation from the joint applicants, plan to provide codeshare service beyond Madrid to Rome. The dismissal of that application is not a reason to grant United's instant petition for review. The staff's action should be upheld.

Respectfully submitted,

WILLIAM KARAS

Steptoe & Johnson, LLP

CARL B. NELSON, JR.

American Airlines, Inc.