OST-99-6323 / US-China Air Services / Answer of United Air Lines / February 7, 2000

ANSWER OF UNITED AIR LINES, INC.

1 . American's first request is for issuance of U.S. -China certificate authority to include markets other than the Chicago markets in which it proposes service in this proceeding. To accomplish this, American requests that the Department reconsider its long-standing condition that certificate authority be awarded in this carrier selection case only for markets where service is proposed. In American's case this condition would, unless reconsidered, limit any authority it received to Chicago-Shanghai, assuming American received the route authority and frequencies it needs for its proposed service. The Department has consistently limited certificate authority awarded in carrier selection cases in the same manner it has proposed for such authority in this proceeding. Indeed, the Department in Order 00- 1 -21 cited two recent precedents for such limitations. American has, perhaps understandably, failed to address those orders.

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The reason for this more narrow approach to route authority awarded in carrier selection proceedings was recently explained by the Department in one of the orders American chose to ignore, which was issued in response to a request by Delta for U.S.-Brazil authority to include points beyond those city-pair markets for which it was selected:

1997 U.S. -Brazil Combination Service Proceeding, Order 96-12-9 at 6 (footnote omitted). To the same effect here, the Department will award any authority to new entrants in the form of experimental certificates and frequency allocations and has imposed the usual condition consistent with the intent that any carrier selected fulfills its commitment to serve the specific city-pair markets for which it is awarded the certificate authority and frequencies at issue. /1

2. The need for such conditions is underscored by American's own recent actions in the U.S.-Brazil market. American moved seven frequencies, which were allocated to it for service between New York and Rio de Janeiro, to Miami, where American sought to use them to increase its dominance of Latin American service from that gateway. The Department properly intervened

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American appears to be positioning itself to take similar action here with respect to any U.S.-China authority it might receive in this case to that which it has taken in small communities and limited-entry international markets. Here American has thus far proposed to serve only the Chicago gateway. Although American variously protests (rather overmuch it would seem) that it is "absolutely committed" to Chicago (p. 4) and is "fully committed" to its proposed service (p.5), the conclusion is inescapable that American is looking for another alternative since, otherwise, it would not require the relief it has requested. Just where American

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would like to use ten frequencies it has applied for is unstated, but it may wish to switch either its U.S. or China gateways (or both) to points other than those which it is pursuing in this case.

3. American complains that its competitors have broader U.S. -China authority than the Department will award to a new entrant in this case. The same is true in markets such as U.S. -Brazil where American has authority coextensive with the U.S. carrier bilateral route while new entrants such as Delta and Continental are limited to routes for which they are chosen in proceedings such as this one. The reason American's and United's U.S. -Brazil authority is broader than the newcomers is historic. American's authority was acquired from Eastern and United's, from Pan American. American and United were granted broader route rights at the time they acquired the grandfather rights of their predecessors, not in carrier selection cases. Similarly, United's U.S. -China authority was acquired from Pan American and was expanded in connection with amendments to the U.S. -China bilateral, not in carrier selection proceedings. /3

4. American complains (p.5) that United has used its flexibility under its U.S. -China certificate to move services from Narita to Chicago. American describes this action as a t6posturing ... route-case gimmick" by United, and yet, it is American, not United that appears to be posturing by proposing service in one market while seeking flexibility to move it to another.

United is moving its China service from its Tokyo hub to its U.S. hubs of Chicago and San Francisco in recognition that the U.S.-China market has matured to the extent that

3/ As noted previously, the Department has acted consistently in carrier selection proceedings to limit new entrant certificate authority and frequency allocations to the markets for which carriers proposed service on the basis of which they were selected. The Department recently denied the same relief to Delta for U. S. -Brazil service that American seeks here for U. S. -China service.

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nonstop services are now not only commercially viable but also a competitive necessity. United has recognized the importance of Chicago as a gateway to China and has decided to start nonstop service from Chicago to Shanghai. United has also announced that it will use its Narita-Beijing frequencies for daily San Francisco-Beijing nonstop service to start this summer.

United's Chicago-Shanghai nonstop services are to a large extent a necessary response to increased U.S. -China competition, including Northwest's growing nonstop service between its nearby Detroit hub and China. While United can appreciate that American would prefer to have the Chicago-China market to itself, United intends to remain fully competitive at Chicago, which is United's principal hub and home base.

5. American also urges the Department to add a new Information Request directed at all applicants but primarily at those proposing all-cargo service. This proposal is obviously a delaying tactic since it is offered the day after incumbent carrier responses to Information Requests were already filed. American is, therefore, well aware that if the Department were to impose an additional Information Request, this would require an extension of the procedural dates in this expedited case.

It appears that American is playing for time to catch up to its competitors' civic support. The Department should not allow American to manipulate the Department's procedural schedule to American's advantage in this manner. If American thought the additional information it has requested were necessary, it should have made its request before information responses were due.

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Moreover, American has offered no support for its asserted definition of "express cargo" nor for the need for the requested data covering over four years. United has no detailed records of its cargo for the period requested by American that would enable it to identify shipments falling in to the ad hoc "express cargo" category proposed by American. If the Department intends to obtain data broken out into a distinct category such as that proposed by American, it would need to undertake a rulemaking proceeding subject to notice and comment. One of the issues that would be explored in such a proceeding is the appropriate definition of 44express cargo." Such a rulemaking, if adopted, would put carriers on notice of the need to retain records in the detail needed to provide such data and would give them adequate time to comply.

It is unreasonable, however, to require carriers to undertake such reporting after the fact. United would have to search hundreds of thousands of U.S. -China cargo waybills to make the breakout American seeks and even then United cannot be confident that "express cargo" shipments can be properly identified. United strongly opposes American's untimely request for this additional information.

Respectfully submitted,

JEFFREY A. MANLEY

KIRKLAND & ELLIS

655 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 879-5161

Counsel for UNITED AIR LINES, INC.

DATED: February 7, 2000