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OST-00-8393

Aero Continente Chile, LADECO, S.A., Lan Chile, Air New Zealand, Ansett New Zealand, Singapore Airlines and  Royal Brunei Airlines

By:  Francisco Sanchez

Aero Continente Chile, LADECO, S.A., Lan Chile, Air New Zealand, Ansett New Zealand, Singapore Airlines, Royal Brunei Airlines

In the Order, which is styled as an Order to Show Cause, the Department proposed various amendments to the operating authorities of the above-captioned carriers, whose homeland governments, together with the United States, recently concluded a multilateral Open Skies agreement, The amendments proposed by the Department in this Order include a requirement that the carriers provide the Department with 30 days' prior notice of any changes in their ownership in excess of 5% of their voting stock. The Order provides the carriers that would be affected by the proposed Order seven calendar days in which to respond to the actions proposed by the Department. 

The Order was issued on Friday, November 24, during a long holiday weekend. Given the Thanksgiving holiday, representatives of SIA, Air New Zealand, and Lan Chile were not aware of the Order until Monday, November 27. This fact, paired with large time differences between the Eastern U.S. and Asia, meant that the home offices of SIA and Air New Zealand first became aware of this Order on Tuesday, November 28. Absent an extension of time, none of the Movants will have more than a day or two to consult with their respective aeronautical authorities and foreign ministries, and to formulate a reasoned response to the Order. 

Counsel:  PA Consulting, Morris Garfinkle, 703.312.1446 for Singapore, Lan Chile/Zuckert Scoutt, Charles Simpson, 202.298.8660, Fulbright Jaworski, Susan Gotbetter, 212.318.3121 for Air New Zealand

Aero Continente Chile, LADECO, S.A., Lan Chile, Air New Zealand, Ansett New Zealand, Singapore Airlines, Royal Brunei Airlines

For the reasons set forth in the Motion, United urges the Department to grant the Movants' request for an extension until December 15, 2000, in which to file their responses. The Department's proposed reporting requirement raises serious issues that require deliberate consideration. With the Multilateral Agreement not entering into force for several months, a rush to judgment on the issues raised by the Department is neither necessary nor advisable. Quite to the contrary, it could raise needless contention and taint the atmosphere of cooperation engendered by the historic Agreement.

In addition, because United may wish to file an answer, United urges that the answer date be set at three (3) working days after the date for objections, i.e., December 20, 2000. This will avoid the need to review objections and prepare answers over a weekend.

Counsel:  Wilmer Cutler, Jeffery Manley, 202.663.6670, jmanley@wilmer.com 

Aero Continente Chile, LADECO, S.A., Lan Chile, Air New Zealand, Ansett New Zealand, Singapore Airlines, Royal Brunei Airlines

By:  Francisco Sanchez 

The purpose of the APEC agreement, which the Department purports to be implementing, is to liberalize international air services, not to subject them to new and unprecedented layers of regulatory oversight. In this regard, Federal Express is concerned that, if the Department adopts the condition proposed in Order 2000-11-25, it could discourage foreign governments from negotiating similar agreements, which are critical to the future liberalization of international air transport services. Further, the Department's proposed condition could establish a precedent that would legitimize burdensome regulatory proposals directed at U.S. carrier operations abroad. Analysis of the foreign policy and competitive issues will require some time. Federal Express notes that the reporting requirement contradicts the policies reflected in existing Dpartment regulations.

Counsel:  FedEx, Thomas Donaldson, 901.434.8596, tfdonaldson@fedex.com

Aero Continente Chile, LADECO, S.A., Lan Chile, Air New Zealand, Ansett New Zealand, Singapore Airlines, Royal Brunei Airlines

Ordering paragraph 4 of this Order should read as follows:   4. We will serve a copy of this order on Aero Continente Chile; LADECO, S.A., Lan Chile, Air New Zealand, Ansett New Zealand, Singapore Airlines, Royal Brunei Airlines, the embassies of the homelands of these carriers in Washington, D.C., United Air Lines, Inc., and the Department of State.

By:  Donald Horn 

The Movants have had less than a week to consider the Order to Show Cause. The Department’s proffer of an additional seven days is inadequate for the Movants to address the many serious issues raised by the Order to Show Cause and for them to consult with their governments. Although styled as an order to show cause, the order proposes broad changes that are in the nature of a rulemaking. Given the advent of the year-end holidays, Air New Zealand, Singapore Airlines and Lan Chile urge the Department to enlarge the time for the Movants and Federal Express and other U.S. carriers to respond.

In an era when DOT is reducing reporting requirements, DOT is proposing requirements that would apply only to carriers whose homelands have conclcuded the most liberal aviation regime in relation to the United States. Singling out these carriers for burdensome new regulatory obligations is bound to have a chilling effect on the willingness of other nations to enter into the Multilateral Agreement or any other multilateral agreement. As the submissions of Federal Express and United Airlines demonstrate, the Show Cause Order is also of grave concernto U.S. carriers.

Counsel:  PA Consulting, Morris Garfinkle, 703-312-1446 for Singapore Airlines / Fulbright Jaworski, Susan Gotbetter, 212-318-3121 for Air New Zealand / Zuckert Scoutt, Charles Simpson, 202-298-8660 for Lan Chile

Counsel:  PA Consulting, Morris Garfinkle, 703-312-1446 for Singapore Airlines / Fulbright Jaworski, Susan Gotbetter, 212-318-3121 for Air New Zealand / Zuckert Scoutt, Charles Simpson, 202-298-8660 for Lan Chile

Aero Continente Chile, LADECO, S.A., Lan Chile, Air New Zealand, Ansett New Zealand, Singapore Airlines, Royal Brunei Airlines

By:  Francisco Sanhez

The United States government has taken a very important step toward multilateral liberalization of aviation rights. The DOT press release described the initiative as "the beginning of a new era in the liberalization of international aviation." Passengers, shippers and businesses alike can be expected to benefit from this important move toward liberalization. In view of this important development, the Department should impose obligations on carriers from the participating countries only after serious and careful deliberation. The broad and unprecedented reporting requirements being considered in this proceeding could have an unintended negative impact upon the initiative, and affect other carriers' decisions on whether to join.

UPS was actively involved in the negotiations and in promoting the multilateral agreement effort as it promises to be an important first step to open cargo operations with broad seventh freedom rights in the Asia-Pacific region. The DOT must carefully consider any action which might affect progress in this important area.

The issues involved in this matter are highly complex, involving reporting requirements of a more extensive and different nature than have been heretofore imposed by the United States on either foreign air carriers or domestic U.S. carriers. This matter should be given most careful consideration, and the Department should have the well-considered views of all interested persons in the record before making its final decision. The Department has made what appears to be a major step forward in liberalizing on a multilateral basis, numerous international aviation relationships, and the Department should give most deliberate attention to any action which has the possibility of negatively affecting such improvements.

UPS urges the DOT to carefully analyze the principal issue, which is the extent to which U.S. ownership of foreign air carriers is desirable, and other issues which include the appropriate levels of reporting, commercial feasibility of the details of the reporting such as percentage level of thresholds and timing requirements.

Counsel:  Kelley Drye, Michael Francesconi, 202.955.9864

Aero Continente Chile, LADECO, S.A., Lan Chile, Air New Zealand, Ansett New Zealand, Singapore Airlines, Royal Brunei Airlines

Counsel:  Fulbright Jaworski, Susan Gotbetter

The proposal, if made final, will discourage further liberalization, and possibly invite other governments to impose similarly onerous requirements on U.S. airlines. The proposal could even derail the entry into force of the APEC agreement itself. FedEx is filing these objections-despite the Department's failure to explain its proposal and the lack of opportunity to analyze its serious implications-primarily to meet the Department's arbitrary deadline. FedEx specifically reserves its right to comment on these matters ftirther as the circumstances warrant.

Counsel:  FedEx, Thomas Donaldson, 901.434.8586, tfdonaldson@fedex.com  

As a starting point, the proposed reporting requirement is antithetical to the de-regulatory spirit and purpose of the Agreement. Like the existing U.S.-Chile bilateral open skies agreement, which was signed in October 1999, the Agreement identifies as its primary objective the promotion of "an international aviation system ... with minimum government interference and regulation". It is fair to say that the unilateral imposition of a new and unique regulatory burden, such as the Department proposes here, achieves just the opposite effect. For the record, Lan Chile protests the Department's hasty treatment of an important international issue. There is no reason for the precipitous rush to judgment that the Department seems determined to force on the carriers. The 14 day period that the carriers were given to respond to the Order to Show Cause is even shorter than the period that alleged violators of federal aviation laws and regulations are granted to respond to DOT and FAA complaints.

Counsel:  Zuckert Scoutt, Charles Simpson, 202.298.8660, cjsimpson@zsrlaw.com  

Counsel:  Zuckert Scoutt, Malcolm Benge, 202.298.8660

The requirements proposed in the Order are squarely at odds with the spirit and letter of the Multilateral Agreement. The Multilateral Agreement enshrined principles of deregulation, calling for minimal governmental interference in the provision of air transport services. In the name of implementing this groundbreaking agreement, the Department has imposed requirements upon SIA that harken back to the days of regulation. These obligations are overbroad, unnecessary, discriminatory and unworkable, and turn a forward-looking multilateral agreement into a "Bermuda I of multilaterals." If put in place, the requirements proposed by DOT will create a disincentive for like-minded nations to accede to the new Multilateral Agreement, and will hinder, not advance, the cause of liberalization.

Finally, SIA is concerned not only about the substance of the Department's actons, but also about the extraordinary procedures that have been used to promulgate them. DOT's extreme haste and unwillingness to accommodate entirely reasonable requests for additional time to comment on the Order suggest a rash and irrational rush to judgment on the part of the Department. For all of these reasons, Order 2000-11-25 should be withdrawn.

Counsel:  PA Consulting, Anita Mosner, 703.312.1446 

United Parcel Service Co. submits the following objections to the Department's November 24, 2000, Order to Show Cause proposing to add broad new ownership reporting requirements to the foreign air carrier permits and exemption authorities of carriers whose home countries propose to sign the Multilateral Agreement on the Liberalization of International Air Transportation. UPS submits that the proposed DOT action threatens to undermine the important multilateral open market initiative which the Department has pursued for several years, and which UPS has strongly supported. DOT's rush to regulate may well trigger harmful reciprocal requirements imposed on U.S. carriers. As a result of this proposal, numerous foreign countries may each impose their own similar advance investment reporting requirements on U.S. carriers. This raises the chilling prospect of a new extraterritorial regulatory regime, and a web of international reporting obligations on U.S. airlines - a sadly ironic consequence of a new multilateral agreement intended to free international aviation of just such requirements.

Counsel:  Kelley Drye, Michael Francesconi, 202.955.9864

Aero Continente Chile, LADECO, S.A., Lan Chile, Air New Zealand, Ansett New Zealand, Singapore Airlines, Royal Brunei Airlines

Certain carriers have served pleadings on the undersigned in the above-referenced proceeding on behalf of Ansett New Zealand. Please be advised that neither the undersigned nor this law firm is acting as counsel for a company known as Ansett New Zealand.

If the Department and interested parties wish to serve orders or pleadings on Ansett New Zealand, they would be well advised to do so directly or through the Embassy of New Zealand.

Counsel:  Wilmer Cutler, Jeffery Manley, 202.663.6000, jmanley@wilmer.com

Aero Continente Chile, LADECO, S.A., Lan Chile, Air New Zealand, Ansett New Zealand, Singapore Airlines, Royal Brunei Airlines

As the objectors all point out, the APEC agreement has essentially eliminated the traditional requirement found in most air services agreements that "substantial ownership" of a country's designated air carriers must be in the hands of that country's nationals. However, the agreement also contains a new provision that allows a government to reject another country's designation of an air carrier if substantial ownership of that carrier is in the hands of nationals of the country receiving the designation. It seems entirely logical that a government would seek a way to monitor changes in ownership of foreign carriers designated pursuant to the agreement. That is the purpose of the proposal in the order to show cause.

Counsel:  ALPA, Russell Bailey

The fact is that carriers of each of the countries that would be affected by Order 2000-11-25 voiced strenuous objection to DOT's proposal. The fact is that at least two strong diplomatic notes - by Singapore and New Zealand - have been sent to the United States. The fact is that the United States' two leading express/all-cargo airlines voiced serious concerns about DOT's proposed actions and the effect those actions could have on the Multilateral Agreement and the substantial benefits U.S. carriers would receive. The fact is that another U.S. carrier, which did not file an answer, also disagreed with DOT's rush to decide and was concerned about the impact of DOTs action on the future of the Multilateral Agreement.

Counsel:  PA Consulting, Morris Garfinkle, 703.312.1446

Counsel:  Mara Rosales, SFO International 

Not only is the proposed notification threshold unreasonably low, but the advance notification aspect is entirely unworkable, particularly for publicly traded companies. Air New Zealand, Lan Chile, and SIA have demonstrated, in no uncertain terms, that it would be virtually impossible for them, and any other carrier whose shares are traded on a public stock exchange, to comply with this requirement. On the transactional side, the requirement is impracticable and raises both timing and confidentiality concerns. SIA wonders whether "parties sending out "feelers" about investing in an airline would be as willing to do so if they had to publicly reveal to DOT their intentions to do so," and warns that "[d]isclosure of the mere fact that investment discussions are occurring may have competitive and financial ramifications that are so significant that the obligation to disclose them may deter investors from making these investments at all." This is a legitimate and serious concern. As Lan Chile points out, even the SEC does not require advance notification of acquisitions.

The shortcomings in the Department's proposal, both substantively and procedurally, warrant much more thorough review. If the Department sees the potential need for new monitoring standards, such standards should be adopted only after being thoroughly analyzed through notice and comment procedures

Counsel:  Wilmer Cutler, Bruce Rabinovitz, 202.663.6670, brabinovitz@wilmer.com

Aero Continente Chile, LADECO, S.A., Lan Chile, Air New Zealand, Ansett New Zealand, Singapore Airlines, Royal Brunei Airlines

The Department still has a chance to make an historic leap to multilateralism and to create a model for the rest of the world to follow. It is time for the Department to withdraw the Order to preserve the credibility of the United States and to avoid the embarrassment of a botched attempt at multilateralism.

Counsel:  Fulbright Jaworski, Susan Gotbetter, 212-318-3121

Aero Continente Chile, LADECO, S.A., Lan Chile, Air New Zealand, Ansett New Zealand, Singapore Airlines, Royal Brunei Airlines

Thus far, nine parties and two governments have responded to DOT Order 2000-11-25, in which DOT proposed to require airlines whose homelands had initialed the Multilateral Agreement on the Liberalization of International Air Services to provide the Department with 30 days prior notice of any change in ownership in their voting stock in excess of five percent. All of the parties and governments have observed that DOT's proposal is burdensome and overbroad, and all except the Air Line Pilots Association ("ALPA") believe that the reporting requirements contained in the Order should be substantially rewriften, if not withdrawn entirely.

Counsel:  PA Consulting, Anita Mosner, 703.312.1446

Aero Continente Chile, S.A./LADECO, S.A./Linea Aerea Nacional-Chile Sociedad Anonima, Lan Chile, S.A./Air Ansett New Zealand Limited/Air New Zealand Limited/Singapore Airlines Limited and Royal Brunei Airlines Sdn. Bhd.

By this order, the Department finds that it is in the public interest to modify the proposals announced in Show-Cause Order 2000-11-25 concerning the reporting requirement on certain foreign air carriers in connection with a new multilateral agreement involving the United States and various APEC members, and to finalize the requirement as modified.

The purpose of our show-cause order was to provide a fair and effective vehicle for allowing us to exercise that right. Therefore, we tentatively found that it was in the public interest for the Department to be informed of specified changes in the ownership of the voting stock of the foreign air carriers covered by the agreement, and that those foreign air carriers should provide the necessary information.

After carefully considering all matters of record, including all of the comments filed in response to our tentative decision, we have decided to affirm our initial determination that it is in the public interest for the foreign air carriers to provide the information we need to effectively monitor the operation of the agreement provision at issue. We have also determined, however, that it is in the public interest to modify the proposed reporting requirement to meet many of the issues and concerns raised in response to the tentative decision.

• First, we will only require reporting of transactions in which U.S. nationals are the beneficial shareholders. We agree that this change is consistent with the purpose of filing the information we have requested.
• Second, we will only require reporting of two types of transactions: (1) transactions that involve an upward change in the beneficial control by a U.S. national shareholder of 20 percent or more of the foreign air carrier's outstanding stock, and (2) transactions that result in an overall accumulated total holding by a U.S. national shareholder of beneficial control of 40 percent or more of the foreign carrier's outstanding stock.5 We appreciate the concerns of SIA and ANZ that a five-percent threshold could place an undue burden on the affected carriers.
• Third, instead of advance notification, we will require the foreign air carriers involved to notify the Department no later than 30 days after any transaction meeting the above-cited parameters. We agree that the proposed advance notice requirement could have proven difficult to implement and could have had unintended adverse effects. Moreover, to the extent that the reporting carrier is unaware at the time of the transaction of the subject upward change in control by a U.S. national, the 30-day period will run from the date that the carrier either actually became aware of it, or through due diligence should have become aware of it, whichever is earlier.
• Fourth, we will not require foreign air carriers to notify the Department when their homelands begin to implement the terms of the Agreement in relation to the United States. We agree that diplomatic channels are available for this purpose.

By:  Francisco Sanchez

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