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OST-95-617

Cielos del Peru, S.A. f/k/a Export Air del Peru, S.A.

OST-95-617 48665	November 30, 1998	Application for Modification and Reissuance of Exemption Authority	Scheduled Cargo for Iquitos, Peru-Miami/New York/Houston/Los Angeles via Panama or Costa Rica / Charters	HTML
		Service List
		Export Air's Application frrom June 9, 1995
	Exhibits Added Dec 1st	Exhibit 1:  Information Supplied Pursuant to the Department's Regulations
		Exhibit 2:  Resolucion Directoral of the Peruvian Government
		Exhibit 3:  Cielos Del Peru's Financial Balance in American Dollars
		Exhibit 4:  Revenues/Cost Analysis per Aircraft and Route/Revenues v. Costs per Route
		Verification

Cielos proposes to commence U.S.-Peru service using B707 freighter aircraft to operate scheduled, all-cargo service. Initially, the carrier will operate five weekly, round-trip flights on a Lima-Miami-Lima routing and two weekly, round-trip flights on a Lima-Houston-Iquitos-Lima routing. It also intends to operate ad hoc charters.

Cielos respectfully requests that the Department reissue to it, with the modifications discussed above, the exemption authority currently held by Export Air. Because Cielos is assuming the operations and authority of Export Air, and because the requested exemption is limited in duration, this application is limited in scope and should not be controversial. Cielos is prepared to commence Peru-U.S. service as soon as practicable.

Counsel:  Verner Liipfert, William Evans, 202-371-6030

Cielos del Peru, S.A.

As the Department is well aware, the Peruvian Government has, for over three-and-a half years, barred Fine Air from conducting any commercial air services to or from Peru. The ban -- which was first justified by the Peruvian Government as a temporary emergency measure necessitated by Peru's national security during a time of war -- has long since lost all connection to its original rationale. In the past three years, Peru has offered no fewer than five different explanations for maintaining the ban, each less compelling than the previous one .2/ Most recently, Peru communicated to the U.S. Government that it could not lift the ban until the conclusion of a comprehensive peace treaty between Ecuador and Peru, but indicated that it would do so upon the signing of such a treaty. Leaving aside the patent unfairness of making Fine Air's readmission subject to the success of Peru's regional diplomatic initiatives, this commitment -- like all the others -- has not been honored. Peru and Ecuador executed a peace treaty on October 27; Fine Air, however, has yet to be readmitted to the market.

Counsel:  Wilmer Cutler, Jeffrey Shane, 202-663-6000

Cielos Del Peru, S.A.

Cielos urges the Department to consider its application in the context of a new era in U.S.-Peru aviation relations -- and U.S. aims for further liberalization in the region. What the United States does to cement the success of the groundbreaking U.S.-Peru relationship may have a profound impact on U.S. aviation goals in Latin America. In this light, relssuance of modified exemption authority to Cielos del Peru, which has been designated by Peru to operatescheduled, all-cargo service, is clearly appropriate.

Counsel:  Verner Liipfert, William Evans, 202.371.6030

Cielos del Peru, S.A. f/k/a Export Air del Peru

Supplements the above-captioned application. In its initial application for modification and reissuance of exemption authority, Cielos inadvertently failed to indicate that Alfonso Rey, Chairman of Cielos, also acts as President & Chief Executive Officer of the airline; his biographical information was provided in the application. Further, Cielos has identified a B707-359C freighter aircraft, Peruvian registration OB-1699, as the aircraft it will operate to and from the United States. The dry-leased aircraft has a payload of approximately 40,000kg and is owned by Daedalus Aviation Financing, Inc., with JB Partnership, Ltd. as Trustee.

Counsel:  Verner Liipfert, William Evans, 202-371-6030

Cielos del Peru, S.A.

Although there has been no formal declaration, it is fairly clear that the Department is holding Cielos hostage as leverage in its attempt to gain access for Fine Air to the U.S.-Peru market. As the Department well knows, Fine Air's difficulties began in early 1995 when it transported arms from Argentina to Ecuador during a period of hostilities between Ecuador and Peru. Fine Air's participation in the movement of the arms was viewed by Peru most seriously as an act that endangered the national security of the country. The Department itself recognized the seriousness of the event and found that the actions taken by Peru against Fine Air were reasonable. Order 96-7-5. Nevertheless, the Department continues to carry Fine Air's banner at the expense of both Cielos, which has done absolutely nothing to warrant being denied the opportunity to expand its U.S. operations, and Peruvian aviation interests.

The next obstacle to resumption of operations by Cielos apparently has been raised by the FAA. As we understand it, the Department normally does not act on applications by foreign airlines for new authority until the International Liaison Branch (AFS-50) of the Flight Standards Service indicates that a grant of authority is acceptable. To date, the FAA has not signed off on Cielos' application, apparently due to some undefined concern that the FAA has with the safety oversight being exercised by the DGTA over Peruvian airlines. The fact is, however, that Peru has been found by the FAA to be in compliance with ICAO standards and, accordingly, has been classified as Category I under the International Aviation Safety Assessment program. Cielos currently is operating, although not to the U.S., and is doing so without safety incidents, which attests to the adequacy of Peruvian safety oversight. Consequently, the FAA should support a grant of exemption authority to Cielos.

Counsel:  Verner Liipfert, William Evans, 202-371-6030

Cielos del Peru, S.A.

Fine Air Services, Inc. respectfully submits this Answer in opposition to the March 4, 1999 Motion of Cielos del Peru, S.A. for expedited treatment of its November 30, 1998 Application for Modification and Reissuance of Exemption Authority.' Fine Air submits that Cielos has raised nothing new in its Motion justifying the expedited action sought. Until there has been clear and positive action on Fine Air's application for U.S. - Peru scheduled all-cargo authority pending before the Peruvian Direccion General de Transporte Aereo for U.S. - Peru scheduled all-cargo authority, the Department should follow its usual practice in such circumstances and defer action on Cielos' application pending herein

Counsel:  Law Offices of Pierre Murphy, Pierre Murphy, 202.872.1679 pmurphy@lopmurphy.com

Cielos del Peru, S.A.

The main obstacle to a grant of the application appears to have been the inability of Fine Air Services, Inc. to obtain an operating permit from the Peruvian Direccion General de Transporte Aereo to operate scheduled all-cargo service between the U.S. and Peru. Cielos understands that Fine Air has received its Peruvian permit and, in fact, has conducted U.S.-Peru all-cargo service without incident. Thus, the aviation interests of the U.S. have been satisfied, and the primary foundation of Fine Air’s objection no longer exists.   Another obstacle has been the apparent refusal of the Federal Aviation Administration to concur in the grant of DOT authority. While Peru is in Category 1 under the FAA’s International Aviation Safety Assessment program, and Cielos has been operating within Latin America without incident since August 1998, the FAA appears reluctant to "sign off" on Cielos’ application to operate with its own aircraft. A final reason for the delay may be Department concern about Argentine ownership in Cielos. In that regard, Cielos reminds the Department that the Peruvian government has licensed Cielos as a Peruvian airline, and it has designated Cielos to operate services provided for in the Peru-U.S. bilateral agreement. Cielos reiterates the arguments made in its application and reply, that, under all the circumstances, the Department would be more than justified in granting a waiver of the substantial ownership and control provision of the bilateral.

Counsel:  Verner Liipfert, William Evans, 202-371-6030

Aero Continente, S.A. / Ceilos del Peru, S.A. / Alas del Pacifico, S.A.C.

Counsel:  Pierre Murphy, 202.872.1679, pmurphy@lopmurphy.com

Cielos del Peru, S.A.

Exemption from 49 U.S.C. 41301 to conduct scheduled foreign air transportation of property and mail between Lima and Iquitos, Peru, and Miami, FL; New York, NY; Houston, TX; and Los Angeles, CA, via intermediate points in Colombia, Panama and Costa Rica; and charters pursuant to 14 CFR 212 of the Department's regulations, limited to wet-lease operations conducted by a duly authorized and properly supervised U.S. or foreign air carrier.

By:  Paul Gretch

Cielos del Peru, S.A.

By this exemption request, Cielos seeks to renew its exemption authority to engage in (1) scheduled foreign air transportation of persons, property and mail between Lima and Iquitos, Peru, and Miami, Florida; New York, New York, Houston, Texas; and, Los Angeles, California via intermediate points in Colombia, Panama and Costa Rica, and (2) charter air transportation pursuant to 14 C.F.R. Part 212. The exemption authority was granted by Notice of Action Taken, dated August 31, 1999, and is set to expire on August 31, 2001. Cielos currently is offering Miami-Lima all-cargo service and it anticipates serving Houston, New York and Los Angeles when economic conditions and traffic demands warrant such service. Cielos, thus, wants to renew the exemption authority in full.

Under the U.S.-Peru Open Skies Agreement, an airline designated by Peru is permitted to engage in all-cargo air transportation between the "United States and any point or points." Annex I. The Agreement also provides for 7^th Freedom cargo charters. Annex II. By Note dated November 18, 1998, Cielos was designated to operate scheduled and non-scheduled (charter) international air cargo service over the Peru-United States routes set forth in the Agreement.

The authority is subject to a condition that requires Cielos to use aircraft wet-leased from a properly supervised U.S. or foreign air carrier. The exemption is requested for an additional two years.

Counsel:  Verner Liipfert, William Evans, 202.371.6030

Cielos del Peru

By:  Paul Gretch

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