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OST-99-5593

Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V.

(1) a statement of authorization under 14 C.F.R. Part 212, granted most recently on January 6, 1999 through July 4, 1999, to permit Aeromexico to continue to display Delta's "DL" designator code on flights operated by Aeromexico between Atlanta and Monterrey; (2) a statement of authorization under 14 C.F.R. Part 212, granted most recently on December 4, 1998 through June 1, 1999, to permit Aeromexico to continue to display Delta's "DL" designator code on flights operated by Aeromexico in the following transborder city pairs:

• Atlanta-Cancun; Dallas/Ft. Worth-Cancun; and Orlando-Mexico City;

(3) a statement of authorization under 14 C.F.R. Part 212, granted most recently on December 4, 1998 through June 1, 1999, to permit the Joint Applicants to continue to engage in reciprocal codeshare/blocked-space services on flights operated by both carriers in the following transborder city pairs:

• Los Angeles-Guadalajara;
• Los Angeles-Mexico City; and
• New York-Mexico City;

(4) a statement of authorization under 14 C.F.R. Part 212, granted most recently on December 4, 1998 through June 1, 1999, to permit the Joint Applicants to continue to engage in codeshare/blocked-space services on flight sectors behind/beyond their U.S. and Mexico gateways (as described in Exhibits B and C of the Joint Applicants' renewal application dated October 9, 1998).

Counsel:  Delta and Shaw Pittman, Robert Cohn / Verner Liipfert, William Evans

American Airlines, Inc. and Aero California, S.A. de C.V.
Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V.

American and Delta, and their respective code-share partners, seek renewal of their statements of authorization to engage in U. S.-Mexico code sharing. United does not oppose their requests so long as United's pending application for renewal of its authority to code share with Compania Mexicana de Aviacion is granted no later than the American/Aero California and Delta/Aeromexico applications.

Counsel:  United and Kirkland Ellis, Jeffrey Manley, 202-879-5161

Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V. / Delta Air Lines, Inc.

This amendment would permit interior starburst codeshare/blocked-space services behind/beyond the Joint Applicants’ gateways, rather than limiting the authority to specific named points. The Joint Applicants’ existing behind/beyond gateway codeshare authority approved by Statements of Authorization dated December 8, 1998, April 22, 1997 (Order 97-6-26), and January 27, 1999 (by Notice of Action Taken) would be subsumed within this blanket Statement of Authorization, along with the other pending codeshare requests in the Joint Applicants’ December 29, 1997 application.

Counsel:  Delta and Shaw Pittman, Robert Cohn, 202-663-8060 / Verner Liipfert, William Evans, 202-371-6030 for Aeromexico

Delta Airlines, Inc. and Aerovias de Mexico, S.A. de C.V.

Before turning to the specifics of the Delta/Aeromexico arrangement, Delta would like to reiterate its serious reservations regarding the Department's new policy of redrafting commercial agreements to eliminate exclusivity clauses. Proposed codeshare arrangements either benefit competition and the public interest and should be approved, or they are detrimental and should be denied. The Delta/Aeromexico codeshare arrangement has injected substantial new competition in the U.S.-Mexico marketplace since its approval in 1994, and there is no reason the Department's public interest evaluation of the relationship should be affected by the subsequent addition of an exclusivity clause. Placing limits on carriers' freedom of contract choices is undesirable because it diminishes the level of commitment that can be achieved between the parties, which is an important component in forming a comprehensive long term commercial relationship. Moreover, while striking exclusivity clauses unnecessarily limits the benefits that can be achieved through an alliance or codeshare agreement, this remedy has proved to be an ineffective means to addressing the Department's competitive concerns.

Counsel:  Verner Liipfert, William Evans for Aeromexico / Shaw Pittman, Robert Cohn for Delta

Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V.

On May 17, 1999, and supplemented on May 24, 1999, Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V. (Aeromexico) filed applications for new and amended regulatory authorities to engage in codesharing operations in the U.S. -Mexico market. The applicants request the immediate grant of these authorities to permit them to exercise valuable new U.S.-Mexico code-share rights without delay. Under the Department's regulations, 14 C.F.R. Part 302, answers to the captioned applications would normally be due June 1, 1999, and replies to answers filed would be due June 10, 1999. So that we may be in a position expeditiously to complete our processing of the Delta/Aeromexico applications, we have decided to shorten the period for filing answers to the these applications to 2 p.m. EDT on May 28, 1999, and to shorten the period for replies to June 1, 1999.

By:  Paul Gretch

Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V. / Delta Air Lines, Inc.

On May 24, 1999, at the request of Department staff, Delta and Aeromexico supplemented their joint applications by providing a copy of the exclusivity clause relating to their marketing relationship, which was executed last year in conjunction with Delta's investment in Aeroperu. It is now clear that every major U.S. carrier-Mexican carrier code-share alliance operates within the purview of a contractual exclusivity clause, most of them in place for a number of years. These contractual provisions have provided the commitment and security needed for carriers to undertake the substantial investments involved in fully developing these relationships. And these investments have paid off in terms of public interest benefits. As anticipated when the code sharing was first authorized, these cooperative arrangements have greatly expanded competition in scores of U.S.-Mexico city-pairs. Consumers enjoy much greater service choice and convenience than existed a few short years ago. Moreover, with the support of code-share alliance members, including United/Mexicana and Delta/Aeromexico, the Department was able successfully to negotiate a substantially liberalized code-share agreement with Mexico in January 1999 to further expand code-share service in the U.S. -Mexico market. In view of these benefits, and consistent with the understandings between the parties and the U.S. and Mexican Governments, the Department should immediately approve the pending applications for expanded U.S. -Mexico code-share authority without interfering with the exclusivity arrangements agreed among the parties.

Counsel:  United and Kirkland Ellis, Jeffrey Manley, 202-879-5161, jeffrey_manley@kirkland.com

Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V.

We understand that the Department's delay is due to policy concerns over exclusivity provisions that are present in each of the three U.S.-Mexico codesharing alliances. American and Aero California urge the Department to resolve this matter promptly, and to act favorably on all pending U.S.-Mexico codesharing applications, at the same time and with the same condition, if any, on exclusivity. Until the Department is prepared to act on all such applications, it should not grant piecemeal authorizations to Delta and Aeromexico.

Counsels:  Steptoe & Johnson, LLP, David Coburn for Aero California, 202.429.8063, and Carl Nelson, Jr. for American, 202.496.5647, carl_nelson@amrcorp.com

Continental urges the Department to grant immediately the long-standing applications of Continental and other carriers for authority to offer code-share service on U.S. -Mexico routes. The late-filed Delta/Aeromexico request for the Department to add new city pairs, grant blanket authority beyond the gateways and delay other requests while Delta and Aeromexico argue about code-share exclusivity raises controversial issues which should not delay the approval of other applications.

Counsels:  Crowell & Moring, LLP for Continental, R. Bruce Keiner, Jr., rbkeiner@cromor.com, and Thomas Newton Bolling, tbolling@cromor.com, 202.624.2500

Although Northwest asserts that the Department should defer action on the applications of Delta and Aeromexico, Northwest has provided no basis for the Department to delay approval of the Delta/Aeromexico requests, while acting immediately to approve the similar requests of other carriers. For these reasons, and the reasons; set forth in Delta and Aeromexico's supplement dated May 24, 1999, the Department should promptly approve all pending U.S.-Mexico codeshare applications, and should do so without imposing any exclusivity conditions.

Counsels:  Verner Liipfert, William Evans for Aeromexico, 202.371.6030, and Shaw Pittman, Robert Cohn for Delta, 202.663.8060

The Department should not allow Delta and Aeromexico to hinder Northwest's ability to begin its proposed U.S.-Mexico code-share services with Alaska and Continental expeditiously. Delta and Aeromexico have opted at the eleventh hour to request new authority from the Department for code-share exclusivity, blanket beyond-gateway authority and additional city pairs even though the Department stands ready now to allocate U.S.-Mexico code-share authority to all applicants. The Department will likely require considerable time and devote much attention to the complex and controversial issues associated with code-share exclusivity for Delta and Aeromexico. Northwest's applications for code-share authority with Alaska and Continental have been pending since February, and their alliance agreements have been filed with. the Department and reviewed. other applications for U.S.-Mexico code-share authority have been pending for lengthy periods of time.

Counsel:  Megan Rae Poldy for Northwest, 202.842.3193

Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V.

By:  Teresa Bingham

Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V.

By failing to articulate a rational explanation for the imposition of an anti-exclusivity condition, and by retroactively nullifying the Delta-Aeromexico exclusive marketing agreement, the Department’s decision violates the arbitrary and capricious standard of the Administrative Procedure Act and constitutes an abuse of discretion.

Counsel:  Delta and Shaw Pittman, Robert Cohn, 202-663-8060

United Air Lines Inc and All Nippon Airways Co., Ltd. and Air France and Delta Air Lines, Inc. and Continental Airlines, Inc. and Continental Express, Inc. and Aerovias de Mexico, S.A. de C.V. and Compania Mexicana de Aviacion, S.A. de C.V.

We reject arguments that we should adopt a laissez-faire approach to exclusive dealings between and among airlines in international air transportation. It is not in the public interest to ignore any feature of a code-share agreement that could interfere with competition or otherwise undermine the ability of consumers to benefit from the opportunities created by our aviation relationships. For that reason, we will continue to assess the merits of code-share exclusivity provisions on a case-by-case basis in light of the terms of the overall arrangement and of the special facts and circumstances affecting each market, such as its structure, the positions of the parties in those markets, and the nature of the bilateral aviation relationship governing it.

By:  Brad Mims

Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V.

By:  Joe Tocke

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