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OST-1999-6345

United Parcel Service Co. and Challenge Air Cargo, Inc.

UPS wishes to purchase all of the scheduled Caribbean and Central and South American authorities held by Challenge in order to enable UPS to dramatically increase its service to and from that region, connecting the region to every address in the United States over UPS’s extensive domestic system and, through the UPS international hub in Louisville, Kentucky, to UPS’s networks in Asia and Europe. The UPS and Challenge systems do not overlap. Other than Costa Rica and the Dominican Republic, there is no foreign point served by Challenge that is also served by UPS. Thus, there will be virtually no reduction in competition. In fact, competition will be increased. The route transfer will result in the replacement of a smaller competitor with a larger one better able to compete with the principal U.S. integrated all-cargo carrier serving the region, Federal Express, as well as with the foreign incumbents.

Counsel:  Zucket Scoutt, Charles Simpson, 202.298.8660 for Challenge Air and Kelley Drye, David Vaughan, 202.955.9600 for UPS

During the transition period, Challenge expects to continue to provide service in Latin American markets that it now serves. It will provide these services using the DC-10-40 freighters in its fleet and/or other aircraft wet-leased from other operators. During the transition, UPS will also make available to Challenge any facilities and services - including, if required, wet leased aircraft to supplement Challenge's own capacity - Challenge may require in order to conduct these operations. In addition, UPS has agreed, through its freight forwarder affiliate, to purchase space on Challenge's flights. Challenge expects that this arrangement will enable it to recover all direct and indirect costs associated with providing these transitional services. Challenge expects to operate on a "break-even" basis during the transition period.

Counsel:  Zucket Scoutt, William Callaway, 202.298.8660

Counsel:  Kelley Drye, David L. Vaughan 

The "Assets, Purchase and Air Route Transfer Agreement," dated 10/4/99, is in actuality a merger agreement and not an agreement to purchase assets, as it purports to be. The INTERVENORS intend to file, but have not yet filed, a charge of unfair labor practice against CHALLENGE as CHALLENGE failed to negotiate in good faith a labor agreement which purported to give substantial rights and employment security to the INTERVENORS, when CHALLENGE knew and did not disclose, that the intended joint application of UPS and CHALLENGE, if approved by the Department of Transportation, would make such rights and employment security non-existent.

Counsel:  Kenneth Kavanaugh, 954.462.5255

The transaction is clearly in the public interest because competition will be enhanced. A smaller carrier with a smaller route system and smaller customer base will be replaced by a more powerful competitor having an extensive route system and large customer base generating 12 million shipments per day. Granting UPS access to this important area of the world will greatly enhance competition in the area and be of enormous benefit to shippers on both UPS’s extensive domestic U.S. network and worldwide networks as well. The substantive arguments raised by the movants are baseless and should be rejected.

Counsel:  Kelley Drye, David Vaughan and Zuckert, Scoutt, William H. Callaway

By:  John J. Madden

The INTERVENORS intend to file, but have not yet filed, a charge of unfair labor practice against CHALLENGE as CHALLENGE failed to negotiate in good faith a labor agreement which purported to give substantial rights and employment security to the INTERVENORS, when CHALLENGE knew and did not disclose, that the intended joint application of UPS and CHALLENGE, if approved by the Department of Transportation, would make such rights and employment security non-existent.

Counsel:  Kenneth Kavanaugh, 954.462.5255

Objections to the proposed transfer of route authority in the captioned proceedings. On December 15, 1999 UPS and Challenge responded to the filing. The same rationale set forth by UPS and Challenge in their Contingent Answer to the earlier filing applies here with respect to both why the Department of Transportation should reject the filings as having been made far too late in the process and why, should the filings be received, the DOT should reject them on the merits. UPS and Challenge incorporate their Contingent Answer filed on December 15, 1999 herein by reference. The only issue raised in the instant Motions and Petition not raised in the earlier filings involves alleged safety considerations. The Movants urge that Challenge pilots have more experience than UPS pilots in flying some of the routes being transferred. The safety concerns expressed by the Movants are baseless. UPS operates to 22 foreign countries today and is obviously capable of conducting safe international operations. Before the Federal Aviation Administration amends UPS's operating certificate to authorize new operations to any foreign country, the FAA will satisfy itself that UPS, from the perspective of the crew training, route proving, etc., is capable of conducting such operations in a safe fashion. Safety is not in question here.

Counsel: Zucket Scoutt, William Callaway, 202.298.8660 for Challenge Air and Kelley Drye, David Vaughan, 202.955.9600 for UPS

Counsel:  Kenneth Kavanaugh, 954.462.5255

Counsel:  Kelley Drye, David Vaughan, 202.955.9600 and Zuckert Scoutt, Wlliam Callaway, 202.298.8660

Counsel: Kenneth Kavanaugh, 954.462.5255

Counsel: Kelley Drye, David Vaughan, 202.955.9600 and Zuckert Scoutt, Wlliam Callaway, 202.298.8660

We tentatively find that the route transfer meets our standards for approval. Specifically, the introduction of UPS' service will provide new service options to the shipping public, more fully use our bilateral route opportunities and enhance competition in the U.S.-Latin America all-cargo market. In these circumstances, we tentatively conclude that approval of the transfer will benefit the public and will not conflict with our international aviation objectives.

We also tentatively find that both carriers will remain fit to provide their authorized services and that the transfer of Challenge's Latin America route authority to UPS will have a positive impact on the viability-of both carriers- Challenge will benefit from the, infusion of new capital to support its future plans. UPS will benefit from the ability to expand its operations to new markets, improving its competitive posture. The improvement in each carrier's viability will enable each carrier to compete more effectively and thereby enhances competition in the airline industry. 

Furthermore, we tentatively find that there will be a positive impact on the U.S. trade position in the international air transportation market as a result of this transfer. Since UPS has a much more extensive route network and worldwide infrastructure than Challenge, UPS will able to provide more effective competition to both foreign carriers and other U.S. carriers in the U.S.-Latin America market. In these circumstances, air commerce between the United States and Latin America should increase, improving the U.S. trade position.

By:  Bradley Mims

By:  Daniel Diz

By:  Robert Alameda

By:  Thereselle Copeland

By:  John Madden

Forty-eight (48) Crewmembers, thirty-two (32) Mechanics and Related Employees and three (3) Stock Clerks will be adversely affected by the transaction under consideration. This is because Challenge's operations could essentially terminate following transfer of its routes to UPS. The tentative agreement reached with Challenge will provide significant, but less than comprehensive labor protection, for all affected employees. Severance payments totaling $2,112,261 will be offered to the Crewmembers; that sum represents both separation pay and the temporary continuation of certain insurance benefits. The Mechanics and Related Employees and Stock Clerks will be offered a total of $715,436 in separation pay and benefit continuation.

Counsel:  Baptiste Wilder, Roland Wilder, 202.223.0723   

Counsel: Zucket Scoutt, William Callaway, 202.298.8660 for Challenge Air and Kelley Drye, David Vaughan, 202.955.9600 for UPS 

By:  John Madden

We have decided to make final our tentative decision in Order 2000-3-2 to approve the transfer of Challenge's Latin America authority to UPS and also to grant Challenge an interim exemption to permit it to continue operating its existing services until UPS is prepared to begin its own operations in the transferred markets.  The record in this proceeding shows that UPS is hiring 90% of the Challenge employees. Moreover, as we noted in our show-cause order, the expansion of UPS' services into Latin America will create jobs, having an overall positive impact on airline workers. Furthermore, it is clear from the record of this proceeding that collective bargaining provisions are in Place to address employment issues and, as noted by the IBT, additional supplemental agreements also have been presented to the pilots relevant to these issues. In this regard, the IBT has stated that supplemental agreements provide an additional two million dollars in separation benefits.

By: Bradley Mims

Although UPS has applied for the foreign governmental licenses and permits required to implement the authority transferred to it by Order 2000-6-7, the process of obtaining those licenses and permits is likely to last well into next year. In the meantime, Challenge is continuing to operate scheduled all-cargo services to Latin America pursuant to the exemption authority granted by the Department and needs to be able to continue to do so until UPS secures the requisite foreign governmental licenses and permits. Renewal of this interim authorization will maintain U.S.-flag service in the markets and use valuable operating rights pending commencement of UPS' service. Since the Department previously has found it to be in the public interest for Challenge to continue operating these services on an interim basis pending receipt by UPS of the relevant foreign governmental licenses and permits, it follows that renewal of Challenge's exemption authority similarly is in the public interest.

Counsel:  Zucket Scoutt, William Callaway, 202.298.8660 

Scheduled foreign air transportation of property and mail between Miami, Florida and various points in Latin America. Challenge requests that this interim authority be effective for one year or until UPS obtains the requisite foreign governmental authority to provide these services in its own name, whichever occurs earlier.

By:  Paul Gretch

By:  Thereselle Copeland

Counsel:  UPS and Kelley Drye, David Vaughan, 202-955-9792

By:  Read Van de Water

Hereby applies for renewal of its certificate authorizing UPS to engage in the scheduled foreign air transportation of property and mail between Miami, Florida and Los Angeles, California; via intermediate points in Colombia, Ecuador, and Panama; and the coterminal points Manaus, Brasilia, Rio de Janeiro, Sao Paulo, Recife, Porto Alegre, Belem, Belo Horizonte, and Salvador, Brazil. The authority was originally granted by the Department in Order 2000-6-7 dated May 3, 2000 in the captioned docket. UPS further requests the right to integrate such authority with its other certificate and exemption authority to provide foreign air transportation. UPS will accept the standard condition that any services operated pursuant to such route integration authority be conducted in accordance with all applicable agreements between the United States and the foreign countries to which such services are operated.

Counsel:  Kelley Drye, David Vaughan, 202.955.9792, dvaughan@kelleydrye.com 

Hereby supplements its Application in the captioned docket filed on May 30, 2002, to clarify that UPS is seeking renewal of only the authority contained in Segment Two of Route 795 (Miami/Los Angeles-Brazil) of its certificate for Route 795. The remainder of the authority in that certificate is permanent and thus there is no need for renewal.

Counsel:  Kelley Drye, David Vaughan, 202.955.9792, dvaughan@kelleydrye.com

July 8, 2003

Application for Temporary Waiver of Dormancy Conditions

The Department of Transportation in this docket, granted certificate authority on Segment 2 of UPS' Route 795 to serve the Miami-Brazil market with four (4) weekly frequencies. As is customary in limited-entry markets such as Brazil, the Department conditioned the grant of authority on continuous use of the frequencies--whereby failure to use a frequency for 90-days would result in the expiration of the authority for such frequency. It is from this dormancy condition that UPS now seeks a waiver for one half of one (1/2) of its four (4) allocated frequencies. UPS will continue to operate three and one-half (3 1/2) frequencies in accordance with all Department conditions. UPS has discontinued service with one (1) weekly narrow-body aircraft.

Counsel: Kelley Drye, David Vaughan, 202-955-9864, dvaughan@kelleydrye.com

OST-99-6345 - US-Brazil All-Cargo Service
OST-03-15686 - US-Brazil All-Cargo Service

July 16, 2003

Correspondence of Kelley Drye

Counsel: Kelley Drye, David Vaughan, 202-955-9864, dvaughan@kelleydrye.com

Order 03-10-12
OST-1996-1131 - United - US-Japan
OST-1996-1873 - United - US-Japan, The Philippines, and Vietnam on Route 130
OST-1995-370 - Continental - Newark-Lima,Peru
OST-1996-1248 - United - US-Japan, The Philippines, and Vietnam on Route 130
OST-1999-6345 - UPS and Challenge Route Authority

Issued August 26, 2003 | Served October 20, 2003

Order Issuing Certificates | Word

The certificates issued to United Air Lines, Inc. (United) to serve Japan and the Philippines, and United Parcel Service Co. (UPS) to serve Colombia, Ecuador, and Brazil are granted for a five-year term; the certificate issued to United to serve Peru is granted for an indefinite duration.

By: Michael Reynolds

April 14, 2008

Application for Renewal of Certificate Authority

UPS hereby applies for renewal of its certificate authorizing UPS to engage in the scheduled foreign air transportation of property and mail between Miami, Florida and Los Angeles, California; via intermediate points in Colombia, Ecuador, and Panama; and the coterminal points Manaus, Brasilia, Rio de Janeiro, Sao Paulo, Recife, Porto Alegre, Belem, Belo Horizonte, and Salvador, Brazil.

The certificate authority was most recently reissued by the Department in Order 2003-10-12 dated October 20, 2003 in the above-captioned docket. UPS requests that the renewal be granted for a period of at least five years.

UPS is currently operating regularly scheduled all-cargo service in the Miami/Los Angeles-Brazil market.

Counsel: Kelley Drye, David Vaughan, 202-342-8462, dvaughan@kelleydrye.com

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