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• GAO Report on Proposed AA/BA Alliance

• "International Aviation Alliances: Market Turmoil and the Future of Airline Competition. " - Senate Judiciary Testimony from Nov 7, 2001

• US-UK Bilateral

• US-European Union Open Skies Agreement

American Airlines, Inc. and British Airways PLC; U.S.- U.K. Alliance Case

On November 19, 2001, Delta Air Lines, Northwest Airlines, and Continental Airlines filed a joint Motion for an Oral Evidentiary Hearing Before an Administrative Law Judge. Under the Department's regulations, answers to the Motion would normally be due within seven days. By this Notice, we are calling for answers to this Motion to be filed by Monday, November 26, 2001, to expedite consideration of the motion.

By:  Read Van de Water

We find that the consolidation of the AA/BA and United/bmi cases will improve our ability to analyze and correctly decide the issues presented in each case and will not delay our decision on either alliance proposal. Our ruling on the consolidation motion is thus consistent with our authority under 49 U.S.C. § 46102 to "conduct proceedings in a way conducive to justice and the proper dispatch of business." Our procedural rules state that we may consolidate proceedings when that "will be conducive to the proper dispatch of [the Department's] business and to the ends of justice and will not unduly delay the proceedings.

The AA/BA and United/bmi applications present major common issues, since our decision on each proposal will require us to consider the current state of competition in U.S.-London markets and the impact of each alliance on competition in those markets. Those issues according to several parties will require us to consider the ability of other U.S. airlines to enter Heathrow and to expand service there. As Northwest has pointed out, moreover, AA/BA and United/bmi believe that the potential implementation of the other alliance proposal is relevant to our consideration of their own proposal. AA/BA contend that the existence of the United/bmi alliance is one factor showing that their own alliance will not reduce competition. United/bmi contend, on the other hand, that their alliance is necessary for creating a competitive counterweight to the alliance between AA and BA.

We therefore agree with Northwest, Continental, Delta, and Virgin Atlantic that the issues involved overlap to the degree that simultaneous consideration is warranted; still more important, the resolution of each pair of proceedings is likely to affect the outcome of the other. Consolidation will avoid duplication of resources both for the Department and for the parties, and will permit us to consider the merits and issues together and reach a single, comprehensive decision. Consolidation will allow parties and the Department to address the common issues involved more efficiently and avoid the need otherwise to cross-reference evidence and issues being considered on separate procedural tracks. In addition, consolidation should result in speedier disposition of the various applications than would have been possible on separate procedural tracks.

Consolidating the cases will thus cause no delay in our decision on either alliance proposal. If we were not consolidating the cases, we would still consider them simultaneously. United and its partners themselves, even as they oppose consolidation, urge us "to proceed to a consideration of both alliance applications on an expedited basis." Our decision here permits us to do just that. Their concern that "the American/BA alliance raises far more controversial competition issues than does the United/bmi application" is thus not determinative-neither case will be delayed, and both should ultimately be further expedited.

We disagree, however, that we must immediately direct American and BA to make public certain material already in the confidential portion of the record. Our foremost concern is that due process be satisfied by the parties having access to this material, and this has been done. Continental has not claimed that it will be unable to present its arguments if the information remains confidential. We do not generally rule on confidentiality motions in a piecemeal fashion, and we see no need to do so here. We will rule on the confidentiality motions by a separate order.

Finally, Continental's request to ensure the availability to European authorities of confidential material in the American/ BA proceeding has been mooted by the joint Applicants' waiver of confidentiality for that purpose. To the degree that, as Northwest argues, the Joint Applicants' waiver is limited, we leave to the European competition authorities the decision as to whether they require additional information. Those authorities have ample power and jurisdiction to seek what data they need; moreover, in contrast to Northwest's view, we have no power to bind those authorities to our confidentiality standards-the confidentiality of material submitted to them is a matter between them and the parties to their proceedings. We therefore dismiss the fourth portion of Continental's motion without reaching the merits.

By:  Read Van de Water

Counsel:  American, Carl Nelson, 202.496.5647, carl_nelson@aa.com and Boros Garofalo, Don Hainbach, 202.822.9070, dhainbach@bgairlaw.com 

Counsel:  Wilmer Cutler, Bruce Rabinovitz, 202.663.6960, brabinovitz@wilmer.com , and Silverberg Goldman, Michael Goldman, 202.944.3305, and Squire Sanders, Marshall Sinick, 202.626.6651 

Counsel:  Wilmer Cutler, Bruce Rabinovitz, 202.663.6960, brabinovitz@wilmer.com

Counsel:  British Airways, Paul Jasinski, 713.397.4250

Counsel:  Virgin Atlantic Airways, Hugh Ford, 44.1293.747.622, hugh.m.ford@fly.virgin.com 

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

Counsel:  Northwest, Megan Rae Rosia, 202.842.3193

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

Attachment A summarizes U.S.-U.K. frequency changes for American, British Airways, and other carriers since September 11, 2001. Attachment A also shows which canceled or suspended frequencies appear to have been restored in schedules for summer 2002 based on current OAG information, as well as information in Annex 2 submissions.

Order 2001-11-10, p. 13 n. 36, also requires the joint applicants to provide "the most recent documents regard-ing... any planned (or current draft) transatlantic schedules to be implemented for each of two years after implementation of the proposed alliance." As the joint applicants stated in their application submitted on August 10, 2001 (OST-2001-10387), and again in a confidential joint response to Order 2001-9-15 on September 28, 2001 (OST-2001-10387 and 10388), the joint applicants have not yet finalized any schedule changes to be made after implementation of the proposed alliance.

However, the joint applicants used best efforts to comply with Order 2001-9-15 by providing preliminary draft schedules for winter 2002 (November 2002 - March 2003) and for summer 2003 (April 2003 - October 2003). See joint response of September 28, 2001, item 5. The joint applicants generally anticipate that transatlantic schedules will be restored to pre-September 11 levels by the time they are able to implement an immunized joint alliance schedule. Accordingly, the joint applicants confirm that they currently do not intend to revise the foregoing preliminary schedules based on the effects of September 11.

Finally, American and British Airways are separately submitting confidential documents responsive to Order 2001-11-10 under a joint motion for confidential treatment pursuant to 14 CFR 302.12.

Counsel:  American, Carl Nelson, 202.496.5647, carl.nelson@aa.com British Airways, Paul Jasinski, 718.397.4250

Counsel:  American, Carl Nelson, 202.496.5647, carl.nelson@aa.com British Airways, Paul Jasinski, 718.397.4250

Continental served United's counsel today with the confidential versions of its pleadings submitted on November 2 and 8, 2001, in Dockets OST-01-10387 and OST-01-10388. United withdraws footnote 1, except for the first sentence, of its November 9, 2001 consolidated reply to answers to the American/British Airways application in Docket OST-01-10387.

Counsel:  Wilmer Cutler, Jeffery Manley, 202.663.6670, jmanley@wilmer.com and Crowell Moring, Bruce Keiner, 202.624.2500

Continental' strongly supports Northwest's November 16 motion to strike the American/British Airways appendices to their November 9 reply since acceptance by the Department would severely prejudice Continental and other interested parties which have been denied any meaningful opportunity to analyze them and respond to the summary and fallacious conclusions in them. The Department's original procedural schedule did not even allow Continental and other interested parties the opportunity to respond to the American/British Airways appendices submitted on November 9, which is apparently the reason American and British Airways have withheld this material since August 10, to the detriment of due process and fairness in this proceeding. As American and British Airways are aware, these appendices include thirty separate analyses and studies raising complex issues and assumptions. The Department must not reward the wanton tactics of American and British Airways to circumvent the requirements of due process by failing to include these appendices in the American/British Airways application submitted to the Department thirteen' weeks earlier. If, despite Northwest's compelling arguments, these appendices are not stricken, minimum due process requires that Continental and other interested parties be given the opportunity, as part of an oral evidentiary hearing, to submit rebuttal exhibits by other experts, cross-examine the authors of the appendices and submit briefs to an Administrative Law Judge who can evaluate the conflicting expert testimony objectively.

Counsel:  Continental and Crowell Moring, Bruce Keiner, 202.624.2500

Continental, Delta and Northwest do not object to the joint motion for extension of time submitted by American and British Airways on November 21 so long as the due dates established by Order 2001-11-10 for answers and replies are deferred for at least the same periods as the extension of time requested by American and British Airways and the Applicants submit complete updates in accordance with the Department's regulations in 14 C.F.R. 303.04 on November 28. Thus, answers would be due no sooner than December 17 and replies would be due no sooner than December 24. Extending the due date for the applicants without providing a commensurate extension for other parties would be manifestly unfair.

As stated in the letter dated November 21, 2001 filed in the above referenced proceedings, United Air Lines, Inc. on behalf of United, British Midland Airways Limited, Austrian Airlines, Osterreichische Luftverkehrs AG and Lauda Air Luftfahrt AG, Deutsche Lufthansa AG, and Scandinavian Airlines System  hereby submits revised Exhibits JA-7, -8 and -9, which were submitted in conjunction with their September 5, 2001 joint application for approval of and antitrust immunity for an Alliance Expansion Agreement and an Amended Coordination Agreement. These exhibits provide U.S.-Europe and U.S.-U.K. seat and traffic shares based on OAG and CRS booking data. The updated information contained in these revised exhibits does not materially alter the analysis and conclusions set forth in the joint application.

Counsel:  Wilmer Cutler, Briabinovtiz, 202.663.6960, brabinovitz@wilmer.com 

For the reasons explained in the Joint Motion, an oral evidentiary hearing is essential to develop, evaluate and resolve the substantial issues of disputed material fact entailed by this extraordinarily complex case. The answers submitted in response to the Joint Motion fail to refute this inevitable conclusion. Neither American/British Airways nor United/bmi dispute that numerous factual issues are highly controverted and that significant discrepancies exist in the documentary evidence. Nor have the alliance applicants offered an explanation of why the Department's reasons for previously determining to hold an oral hearing to consider London Heathrow alliance issues do not also apply to this case. Instead, the alliance proponents have thrown up a few hollow procedural arguments and urged the Department to side-step the vital hearing process in the interest of expedience. Given the extraordinarily high public interest stakes involved, the Department should give this case the full and careful consideration it deserves.

Counsel:  Northwest, Megan Rae Rosia, 202.842.3193, Delta, Shaw Pittman, Robert Cohn, 202.663.8060, and, Continental, Crowell Moring, Bruce Keiner, 202.624.2500

Counsel:  Squire Sanders, Elizabeth Collins, 202.626.6600, ecollins@ssd.com

INDEX OF CONFIDENTIAL DOCUMENTS OF UNITED AND bmi

Counsel:  Wilmer Cutler, Bruce Rabinovitz, 202.663.6960, brabinovitz@wilmer.com, and Squire Sanders, Marshall Sinick, 202.626.6651, msinick@ssd.com 

We begin by noting that neither the statute nor our rules require oral evidentiary hearings in alliance cases. Moreover, opponents of the motion correctly note that the motion has been filed long after the deadline for such requests under our rules. Nevertheless, because of the complicated procedural history of the case, including the institution of this new, consolidated proceeding, we will address the motion on its merits.

Our rules explicitly provide that we may choose between an oral evidentiary hearing and show-cause procedures when we consider whether to approve and immunize agreements affecting international air transportation. Given the lack of any statutory requirement for a formal hearing, we have the discretion to determine whether oral evidentiary hearing procedures are necessary or appropriate. We have never used formal hearing procedures in such cases. We have concluded that holding an oral evidentiary hearing in this proceeding is unnecessary and that we can properly decide the factual issues without such procedures.

The Joint Movants have accurately noted that oral evidentiary proceedings are appropriate to develop facts in certain circumstances, and have enumerated several significant issues alleged to belong in this category. We disagree, however, that an oral evidentiary hearing is therefore needed in this case. Assuming arguendo the relevance and intricacy of the issues discussed, we note that the importance and even complexity of issues, including factual issues, do not automatically imply that oral evidentiary procedures are necessary. Rather, the question is whether there are material issues of fact whose resolution requires such procedures. We have not been convinced that such issues exist here. We have routinely decided factual issues involving economic and policy questions in other cases of similar complexity without a formal hearing; we believe that similar issues can be resolved here without ALJ hearing procedures. In addition, holding a formal hearing would require a significant amount of time and thereby delay our final decision. We have not made any decision in this case, but we do not wish to see our options limited by external events that would forestall any particular result. As all the parties recognize, and as we have stated earlier in this case, we would like to be able to issue our decision in this case by early next year. A timely decision would enable us to take advantage of this potential opportunity to achieve an open skies agreement with the United Kingdom, if the outcome of our negotiations and our decision on the merits lead to that result.

We are well aware, of course, that our statute and precedent require us to determine whether the alliance satisfies the antitrust test (or, if not, the public benefits and transportation needs test in the statute). We intend to carefully examine these issues, which we believe can be accomplished by using show-cause procedures, and to give every party a fair opportunity to present its evidence and arguments on the issues.

We find it unnecessary to strike the material in question from the record. Northwest may well be correct in arguing that much, if not all, of the material should have been filed as part of the application submitted by American and British Airways. All parties now have, however, additional time to consider these materials and to respond to them, including the question of their substantiation or lack of it. We see no prejudice to opponents in allowing them an opportunity to refute or rebut evidence and arguments, rather than ignoring them. Therefore, in the interests of a complete record and in the absence of prejudice to interested parties, we deny both Northwest motions.

By:  Read Van de Water

We are enclosing statements by the Chairman and Ranking Member of the U.S. Senate Judiciary Subcommittee on Antitrust, Business Rights and Competition, the ranking Democratic Member of the U_ S. House of Representatives Committee on Transportation and Infrastructure, the Governors of Alaska and South Dakota, and the President of the International Brotherhood of Teamsters raising serious concerns about the proposed alliance between American Airlines and British Airways. We request that the enclosed statements be placed in the record.

Counsel:  Northwest, Megan Rae Rosia, 202.842.3193, megan.rosia@nwa.com 

The opponents' request for six additional calendar days to prepare their second round of answers reflects a comprehensive coordinated campaign to defeat the American/British Airways alliance by stalling any decision on the merits until after the U.S. and U.K. lose their ability to negotiate an open skies agreement. The request is without merit and should be denied.

Counsel:  American, Carl Nelson, 202.496.5647, carl.nelson@aa.com, British Airways, Paul Jasinski, 718.397.4250

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

I know that you swear that all input is being considered and I realize this article never directly quotes the DOT but it is stuff like this that confirms for us that you all have signaled your approval. NVD, your neighborly clipping service.

From London's "Mail on Sunday." - BA clinches its American tie-up - Graeme Beaton, Mail on Sunday 9 December 2001

By:  Nancy Van Duyne, nvandu@coair.com 

If it is true that British Airways may withdraw all of its short-haul services (including those at Heathrow), that completely undermines the Joint Applicants' purported justification for establishing a transatlantic alliance. It confirms what the Petitioners have been saying all along - that the alliance's real strategic purpose is not to provide network connectivity for U.S.-Europe transfer passengers, but rather to focus almost exclusively on capturing long-haul U.S.-London Heathrow gateway passengers. A decision by British Airways to withdraw all of its short-haul intra-European services would effectively eliminate the alleged network benefits of the American/British Airways alliance since there would be few, if any, connections to European cities beyond London.

Counsel:  Northwest, Megan Rae Rosia, 202-8422-3193 / Continental and Crowell Moring, Bruce Keiner, 202-624-2500 / Delta and Shaw Pittman, Robert Cohn, 202-663-8060

If and when the U.S. Government reaches a new, liberalized bilateral agreement with the British, and before it grants antitrust immunity to the AA-BA and/or UA-BD alliances, it is incumbent upon the U.S. Government to ensure that US Airways has competitive access from each of its domestic network gateways to Heathrow. Such access necessarily entails commercially viable slots and competitive groundside and vital support facilities, including gates, club rooms, and ticket counters. Since US Airways has no alliance partner with which to trade slots and share airport facilities, it is in the unique position of having to rely solely on the U.S. Government to obtain from the U.K. competitive access to Heathrow. And, split operations between Heathrow and Gatwick are not a commercially viable option for US Airways, a small, new entrant carrier.

Counsel:  O'Melveny Myers, Joel Burton, 202.383.5300 

Counsel:  American, Carl Nelson, 202.496.5647, carl.nelson@aa.com, British Airways, Paul Jasinski, 718.397.4250

Counsel:  British Airways, Paul Jasinski, 718.397.4250

Counsel:  Continental and Crowell Moring, Bruce Keiner, 202.624.2500

By:  Daniel Kasper, 617.252.9994

Dallas/Fort Worth has already strongly expressed in previous pleadings its position that the American/BA alliance should be approved with antitrust immunity because coordinated and immunized American/BA services will enable DFW to receive nonstop service to Heathrow Airport in London for the first time. Dallas/Fort Worth also stated that no useful purpose would be served by "carving out" the DFW-London route from antitrust immunity. Finally, DFW insisted that if the Department decides to condition its approval of the American/BA Alliance on a "slot surrender" remedy, the DFW-London route should be treated the same as other U.S.-London "overlap" routes losing a nonstop competitor as a result of the American/BA alliance. Dallas/Fort Worth takes no position as to whether the United/bmi alliance should be approved because these alliance carriers have not indicated any intention to provide nonstop service between DFW and London. We, nevertheless, believe that approval of the United/bmi alliance will enhance overall competition between the U.S. and U.K. and provide increased competition for the American/BA Alliance specifically.

Counsel:  Silverberg Goldman, Michael Goldman, 202.944.3305 

Counsel:  Shaw Pittman, Alexander Van der Bellen, 202.663.8060

OST-01-11029	December 17, 2001	Answer of The Department of Justice Scanned Copy	U.S.- U.K. Alliance Case
		Exhibits in Native PDF Format
		Appendix A (Scanned Copy)
		Appendix B (Scanned Copy)
		Exhibits 1-5 (Scanned Copy)
		Exhibits 6-8 (Scanned Copy)
		Service List
OST-01-11029	December 17, 2001	Motion of The Department of Justice for Confidential Treatment	U.S.- U.K. Alliance Case

By:  Department of Justice, Robert Young

Counsel:  Leftwich Douglas, Rebecca Taylor, 202.434.9100

Counsel:  Northwest, Megan Rae Rosia, 202.842.3193, megan.rosia@nwa.com 

By:  Virgin Atlantic, Hugh Ford, 44.1293.747.622, hugh.m.ford@fly.virgin.com

The Joint Motion accurately describes recent press reports indicating that British Airways has under consideration a major restructuring of its business, including the possibility that all short haul flying presently maintained at London's Heathrow Airport will be discontinued. These press reports also portend the possibility of the total elimination of all British Airways' operations at Gatwick Airport. Virgin Atlantic agrees with the movants that these developments, if true, call into question two of the justifications the Joint Applicants have proffered in support of approval of their application, namely that an American/BA alliance would create new interline connecting opportunities of value to US-Europe passengers, and that Gatwick is a good substitute for Heathrow. For the reasons stated in the Joint Motion, any new studies calling for significant restructuring in these areas must be supplied to insure that the evidentiary record is complete and accurate.

By:  Virgin Atlantic, Hugh Ford, 44.1293.747.622, hugh.m.ford@fly.virgin.com

Counsel:  Northwest, Megan Rae Rosia, 202.842.3193, megan.rosia@nwa.com 

We believe that while there are some factual differences between the American/British Airways immunity application in 1997-1999, and the present applications, the underlying situation of infrastructure constraints and potential market power concentration remain unchanged. In fact, the fact pattern presented today presents even more concern with regard to market power concentration in the relevant market(s) Immunized alliances require market conditions that protect consumers and competition. It is our position that this protection can only be provided where there are no significant restrictions on the ability of other airlines to enter the markets served by the alliance partners and to respond freely to their initiatives. We certainly have made many statements regarding the recognition of the potential benefits in the international context of such alliances, particularly end-to-end combinations. However, we have equally expressed concern regarding potential issues of competition policy relative to the alliances.

In particular, as was the case in 1997-99, we are concerned that the proposed alliances here are likely to harm competition and lead to higher fares for consumers in numerous U.S.-London and U.S.-Heathrow city-pair markets. Heathrow is a distinct market, separate from service to Gatwick Airport. Heathrow is strongly preferred by business travelers. The fact that service from U.S. points to Heathrow commands a substantial revenue premium over service from U.S. points to Gatwick is confirmation that service to Heathrow must be considered a distinct market.

The proposed American/ British Airways alliance is unlike any alliance the Department of Transportation has ever approved. That was also the case with the original American/British Airways proposal. First, of course, no other alliance has ever involved the two principal competitors in the largest U. S. international aviation market. Second, the alliance is not structured to provide primarily new end-to-end network service benefits of the sort that have justified the approval of other alliances As is discussed in pleadings filed by other parties, the proposed alliance appears designed to consolidate the positions of American and British Airways in the overlap markets in which they are the principal competitors and to facilitate the reduction of capacity, at least by British Airways, in the overlap Heathrow markets.

Counsel:  Robins Kaplan, Charles Hunnucutt, 202.775.0725 and Ferguson Group, Bradley Mims, 202.331.8500

Notice of Michael Jackson, Deputy Secretary of the Department of Transportation, reporting the oral communication on November 15, 2001, providing the latest procedural schedule for the American Airlines/British Airways' application for antitrust immunity, to Richard Anderson, CEO of Northwest Airlines.

By:  Michael Jackson

Notice of Read Van de Water, Assistant Secretary for Aviation and International Affairs, reporting the oral communication on November 30, 2001, providing the latest procedural schedule for the American Airlines/British Airways' application for antitrust immunity, to Clint Highfill of Senator Tom Daschle's office.

By:  Read Van de Water 

Counsel:  Garfinkle Wang, Elliott Seiden, 703.533.0900

American Airlines, Inc. and British Airways Plc hereby jointly move for immediate issuance of an order denying Richard H. Anderson, CEO of Northwest Airlines, Inc. access to all confidential materials filed by American and British Airways in Dockets 10387 and 11029 pursuant to 14 CFR 302.12. As chief executive officer, Mr. Anderson is the foremost commercial decision maker at Northwest, and cannot realistically function as "counsel" on behalf of his company (or himself) in this proceeding. While American and British Airways have been tolerant of the 26 affidavits filed thus far by Northwest representatives, including its president, to now add the chief executive officer at this late date would make a mockery of the affidavit process.

The confidential materials submitted by American and British Airways include each company's most competitively sensitive strategic planning documents. No matter how well intentioned, Mr. Anderson will not be able to ignore the confidential knowledge he obtains when making strategic decisions for Northwest, which competes directly with both American and British Airways.

Counsel:  American, Carl Nelson, 202.496.5647, carl.nelson@aa.com, and British Airways, Paul Jasinski, 718.397.4250

There is serious question as to whether any remedies could be imposed sufficient to overcome the adverse competitive impacts of the alliance. However, if the Department is able to obtain such remedies and grant approval to the alliance in connection with an open skies agreement, the DOJ correctly identified timing as a critical issue, and urged the Department to "limit immunity ... until other carriers are able to actually begin operating at LHR to offset that harm." DOJ at 6. Delta agrees with the DOJ that timing is critical, and that Delta and other new entrants should have full competitive access to Heathrow on Day One the alliance is allowed to conduct any code-sharing or joint immunized activities at Heathrow. Otherwise, the alliance will be able to advance its already enormous lead in locking up key frequent business travelers and corporate customers. Even without immunity, the alliance has been able to capture increased traffic by pooling frequent flyer programs and through other cooperative efforts.

Counsel:  Shaw Pittman, Alexander Van der Bellen, 202.663.8060

Counsel:  Crowell Moring, Lorraine Halloway, 202.624.2500

DOJ's aggressive analysis, if nothing else, totally undermines the extravagant regulatory demands of competitors. DOJ embarked on a decidedly one-sided piece of advocacy designed to draw only negative inferences from the facts, and to present only arguments that portray negatively the proposed alliance. DOJ also chose simply to ignore many of the arguments and much of the factual record put forward by American and BA in support of their alliance. The stridency of I)OJ's arguments is apparent, as is the lack of justification in this record for DOD's proposed nine slot remedy. The nine slot remedy proposed by DOJ is based on unsupportable evaluations of the London routes to New York and Boston.

Counsel:  American Carl Nelson, 202.496.5647, carl.nelson@aa.com 

Counsel:  American Carl Nelson, 202.496.5647, carl.nelson@aa.com 

Counsel:  American Carl Nelson, 202.496.5647, carl.nelson@aa.com 

Simply put, combining the only two U.S. carriers currently holding slots at London Heathrow with the two largest U.K. slot holders at Heathrow is a "dangerous combination", massively increasing concentration at London Heathrow and preventing new entrants from obtaining the slots and facilities necessary to institute new, competitive U.S.-London service. Even taken alone, without United/bmi, a combined American/British Airways would control over 60% of the U.S.-Heathrow market in terms of frequency shares yet, taken together, American/British Airways and United/bmi would trul dominate London Heathrow with 84% of U.S.-London Heathrow frequencies and a frequency share of over 80% in 9 of 11 nonstop London Heathrow markets. Together, the proposed American/British Airways and United/bmi duopoly would create a level of concentration at London airports greater than a merger between the four largest U.S. carriers or combining the top 11 European airlines. The Cleveland Parties and other parties know from experience, however, that London airports are not open for new service, and it is astounding that the U.S. could consider pursuing a U.S.-U.K. "open skies" agreement while real access at London Heathrow and London Gatwick is not possible. As Continental has noted, since U.S. airlines can already provide unlimited service to every other point in the U.K, the only benefit of "open skies" between the U.S. and U.K.

By:  Mayor Michael White, and Greater Cleveland Growth Associates, Dennis Eckert

Continental continues to believe that the anticompetitive impact of an American/British Airways alliance coupled with a Unitedlbmi alliance at London Heathrow would be so harmful that the applicants' requests for immunity from the antitrust laws ;should be denied. Justice has correctly identified many of the harms which would flow from approval of an American/British Airways alliance and developed remedies which could ameliorate, but not eliminate, those harms. Nonetheless, even if the remedies proposed by Justice and additional remedies proposed by Continental and others were imposed, the American/British Airways alliance would continue to harm competition, as Justice itself has recognized. Under these circumstances, Continental believes that outright disapproval is the only sure means of maintaining competition on U.S.-London routes and requiring the applicant carriers to find less -anticompetitive alternatives to meet their legitimate objectives.

Counsel:  Crowell Morning, Bruce Keiner, 202.264.2500

Delta Reply - December 20th

FedEx is particularly concerned that none of the parties, including the Department of Justice, have fully addressed the immensely valuable benefits of open skies to U.S. shippers and exporters. An open skies agreement will reduce costs and increase flexibility for U.S. shippers by removing regulatory impediments to efficient air express/cargo routings. As previously discussed, all-cargo operators require open fifth-freedom rights, broad route flexibility, and Continental's answer for example is misleading, in that it states that "[t]he only benefit" will be opening access to Heathrow and Gatwick.

Counsel:  FedEx, Nancy Sparks, 202.756.2461, nssparks@fedex.com 

The proposed merger of United and bmi, both major slotholders at London Heathrow airport, would compound these anticompetitive effects. The Connecticut/New Jersey/New York region served by Newark International Airport is the largest travel market in the U.S. for domestic and international travel, and the current restrictions on slots and facilities at London's Heathrow and Gatwick airports make it impossible for other airlines serving Newark International Airport to compete effectively ,with an immunized American/British Airways alliance. The proposed alliances should be rejected because they will decrease service options and increase prices for U.S.U.K. air transportation for New Jersey travelers and businesses unless Newark International Airport's hub carrier, Continental, is able to secure sufficient competitive slots and acilities at London Heathrow to offer meaningful competition for the combined American/British Airways and United/bmi operations.

By:  Regional Business Partnership, Chip Hallock

In Northwest's view, the estimates of new competitive service and associated slots that U.S. carriers participating in this proceeding have indicated they need are the benchmark for satisfying this requirement. Without repeating the detailed analysis supporting those estimates, suffice to say that at least 448 slots (reduced to account for those to be used by non-Heathrow U.S. carriers proposing service at Boston or New York) are required by U.S. carriers to accommodate competitive service.. Anything short of this would ignore good faith explanations of new service requirements and would fail to meet the public interest standard governing this proceeding.

It is fair to say that the U.S. airline industry is at a turning point. Only by opening markets and preserving competitive opportunities will the chances of returning to pre-September 11 conditions be optimized. Without the remedies proposed by Northwest and the Department of Justice, those opportunities will be lost, millions of consumers will suffer the consequences of irrevocably lost competition, and Open Skies will be no more than a tombstone for the resting place of competitive air service between the U.S. and London.

Counsel:  Northwest, Megan Rae Rosia, 202.842.3193, megan.rosia@nwa.com 

Counsel:  Northwest, Megan Rae Rosia, 202.842.3193, megan.rosia@nwa.com 

Counsel:  Northwest, Megan Rae Rosia, 202.842.3193, megan.rosia@nwa.com 

United strongly endorses American's and BA's joint motion. Allowing key executives such as Mr. Anderson to review sensitive and confidential commercial information competitors are required to produce in Department proceedings is clearly highly anti-competitive. Over the years, the Department has developed its affidavit procedures for the handling of documents filed in Department proceedings on a confidential basis to balance the due process interests of parties participating in those proceedings with the public interest in maintaining the confidentiality of commercially and competitively sensitive information applicants are required to produce. The balance the Department has struck is to allow counsel and outside experts to have access to documents filed on a confidential basis, subject only to the filing of an affidavit agreeing not to disclose information contained in the documents. As American and BA point out in their Motion, those procedures do not contemplate affording access to those documents to key corporate executives responsible for a company's commercial decisionmaking solely due to the fact that the executive fortuitously happens to be a lawyer. As American and BA also point out, the issue here is not Mr. Anderson's (or any other executives') good faith, but the clear potential for anti-competitive effects arising from the fact that a business executive directly responsible for Northwest's most fundamental strategic decisions is gaining access to its competitors' most sensitive planning documents.

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

No party argues, as indeed it cannot, that the United/bmi alliance would reduce competition in any city-pair market. There are simply no markets in which United and bmi compete. The DOJ, the only impartial party filing comments on the alliances, has concluded: We do not oppose including immunity for the UA/bmi transaction as part of an otherwise beneficial trade. Approval of the UA/bmi alliance presents no appreciable harm relative to the status quo because bmi is currently not an actual or potential competitor in U.S.-London markets -it is prohibited by Bermuda II from operating to the U.S. from its LHR base.

Certainly, the DOT must give greater weight to the disinterested position of DOJ than to the self-serving positions of the other parties that have commented on these alliances. The problem before the Department is how to condition the American/BA alliance so as to preserve competition without jeopardizing the ability to conclude an open skies agreement with the U.K. DOJ's comments offer helpful guidelines for such conditions. It is clear that once the necessary conditions have been settled upon, there is no impediment to approval of the expanded United/bmi alliance and implementation of an open skies agreement.

Some parties have suggested that certain of the conditions imposed on the American/BA alliance should also be imposed on the expanded United/bmi alliance. These suggestions relate primarily to the ever-vexing issue of slot divestitures at Heathrow. Because United/bmi are not part of the competitive problem at Heathrow, however, there is absolutely no basis for the Department to impose any slot divestiture conditions on United/bmi. Indeed, since United/bmi are committed to becoming a significant competitor to an immunized American/BA alliance, it would be counterproductive to require United/bmi to contribute any of their limited slot holdings to the solution of the competitive problems caused by the American/BA alliance. United/ bmi have what one party calculates as less than 17% of the commercially viable slots at Heathrow compared to the American/BA Share of nearly 42%. United/ bmi have made clear that they require additional slots in order to grow at Heathrow to compete more effectively with an immunized American/BA alliance. To require United or bmi to divest slots from their much smaller holdings would be fundamentally unfair and completely inconsistent with any rational competition policy.

Finally, at least one party has suggested that antitrust immunity for American/BA be phased into effect so that it does not become fully effective until the carriers receiving divested slots are ready to begin service. DOJ Comments at 54. United and bmi take no position on that phasing proposal except to note that it should have no applicability to the effectiveness of immunity for the expanded United/bmi alliance. bmi is no less a new entrant to U.S.-Heathrow routes than the non-incumbents that are demanding LHR slots through divestitures. bmi and its partners need the same head start as any other new entrant to build an alliance at Heathrow that can compete with a combined American/BA. In these circumstances, United and bmi should be allowed to implement their expanded alliance as soon as that is possible under a U.S./U.K. open skies agreement and without regard to any phasing that may be required for full effectiveness of immunity for American/BA.

Counsel:  Wilmer Cutler, Jeffery Manley, 202.663.6670, jmanley@wilmer.com and Silverberg Goldman, Michael Goldman, 202.944.3305, mgoldman@sgbdc.com 

Inasmuch as both alliances now before the Department have vast slot holdings at Heathrow, the Department must require divestitures not only from AABA, but from UA-BD as well. In granting antitrust immunity to AA-BA and UA-BD, the Department would be sponsoring the creation of a duopoly at slot and facilityconstrained Heathrow with each alliance having the ability to coordinate prices and schedules. It would be inexplicable to require only half of the duopoly to divest the slots and facilities necessary to create a competitive market structure under open skies. Rather, UA-BD's large slot holdings must be part of the competitive solution that provides new entrant access to Heathrow.

As a new, liberalized aviation agreement with the U.K. appears inevitable, the Department is now faced with the prospect of having to allocate slots and ensure the provision of facilities for new entrant U.S. carriers to serve Heathrow. To this end, US Airways has clearly demonstrated that it is uniquely positioned to provide effective competition in the U.S.-Heathrow market from its three network gateway hubs at Philadelphia, Pittsburgh, and Charlotte. With four daily roundtrips to Heathrow from its three gateway hubs, US Airways will provide unsurpassed competition and maximize the public benefits of free and open competition in the U.S.-Heathrow market.

Counsel:  O'Melveny Myers, Joel Stephan Burton, 202.383.5300

Counsel:  O'Melveny Myers, Benjamin Bradshaw, 202.383.5300, bbradshaw@omm.com

Counsel:  Northwest, Megan Rae Rosia, 202.842.3193, megan.rosia@nwa.com

British Airways' recent public comments underscore the importance of its strategic study and the relevance of the related documents to this proceeding. In a BBC interview on January 9, British Airways Chief Executive Officer Rod Eddington discussed the wide-ranging "Size and Shape Review," which the BBC reported as a "restructuring plan" that would involve cutting as many as 15 European short-haul routes and an increased focus on "the more lucrative transatlantic business travel market." See Attachment 1. Although British Airways has claimed it "is far from reaching any final decision" and "reducing short-haul operations" is only "one of the numerous options" under review, those claims are belied by more recent reports that now indicate a decision is imminent because the British Airways "chief executive wants to cut back radically on short-haul and regional routes, axing scores of aircraft and up to 10,000 jobs in the process" in an announcement on the "Future Size and Shape Project" expected next month.

As the Petitioners asserted in their Joint Motion, the impending reduction of short-haul service by British Airways is central to the issues in this case. The Department cannot approve the American/British Airways application unless it determines that substantial network benefits will flow from the alliance and outweigh its overwhelmingly anticompetitive impact. A reduction of short-haul service by British Airways would directly affect the extent of any network benefits that the American/British Airways alliance might offer in U.S.-beyond London markets. The General Accounting Office's recent report on the American-British Airways alliance questioned the alleged network benefits of the proposed alliance, concluding that "the potential benefits from the AA/BA alliance may be limited" due to, among other things, "BA's corporate strategy of reducing its overall capacity." The GAO's conclusions are consistent with those of the Department of Justice. See, DOJ Comments at 5 and 48. British Airways' current strategic planning documents relating to the reduction of beyond-London service are unquestionably relevant to the issues in this proceeding and must, therefore, be made available to the parties with an opportunity to submit comments to the Department on them.

Counsel:  Northwest, Megan Rae Rosia, 202.8422.3193, megan.rosia@nwa.com, and Continental and Crowell Moring, Bruce Keiner, 202.624.2500, rbkiener@crowell.com, and Delta and Shaw Pittman, Robert Cohn, 202.663.8060, robert.cohn@shawpittman.com

As you know, liberalizing and expanding air service between the U.S. and the United Kingdom has been a long-standing policy goal that predates even our respective tenures at DOT. Each of us experienced both frustration and success in this endeavor, and while we were able to achieve some incremental changes, those steps pale in comparison to the opportunity that exists for you to finally achieve an open skies agreement with the United Kingdom.

A decade of results has supported the proposition that liberalized international aviation agreements benefit consumers through more service and lower prices, promote international commerce and enhance growth opportunities for the travel and tourism industry. Furthermore, the Department's decision to link antitrust immunity with open skies agreements has proven to be an invaluable carrel to encourage foreign governments to open up markets over which they had been long protective. Our predecessors at DOT would likely have never envisioned a day when the U.S. had open skies agreements with Germany, France, Italy and Switzerland, among many others.

Counsel:  American, Carl Nelson, 202.496.5647, carl_nelson@aa.com

Counsel:  Northwest, Megan Rae Rosia, 202.842.3193, megan.rosia@nwa.com

The Department of Transportation today tentatively approved antitrust immunity covering the alliances of air carriers American Airlines and British Airways, and United Airlines and bmi, a decision that will significantly benefit consumers by expanding service to a host of U.S. cities; encouraging additional price competition; and increasing passenger choice. Final approval of antitrust immunity, which depends on several conditions yet to be met, will greatly enhance competition in the nation's largest overseas market by allowing four new U.S. carriers to enter the London Heathrow market, and providing passengers with 17 new roundtrip services between the U.S. and Heathrow Airport for a total of more than 6,200 new flights per year.

The Department's analysis and tentative conclusions for approving anti- trust immunity are largely in line with the recommendations of the Department of Justice. Tentative approval of antitrust immunity is based on several conditions yet to be met, including the divestiture by American and British Airways of 224 take-off and landing slots for flights by new competitors between U.S. cities and Heathrow airport.

    The Department's order tentatively allocates those slots as follows:
    *  5 daily roundtrips to Continental (3 of which must be served from
       Newark)
    *  6 daily roundtrips to Delta (3 of which must be served from New York's
       JFK
    *  Airport, and 1 from Boston)
    *  3 daily roundtrips to Northwest
    *  2 daily roundtrips to US Airways
    *  bmi would be required to provide slots to United for a daily round trip
       from Boston.

Final approval also hinges on the finalization of an open skies agreement between the U.S. and U.K. The nation's existing aviation agreement with the U.K., one of its most restrictive, limits where U.S. carriers can fly, how many flights they can operate, and what prices they may charge, providing minimal consumer choice for the almost 18 million passengers traveling the route every year. The latest round of open skies talks are expected to begin in Washington on Monday, January 28.

By: Read Van De Water

By:  Norm Mineta

By:  Michael Levine

Continental, Delta and Northwest urge the Department to dismiss the U.S.- U.K. Alliance Case immediately because the fundamental predicate of immediate prospects for an Open Skies agreement with the U.K. no longer exists and to require answers to this motion by February 5, 2002.

The Department and the applicants (American, British Airways, United, bmi and the other Star Alliance carriers) have recognized that consideration of the alliances at issue in this proceeding is dependent upon negotiation of an Open Skies agreement between the U.S. and the U.K. and that the U.K. has insisted that satisfactory approval of, and antitrust immunity for, an American/British Airways alliance is a prerequisite to the U.K.’s agreement to Open Skies.  American and British Airways have stated they will not continue pursuing antitrust immunity in this proceeding because of conditions proposed by the Department, which were substantially less than those sought by Continental, Delta and Northwest.  As a result, U.S.- U.K. open skies negotiations scheduled for this week have been cancelled.  Moreover, United and bmi have recognized that approval of their request for antitrust immunity depends on approval of the American/British Airways application and negotiation of an Open Skies agreement between the U.S. and the U.K.  Since the “existence of an open skies agreement is one necessary precondition for considering the approval and grant of antitrust immunity”  (Order 2001-9-12 at 5) and action on approving the alliances is “conditioned on reaching an agreement with the United Kingdom on an Open Skies aviation agreement.” (Order 2002-1-12 at 1), there is no longer any justification for continuing this proceeding.  Under these circumstances, the Department should take immediately the same action it took in Order 99-7-22, terminating this proceeding because the “fundamental predicate” of reaching an “Open Skies agreement meeting U.S. objectives” is not  now attainable.

Counsel:  Northwest, Megan Rae Rosia, 202.842.3193, Delta, Shaw Pittman, Robert Cohn, 202.663.8060, and, Continental, Crowell Moring, Bruce Keiner, 202.624.2500

On January 31, 2002, Continental Airlines, Delta Air Lines, and Northwest Airlines filed a joint Motion to Dismiss in this proceeding. Under the Department’s regulations, answers to the motion would normally be due February 11, 2002. The joint Motion requested that the answer period be shortened to February 5. By this Notice, we grant that request, and call for answers to the Motion to be filed on Tuesday, February 5, 2002, to expedite consideration of the motion. The Answers of the Joint Applicants should specifically address the status of the proposed alliances.

By:  Read Van de Water

Counsel:  American, Carl Nelson, 202.496.5647, carl.nelson@aa.com

American Airlines, Inc. and British Airways Plc hereby jointly answer in opposition to the motion to dismiss filed on January 31, 2002 by Continental Airlines, Inc., Delta Air Lines, Inc., and Northwest Airlines, Inc. On February 1, 2002, the Department issued a notice requiring that answers be submitted by February 5, 2002, and stating that the joint applicants "should specifically address the status of the proposed alliances" (p. 1). The motion to dismiss should be denied. On January 25, 2002, the Department issued show-cause Order 2002-1-12, providing the opportunity to submit objections on February 15, 2002 and answers on February 25, 2002. American and British Airways intend to respond in accordance with the Department's procedural schedule. The proposed alliance agreement between American and British Airways remains in place.

Counsel:  American, Carl Nelson, 202.496.5647, carl.nelson@aa.com British Airways, Paul Jasinski, 718.397.4250

More importantly, FedEx believes that the US and UK governments should not abandon their open skies negotiations. It is important to travelers and shippers in the transatlantic markets that this critical market be opened up immediately. Granting the Motion to Dismiss will send a message that the United States has given up, and that is the wrong message, especially at this critical juncture.

FedEx believes that the Order itself is legally flawed, in a fatal sense, and will put that position forward in its response to the Show-Cause Order. FedEx does not believe that the Department should deprive the participants in this docket of the opportunity to address those flaws in accordance with the established principles of due process. For the foregoing reasons, the Department should deny the Motion to Dismiss filed by Continental, Delta, and Northwest.

Counsel:  FedEx, Nancy Sparks, 202.756.2461, nssparks@fedex.com 

Although American and British Airways have jointly issued a statement opposing the conditions the Department tentatively proposed in Order 2002-1-12, not sought leave to withdraw their joint application for immunity. Nor has either indicated that it does not intend to file timely objections to the Order. For their part, Joint Applicants remain fully committed to their alliance and to the efforts by the Department to secure a liberalized air services agreement with the United Kingdom. In that regard, the statement Secretary Mineta issued on January 25, 2002, following the announcement by American and British Airways of their objections to the conditions tentatively proposed in Order 2002-1-12, confirms the Department's intention to "continue working with the United Kingdom to achieve our long held mutual objective of open skies." Joint Applicants intend to respond more fully to Order 2002-1-12 according to the schedule established by the Department in the order.

Joint Applicants strongly endorse the Department's intentions. The pursuit of a more liberal air service agreement with the United Kingdom cannot be held hostage to the willingness of American and British Airways to implement their alliance agreement on terms necessary to protect consumer interests and competition. For that reason, the public interest, as opposed to the private commercial interests of Continental, Delta and Northwest, would not be served by the Department's preemptive termination of this proceeding. On the contrary, Joint Applicants are firmly convinced that the Department's long-held desire to secure a liberalized air services agreement with the United Kingdom will be better served by continuing this proceeding than by the peremptory termination sought by Continental, Delta and Northwest.

In any event, Joint Applicants have a due process right to a final decision from the Department on their joint application for immunity for their alliance agreements, and United and bmi have a similar right to a final decision on their joint application for authority to code share on Heathrow services. A decision to terminate this proceeding would be a direct denial of those rights. To avoid such a denial and to facilitate the conclusion of a liberalized air services agreement with the United Kingdom, the Motion To Dismiss must be denied.

Counsel:  United and Wilmer Cutler, Jeffrey Manley, 202.663.6670, jmanley@wilmer.com

Virgin Atlantic's London based senior staff responsible for directing Virgin Atlantic's participation in this proceeding did not become aware of the Motion to Dismiss, or the Notice shortening the response date, until after the close of business London time on February 1, 2002. Moreover, these same senior staff officers were out of the office on foreign travel during the first part of this week and thus were unable to review and participate in the submission of a response to the Motion to Dismiss in a timely fashion.

Counsel:  Garfinkle Wang, Elliott Seiden, 703.522.0900, eseiden@gandwplc.com  

There is an additional significant basis to doubt the feasibility of the successful negotiation of an Open Skies Agreement between the U.S. and the UK. On January 31, 2002, the Advocate General for the Commission of the European Communities (EC) issued its much-anticipated Opinion on the challenge by the EC to alleged breaches of Community law by seven Member States of the European Union arising from their having signed Open Skies Agreements with the United States in violation of Community common rules. The AG concluded that in three critical areas -- pricing, CRS and nationality - the Member States have breached European Community law by reaching Open Skies Agreements with the United States. The DOT is very much aware of these legal proceedings, of course. Indeed, the expedited procedural schedule in this proceeding has been grounded in the DOT's hope that the United States and the United Kingdom could conclude an Open Skies Agreement before a ruling in the EC litigation that might preclude the UK from signing such an agreement.

If adopted by the ECJ, the AG Opinion would preclude the UK from signing an Open Skies Agreement with the United States. Since a U.S.-UK Open Skies Agree­ment is a necessary precondition to the grant of antitrust immunity to carriers in the U.S.-UK trade, it follows that this proceeding should be terminated forthwith. Moreover, the AG Opinion contains analysis, and makes findings, that have present effect on the ability of the United Kingdom to continue in Open Skies discussions with the United States.

Perhaps the most confounding of the three areas covered by the AG Opinion is the nationality issue. From the EC perspective, discrimination in the treatment of airlines or citizens of non-contracting parties undermines the purpose of the Community at its core: The right of citizens of any Member State to establish and conduct business in any other Member State. If the right of establishment within the Community is undermined, the glue that binds the Member States into a functioning economic unit will fissure, and Community cohesiveness will unravel. From the U.S. perspective, acceding to the request of EC contracting parties to permit the designation of any EC Member State under a particular bilateral Open Skies Agreement would allow EC countries who have thus far refused to sign Open Skies Agreements with the United States (in addition to the UK, Greece, Ireland and Spain) to obtain the benefits of Open Skies (by establishing an airline in the territory of an Open Skies contracting party) without reciprocally opening its markets to U.S. airlines. Logic informs that the United States could not agree to such an unbalanced outcome.

All sides agree that there cannot be antitrust immunity alliances in the U.S.-UK trade unless and until the United Kingdom and the United States conclude an Open Skies Agreement. In the light of the opinion of the Advocate General, it is now clear that Community law precludes the United Kingdom from negotiating or signing such an agreement. That being the case, the DOT should dismiss this proceeding.

Counsel:  Garfinkle Wang, Elliott Seiden, 703.522.0900, eseiden@gandwplc.com

By:  Michael Jackson

In their Motion to Dismiss, Joint Movants incorrectly assert that U.S. - U.K. Open Skies negotiations have been cancelled. The British Government (HMG) has not "cancelled" the negotiations. In light of the show cause order, HMG has deferred the talks pending its further consideration. We therefore find that a critical element of the joint movants' request has not been satisfied and does not constitute a basis for granting their motion.