OST-96-2022 / OST-97-2563 / FedEx / May 28, 1997

NOTICE: Any person wishing to support or oppose this Application must file an answer with the DOT's Documentary Services Division by June 12, 1997. A copy of such answer must be served upon Federal Express and its counsel and all persons named on the attached Service List.

Application of :

for grant of an exemption pursuant to 49 U.S.C. § 40109 (Brazil start-up delay)

May 28, 1997

Federal Express submits that grant of the requested exemption is in the public interest in order to facilitate the expansion its current level of service between the U.S. and Brazil on an operationally-sound and economically-optimum basis.

In further support of this application, Federal Express states as follows:

2. On the basis of operational considerations and traffic growth projections, Federal Express plans to phase in its expansion of air cargo and air express operations serving Brazil over a period of three months, between June 1, 1997 and September 1, 1997, rather than doubling its frequencies and capacity in the market during the course of a single week. Specifically, Federal Express plans to operate additional DC-10 frequencies above its present level of five weekly frequencies on an experimental basis between now and September 1st, and to place all five new frequencies into service by September 1, 1997.

In light of the unavoidable degree of uncertainty affecting the volume of near-term cargo traffic growth between the U.S. and Brazil, particularly during the current Winter season in Brazil, Federal Express desires to retain the flexibility to accelerate or delay the introduction of new DC-10 frequencies, and to be able to increase and/or reduce new weekly frequencies in response to experienced and projected traffic demand during the next three months.

3. In addition, Federal Express is currently faced with a severe bottleneck affecting its operations between the U.S. and Argentina, Uruguay and Chile, all of which are served as an extension of the existing line-haul DC-10-30 operations by Federal Express between the United States and Brazil. At the present time, Federal Express serves Argentina, Uruguay and Chile via a change-of-gauge connection at Sao Paulo, Brazil, between its 150,000-pound payload DC-10-30 freighter operations between the U.S. and Brazil and its 49,000-pound payload B-727-200 freighter operations between Sao Paulo and Buenos Aires, Montevideo and Santiago.

As shown in Exhibit FX-100 attached to this application, the existing traffic demand on southbound B-727 flights operated by Federal Express between Sao Paulo and Buenos Aires reached 100 percent load factors on peak days, and averaged at or above 80 percent load factors during March and April 1997. The additional U.S.-Argentina traffic flows facilitated by a doubling of the current level of DC-10 operations by Federal Express between the U.S. and Brazil will literally swamp the capacity of the existing B-727 operations of Federal Express south of Brazil. In a separate concurrent route transfer proceeding now pending in Docket OST-97-2548, Federal Express hopes to obtain sufficient additional U.S.-Argentina frequencies to enable Federal Express to utilize the DC-10-30 in its Argentina operations. That aircraft expansion will triple the amount of cargo capacity operated by Federal Express between Sao Paulo and Buenos Aires, and will make it possible for Federal Express to accommodate the expanded U.S.-Argentina traffic which its expanded DC-10 operations between the U.S. and Brazil will generate.

4. In order to achieve that desirable degree of service expansion flexibility, and to avoid placing greater strains on its limited capacity south of Sao Paulo, Federal Express requests the Department to grant it an exemption from the currently-established 90-day dormancy condition to the extent necessary to establish September 1, 1997 as the start-up deadline for the implementation by Federal Express of all five of its newly-awarded U.S.-Brazil cargo frequencies, with the understanding that Federal Express plans to operate expanded service utilizing its newly-awarded frequencies on an ad hoc experimental basis prior to that date.

Grant of that exemption will effectively grant Federal Express discretionary authority to experiment with different expanded service levels, and with alternative aircraft routines which would not funnel additional traffic into its already-congested Sao Paulo-Buenos Aires traffic lane, during a three-month phase-in period. The imposition of a fixed deadline will insure that all five additional frequencies are fully utilized by September 1, 1997.

Federal Express submits that its request for short-term discretionary operating flexibility is also warranted by established seasonal traffic fluctuations in the U.S.-Brazil market, and by related aircraft scheduling considerations, including the present limitation of Sao Paulo-Buenos Aires extended service by Federal Express to the B-727-200 freighter aircraft.

Thus, the late Spring and Summer months in the U.S., which correspond to the Fall and Winter seasons in Brazil, have historically been the lowest months of the year for air cargo traffic demand between the U.S. and Brazil, with an annual traffic increase beginning in September of each year. The authority requested by Federal Express to adjust its expanded Brazil service during the June-September period will enhance the economics of the expansion of service by Federal Express in the U.S.-Brazil market, by enabling Federal Express to avoid the mandatory introduction of more cargo capacity than current levels of traffic demand may warrant during the next three months.

In addition, in conjunction with the annual seasonal third and fourth quarter surge in traffic throughout its U.S.-Latin America operations, Federal Express has historically implemented a region-wide adjustment of its Latin America Division flight schedules on or about September 1st each year. The ability of Federal Express to integrate its planned increase in Brazil service with its region-wide adjustment of Latin America flight schedules on September 1st will provide significant operational efficiencies for Federal Express in terms of aircraft and flight crew scheduling, and thus further enhance the economics of its expanded U.S.-Brazil operations. 5. In prior frequency-allocation proceedings, the Department has recognized that circumstances might arise which would warrant granting relief from the standard start-up condition and/or 90-day dormancy condition. Thus, in the U.S.-Russia All-Cargo Frequency Allocation Case, Docket OST-95-877, the Department specifically noted that:

Federal Express submits that the circumstances described in this application clearly fall within the ambit of the type of circumstances contemplated by Order 96-2-17 which would warrant relief from the mandatory start-up condition on a case-by-case basis.

6. The Department has previously granted other applications for exemptions to postpone the commencement of newly-awarded international route authority under similar circumstances in the past. See, e.g., Polar Air Cargo, Order 97-2-14, served February 21, 1997 (delay in receipt of foreign operating authority); Evergreen International Airlines, Order 93-6-31, served June 29, 1993; Order 93-8-31, served August 27, 1993; Order 93-12-13, served December 10, 1993 (delay in receipt of foreign operating authority); United Parcel Service Co., Order 91-1-50, January 25, 1991 (delay in completion of operational arrangements).

Respectfully submitted,

Nathaniel Breed of Shaw Pittman for Federal Express