Docket OST-97-2594 / FedEx / June 9, 1997

NOTICE: Any person wishing to support or oppose this Application must file an answer with the DOT's Documentary Services Division by June 24, 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 a reallocation of operating frequencies pursuant to 49 U.S.C. § 40109 (U.S.-Argentina All-Cargo Frequencies)

June 9, 1997

Federal Express Corporation (Federal Express) hereby applies, pursuant to 49 U.S.C. § 40109 and Part 302.400 of the Procedural Regulations of the Department of Transportation (the Department), for the reallocation to Federal Express of two (2) weekly U.S.-Argentina all-cargo operating frequencies, currently allocated to Challenge Air Cargo, Inc. (Challenge), subject to the contingency described below.

Federal Express submits that Challenge is not now utilizing its Argentina cargo frequency allocation, and has not utilized that allocation for a continuous period of more than 90 days. In that circumstance, longstanding Department policy relating to the maximum utilization of valuable international operating rights, and the "use-it-or-lose-it" forfeiture condition applicable to the frequency allocation at issue, requires the reallocation of those dormant frequencies to another U.S. carrier which will use them. As the Department is well aware, Federal Express has been trying to expand the capacity of its U.S.-Argentina operations for several years, but has been prevented from doing so by the frequency constraints of the U.S.-Argentina bilateral, and by its current limitation to five U.S.-Argentina narrow-body aircraft frequencies.

As a result of continuing growth in demand for the high-quality expedited air express and time-definite air freight services offered by Federal Express, and considerations of operational efficiency, Federal Express now urgently needs to utilize the DC-10-30 aircraft, in place of its current B-727-200 aircraft, in its U.S.-Argentina operations. That shift in aircraft will require that Federal Express must hold an allocation of at least seven and one-half (7.5) weekly U.S.-Argentina cargo frequencies in order to maintain service at the level of five weekly roundtrip flights with the DC-10 freighter aircraft, which is the minimum frequency of service critically required by the time-sensitive and urgent nature of demand for the air express services operated by Federal Express.

If that Joint Application is granted, that transfer will satisfy the immediate need of Federal Express for additional U.S.-Argentina capacity, and Federal Express will withdraw this application. If the Joint Application by Federal Express, Arrow and FWIA is denied in whole or in part, Federal Express will vigorously prosecute this application, and will assert its right under the Ashbacker Doctrine /1 to comparative consideration with the mutually-exclusive application by any other applicant seeking the same authority.

Federal Express will fully utilize both of the Argentina frequencies currently allocated to Challenge. Federal Express is prepared to begin using both frequencies within 30 days following their reallocation to Federal Express, and urgently needs to expand its existing U.S.-Argentina operations not later than September 1, 1997. Accordingly, Federal Express submits that expedited approval of the reallocation of the two U.S.-Argentina cargo frequencies at issue to Federal Express is clearly consistent with, and required by, the public interest.

In accordance with Section 302.402, Federal Express submits the following information in support of this application.

1/ Ashbacker Radio Corp. v. FCC, 326 U.S. 327 (1945).

Florida, and Buenos Aires, Argentina, for a period of two years, through June 12, 1998. Federal Express is currently designated by the U.S. Government to provide all-cargo service to Argentina pursuant to the 1985 Bilateral Air Transport Agreement between the United States and Argentina (the 1985 Agreement), as amended, and currently utilizes all of its existing exemption and frequency allocation authority.

2. Frequencies To Be Allocated. The specific frequency allocations to be reallocated are the two U.S.-Argentina all-cargo operating frequencies allocated to Challenge by Order 96-3-30, served March 20, 1995. That allocation, and all other current U.S.-Argentina cargo frequency allocations, were made subject to a 90-day dormancy condition by Notice of Action Taken dated February 25, 1997. That condition provides that each frequency allocation "will expire automatically and the frequencies will revert back to the Department for reallocation if they are not used for a period of 90 days".

At the present time, both frequencies held by Challenge have been allocated and available for use by Challenge for more than 90 days. On the basis of information available to Federal Express, including the Official Air Cargo Guide for the months of January through May 1997 and periodic telephone inquiries, it appears that Challenge is not currently using its Argentina frequency allocation and has not utilized that allocation for a continuous period of longer than 90 days. Indeed, Federal Express believes that Challenge has never implemented scheduled service pursuant to the two frequencies allocated to it by Order 95-3-30, which became effective on October 1, 1995 and December 1, 1996, respectively.

3. Current and Planned U.S.-Argentina Service. At the present time, Federal Express is utilizing its entire Argentina frequency allocation through the operation of five weekly roundtrip frequencies between the U.S. and Argentina. That service is currently provided through the operation of a 49,000-pound payload B-727-200 aircraft over the Sao Paulo-Buenos Aires leg of a Memphis-Sao Paulo-Buenos Aires-Santiago routing. Federal Express' service between Memphis and Sao Paulo is being operated with DC-10-30 aircraft, with a change of gauge to the B-727 aircraft at Sao Paulo for service onward to Buenos Aires. Federal Express has continuously operated five B-727 all-cargo roundtrip frequencies a week serving Argentina since it first obtained authority to serve Argentina in May 1989.

In order to accommodate rapidly growing increases in projected traffic volumes between the U.S. and Argentina, which are already straining the limits of the B-727-200 flights operated by Federal Express on peak days, and in order to overcome the cost inefficiencies and operational complications of its current change-of-gauge from the DC-10 to the B-727 at Sao Paulo, Federal Express urgently requires authority to enable it to extend its existing DC-10-30 operations beyond Sao Paulo to Buenos Aires. Under the currently-established frequency limitations under the U.S.-Argentina Bilateral, Federal Express would need to hold an allocation of 7.5 weekly narrowbody aircraft frequencies in order to operate the 150,000-pound payload DC-10-30 freighter aircraft five days a week between the U.S. and Argentina. As noted previously, five-day-a-week service is an essential requirement for the provision of air express and time-definite air freight services, which involve the transportation of highly urgent or time-sensitive shipments.

The U.S.-Argentina service operated by Federal Express provides expedited air freight and air express service between every point in the United States (and points in third countries beyond the U.S.) and numerous points in Argentina, by linking the vast domestic and international flight network and delivery system operated by Federal Express to its air and ground operations serving Argentina.

4. The Public Interest Warrants Reallocation of Two U.S.-Argentina Cargo Frequencies From Challenge to Federal Express

Federal Express submits that the reallocation of the unused U.S.-Argentina all-cargo frequencies currently allocated to Challenge is required as a matter of law and policy.

Federal Express has consistently and fully utilized its Argentina frequency allocation to provide the highest quality of efficient, convenient and reliable all-cargo service between the U.S. and Argentina. Federal Express, and its predecessor, Flying Tigers, have been the preeminent U.S.-flag all-cargo carriers in the U.S.-Argentina market for over twelve years, and have played a vital and effective role in serving, promoting and developing that market, and in providing vigorous competition to the Argentinean flag carriers.

The operational and economic efficiency of the U.S.-Argentina service operated by Federal Express is now being impeded by the constraints of its existing limitation to five weekly narrowbody frequencies. That limitation prevents Federal Express from utilizing the DC-10-30 aircraft in its Argentina operations, and forces Federal Express to terminate its existing U.S.-Brazil DC-10-30 flights at Sac Paulo and change gauge to the narrow-body B-727-200 aircraft for service to and from Argentina over the 1,039-mile Sao Paulo-Buenos Aires leg. That change-of-gauge operation imposes added costs on the U.S.-Argentina operations of Federal Express, and creates significant aircraft-scheduling, crew-scheduling and line maintenance complications. In the relatively near future, Federal Express anticipates that it will be unable to accommodate incremental traffic growth on its U.S.-Argentina services as a result of the capacity limitations of the B-727-200 aircraft.

In those circumstances, there can be no justification for the continued retention by Challenge of its unused U.S.-Argentina frequency allocation. Not only are those valuable operating rights going to waste, but the lack of those frequencies is adversely impacting the service of Federal Express, with consequent detriment to the shipping public which uses and relies on the service provided by Federal Express.

Based on the consistent record of Federal Express in operating high-quality and diversified all-cargo services between the U.S. and Argentina, and the failure of Challenge to utilize its Argentina frequency allocation, Federal Express submits that the reallocation of the two Argentina cargo frequencies at issue is clearly required by the public interest.

5. Applicable Bilateral. The authority at issue is governed by, and is consistent with, the terms of the July 19, 1994 Memorandum of Consultations between the U.S. and Argentina which amended Annex II of the 1985-U.S.-Argentina Air Transport Services Agreement so as to expand the total number of weekly all-cargo scheduled roundtrip frequencies which may be operated by U.S. air carriers.

6. Fitness and Public Interest. As the Department has determined previously, Federal Express is fit, willing and able to perform air transportation applied for herein and to conform to the provisions of the Act and the rules, regulations and requirements of the Department thereunder. The air transportation service which Federal Express proposes to render is consistent with the public convenience and necessity.

7. Duration of Reallocation. Federal Express requests that the reallocated frequencies at issue be granted for a two-year period, through July 1, 1999. Grant of a two-year authorization is consistent with Department policy and practice relating to the granting of temporary exemption authority to serve limited-entry international routes (see, Statements of Policy, 14 C.F.R. § 399.18).

WHEREFORE, Federal Express respectfully requests the Department to issue an immediate Order or Notice of Action Taken reallocating to Federal Express the two U.S.-Argentina all-cargo frequencies currently allocated to Challenge, for a period of two years, through July 1, 1999, and to take such other action as the Department deems appropriate consistent with the relief requested in this application.

Respectfully submitted,

Nathaniel Breed of Shaw Pittman for Federal Express