OST 97-2548 / Federal Express, Arrow, FWIA / Joint Reply / June 16, 1997

 

Joint Application of:

FEDERAL EXPRESS CORPORATION and ARROW AIR, INC. and FLORIDA WEST INTERNATIONAL AIRWAYS, INC.

for approval of a transfer of frequency allocations pursuant to 49 U.S.C. § 41105 (U.S.-Argentina All-Cargo Frequencies)

 

DATED: June 16, 1997

 

RESPONSE OF POLAR AIR CARGO. INC.

and

MOTION FOR LEAVE TO FILE

 

On June 9, 1997, the Joint Applicants in the above-captioned matter filed a Reply "to clarify the issues." /1 That Reply makes certain assertions with respect to the potential for competition in the U.S.-Argentina all-cargo market to which Polar Air submits a response is necessary in order to have a more complete and accurate record. Moreover, a fundamental assumption of the Joint Applicants that "substantial U.S.-flag freighter competition can and will be supported by the four Argentina frequencies" that will be allocated to carriers other than Federal Express after the proposed acquisition, has been undercut by a pleading filed on June

 

1/ Consolidated Joint Reply of Federal Express Corporation, Arrow Air, Inc. and Florida West International Airways, Inc. and Motion for Leave to File, p. 2.

 

 

11, by Challenge Air Cargo, Inc. /2 For those reasons, Polar Air Cargo requests leave to file the otherwise unauthorized Response.

 

In its Answer, Polar Air noted that the Joint Applicants cited no precedent for DOT approval of a stand-alone sale of scheduled service frequency allocations. /3 That remains the case. The Joint Applicants rely instead upon precedents that involved the transfer of scheduled service frequency allocations as an adjunct to the transfer of underlying limited entry route authority. There is an obvious difference. A certificate (or exemption) transfer substitutes one competitor for another. The purchase by Fed Ex of Evergreen International Airways' China allcargo authority allowed a one competitor to supplant another on the U.S.-China route. There was no net reduction in the number of U.S. competitors. Similarly, the Fed Ex acquisition of The Flying Tiger Line Inc. allowed one U.S. freighter operator with a unique all-cargo network route authority in Asia to be replaced over those network routes by another airline.

 

The proposal here is not to substitute one competitor for another; it is to eliminate two competitors from the field. Instead of four U.S. carriers operating scheduled freighters to

 

2/ Answer of Challenge Air Cargo, Inc., Docket OST-97-2578.

 

3/ With respect to charter flight allocations, the Department's policy is certainly clear: "No U.S. carrier receiving charter allocations under the allocation regimes put in place for capacity restricted markets may sell or otherwise transfer charter allocations which they will not operate in their own right." Notice To All U.S. Air Carriers, served Oct. 4, 1996. The reasons for such a policy would appear to apply equally to scheduled as well as charter frequency allocations.

 

 

Argentina, there would now be only two, /4 with one of those holding a seven to one scheduling advantage over the other. That scheduling imbalance, with both carriers offering wide-body equipment, would lessen the chances that the single competitive flight could be sustained. Polar Air has stated in this docket and elsewhere that long-term viability in the U.S.-Argentina allcargo market requires at least twice weekly wide-body freighter service.

 

Therefore, despite the claims of the Joint Applicants, this remains a matter of first impression with unique competitive implications that must be carefully evaluated. Suffice it to say that the immediate and inescapable result of the sale -- the reduction in U.S. competitors from four to two -- does not seem as consistent with U.S. international aviation policy as the Joint Applicants suggest.

 

The Joint Applicants attempt to shade the consequences of their proposal by pointing to the four weekly scheduled all-cargo frequency allocations that would not be controlled by Fed Ex after the transaction. If those four allocations were available to a carrier such as Polar Air that would use them to mount multiple weekly 747-F operations, the contentions of the Joint Applicants regarding potential competition might be credible. Here, however, two of those four frequencies are not being used for scheduled service but rather have been long pocketed by the

 

4/ As Federal Express notes elsewhere, the 95th possible U.S. all-cargo competitor, Challenge Air Cargo, appears never to have mounted scheduled service in the market. Answer of Federal Express, Docket OST-97-2578, June 9, 1997, at 2.

 

 

carrier to which they were awarded. /5 That carrier has contended that it has met the conditions for retaining those allocations by operating an extension of its Sao Paulo service over to Buenos Aires, Argentina once within a 90-day time frame. /6 If the Department accepts that tactic as legitimate and grants the request of the Joint Applicants, there is no opportunity for Polar Air to secure the second flight that it needs to operate viably in the market, increasing the chance that Federal limpness will soon achieve a U.S. flag monopoly in U.S.-Argentina air freight service.

 

In awarding the scheduled all-cargo frequency allocations in the U.S.-Argentina market, the Department legitimately anticipated, based on the carriers' submissions, that it was infusing that marketplace with the competitive efforts of five U.S. freighter operators. Now it is faced with an application that would reduce the number of U.S. competitors to two and establish market conditions that would make it more difficult for the smaller of those two to compete. Unless that situation is changed so that Polar Air has sufficient allocations to mount a

 

5/ The possibility of transferring allocations for a substantial amount of money provides an incentive to retain unused authorizations, rather than having them revert to DOT so that they can be used by others to develop the scheduled air freight market.

 

6/ Polar Air found no evidence of any scheduled services having been operated to Argentina by Challenge since that carrier received its initial allocation in October 1996. The single flight operated by Challenge in May was characterized as a charter by the Argentine aviation officials with whom Polar's representative spoke; the allocations awarded to Challenge were for scheduled service. In its answer in Docket OST-97-2578, Challenge does not claim to have inaugurated scheduled all-cargo service to Argentina or to have conducted any scheduled operations in that market. It states only that it has operated one "flight" to Argentina.

 

 

competitive, twice weekly 747-F all-cargo service, it is difficult to imagine how the proposal of the Joint Applicants could be found to be consistent with the public interest.

 

Respectfully submitted,

 

ALFRED J. EICHENLAUB

GINSBURG, FELDMAN & BRESS, CHARTERED

1250 Connecticut Avenue, N.W.

Suite 800

Washington, D.C. 20036

(202) 637-9000