OST-97-2634 (36998) / Icelandair / June 18, 1997

Notice: It is requested that this application be processed by non-hearing procedures pursuant to Subpart Q of the Department's regulations. Any person may support or oppose this Application by filing an answer and serving a copy of the answer on the applicant and all persons on the attached service list. Such answers must be filed by July 16, 1997.

Application of

to amend its Foreign Air Carrier Permit pursuant to 49 U.S.C. § 41302

Pursuant to 49 U.S.C. Section 41302, and Part 211 of the Economic Regulations of the Department of Transportation (the "Department"), Icelandair (Flugleidir Hf.) respectfully requests the Department amend its Foreign Air Carrier Permit to authorize the carrier to engage in scheduled foreign air transportation of persons, property and mail from points behind Iceland, via Iceland and intermediate points, to a point or points in the United States and beyond; to engage in charter air transportation between any point or points in Iceland and any point or points in the United States; to engage in charter air transportation between any point or points in the United States and any point or points in a third country or countries as part of a continuous operation that includes service to Iceland; and to engage in other charter air transportation in accordance with the Department's regulations contained in 14 C.F.R. Part 212.

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Icelandair seeks to amend its Foreign Air Carrier Permit so that its U.S.-Iceland operating authority fully incorporates the authority available to Icelandic carriers under the terms of the "Open Skies" Air Transport Agreement entered into by the United States and Iceland in 1995. Icelandair requests that this application be processed using the expedited non-hearing procedures under Subpart Q of the Department's Procedural Regulations pursuant to 14 C.F.R. § 302.1701(c).

In support of this request Iceland submits as follows:

1. The applicant's full name is Icelandair (Flugleidir Hf.) and its primary business address is:

Icelandair

Reykjavik Airport

101, Reykjavik

Iceland

Icelandair is a corporation organized under the laws of Iceland.

2. The name and address of the Civil Aviation authority having jurisdiction over Icelandair is:

Civil Aviation Administration - Iceland

Reykjavik Airport

P.O. Box 350

121 Reykjavik

Iceland

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3. Icelandair was initially granted a Foreign Air Carrier Permit by the Civil Aeronautics Board in 1948. The Permit was last reissued in 1980 (Order 80-1-2, Docket 36998) for an indefinite period of time. The Permit authorizes Icelandair to operate between Iceland and New York, Chicago and Baltimore.

4. In addition to the authority contained in its Foreign Air Carrier Permit,

Icelandair currently holds exemption authority from the Department to serve Boston, Orlando, Ft. Lauderdale, Cleveland and Detroit (A Order 96-3-33, confirming the Notice of Action Taken, November 28, 1995). An application to renew and amend this exemption authority was submitted to the Department on November 26, 1996, and is currently pending.

5. The United States and Iceland entered into an Air Transport Agreement on June 14, 1995, implementing an Open Skies regime between the two countries. Under Annex I, Section 1 of the Agreement, Icelandic carriers may perform scheduled international air service from points behind Iceland, via Iceland and intermediate points, to a point or points in the United States and beyond. By this application, Icelandair is seeking amendment of its Foreign Air Carrier Permit to incorporate the expanded route authority permitted under the 1995 Agreement.

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6. Annex II of the Air Transport Agreement between the United States and Iceland liberalizes the charter regime between the two countries. Annex II entitles airlines of either country to freely conduct charter operations between the two countries, as well as to carry charter traffic between the other country and third countries, provided that such service constitutes part of a continuous operation that includes service to or from the carrier's homeland. Annex II also provides that requests to conduct charters not specifically addressed in the Annex will be extended favorable consideration on the basis of comity and reciprocity. By this application, Icelandair is seeking amendment of its Foreign Air Carrier Permit to incorporate the expanded charter authority permitted under the Agreement.

7. As set forth above, the requested services are expressly provided for in the U.S.-Iceland Air Transport Agreement. The Department is statutorily mandated to "act consistently with the obligations of the United States Government under an international agreement," 49 U.S.C. § 40105. Accordingly, the Department is required by law to approve the properly submitted application of a foreign air carrier for bilaterally-guaranteed service. This particularly applies when the aviation relationship between the United States and the foreign carrier's homeland government is stable, sound and healthy, as is the case in the U.S.-Iceland relationship. Icelandair's current designation encompasses the authority requested in this application.

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8. The Department has previously granted applications for Open Skies foreign air carrier permits of other carriers from countries with which the U.S. has Open Skies aviation agreements. These include KLM Royal Dutch Airlines (Order 93-7-14), Martin Air Holland N.V. (Order 94-8-34), Lauda Air Luftfahrt AG (Order 97-3-10), Cargolux Airlines International (Order 97-3-10), and Swissair (Order 97-426).

9. A copy of Icelandair's current Air Operator's Certificate, demonstrating its operating authority from its homeland government, is attached as Exhibit FI-1.

10. Icelandair is fit, willing and able to provide the air services for which it is seeking authority. The carrier has performed scheduled air service to the United States since 1948, when it inaugurated service between Keflavik and New York. Since that time, Icelandair continuously has provided safe, efficient and economical air transportation between its homeland and the United States.

11. Icelandair and the travelling and shipping public will greatly benefit from the carrier obtaining an amended permit encompassing the rights available under the Open Skies agreement. Like other Open Skies agreements, the U.S.-Iceland Open Skies agreement enables carriers to provide service to "a point or points" in the other country, which provides the carriers with the flexibility needed to choose their

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destinations in response to market demands and opportunities. Accordingly, receiving this expanded authority will greatly facilitate Icelandair's ability to plan and implement new service and thus provide the public with increased options for air travel and shipping.

12. Icelandair service to the United States is currently conducted exclusively with Stage 3-compliant B-757-200 aircraft. As such, Icelandair meets and exceeds current Federal Aviation Administration regulations governing the transition to an all-Stage 3 fleet.

13. Icelandair's management personnel continue to be fit and able to competently run the airline. A list of the Company's key management personnel and members of the board of directors is attached as Exhibit FI-2.

14. Icelandair is not receiving and does not expect to receive any financial assistance from the Icelandic Government. Icelandair is a publicly-owned carrier with shares listed on the Icelandic stock exchange, more than 75 % of which are owned by citizens of Iceland. Exhibit FI-3 sets forth the ownership of Icelandair's stock.

15. Icelandair continues to be financially fit to provide the service contemplated by this amended permit application. Copies of Icelandair's audited

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Consolidated Financial Statements for the Years ending December 31, 1996 and 1995 attesting to Icelandair's financial soundness, are included as Exhibit FI-4, together with a statement from the Company official responsible for the preparation of the financial summaries.

16. Icelandair's maintenance program continues to comply with provisions of ICAO Pilots and Airmen Annexes 1, 6 (Part 1) and 7. Iceland is a contracting state to the Convention on International Civil Aviation.

17. Icelandair has not been involved in any safety or traffic violations in the last five years.

18. Icelandair estimates that annual fuel consumption required for the service it plans to initiate under this expanded authority will be considerably less than 10,000,000 gallons. Approval of this permit amendment application by the Department will therefore not be a "major regulatory action" under the Energy Policy and Conservation Act of 1975, as implemented by Part 313 of the Department's regulations.

WHEREFORE, Icelandair respectfully requests that the Department of Transportation amend its Foreign Air Carrier Permit authorizing it to engage in

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scheduled foreign air transportation of persons, property and mail from points behind Iceland via Iceland and intermediate points to a point or points in the United States and beyond; to engage in charter air transportation between any point or points in Iceland and any point or points in the United States; to engage in charter air transportation between any point or points in the United States and any point or points in a third country or countries as part of a continuous operation that includes service to Iceland; and to engage in other charter air transportation in accordance with the Department's regulations as contained in 14 C.F.R. Part 212.

Respectfully submitted,

Joanne W. Young

Gunnar Birgisson

BAKER & HOSTETLER LLP

1050 Connecticut Avenue, N.W.

Suite 1100

Washington, D.C. 20036-5304

(202) 861-1532

Counsel for Icelandair

June 18, 1997