OST-97-2633 / Philippine Airlines / June 18, 1997

Application of

for an exemption pursuant to 49 U.S.C. 40109 (Manila-Chicago/Dallas/Ft. Worth/Miami/Washington, D.C.)

Pursuant to 49 U.S.C. § 40109 and Subpart D of the Rules of Practice of the Department, Philippine Airlines, Inc. ("PAL") hereby applies for an exemption from 49 U.S.C. § 41301, in order that PAL may provide scheduled foreign air transportation of passengers, property and mail between Manila, on the one hand, and Chicago, Dallas/Ft. Worth, Miami, and Washington, D.C. via Los Angeles and San Francisco, on the other. PAL intends to offer service to these four named points pursuant to a codesharing agreement with American Airlines, Inc. ("American"). /1 In support of this application, PAL respectfully states as follows:

1. PAL currently holds a foreign air carrier permit to conduct scheduled air transportation services between the Philippines and Los Angeles, San Francisco, Guam and Honolulu. Order 91-1-38. PAL may serve Los Angeles and San Francisco on a coterminal basis.

2. Under the 1995 Memorandum of Understanding amending the U.S.-Philippines Air Transport Agreement ("Agreement"), Philippine carriers received the right to serve up to eight additional points in the U.S. provided a stop is first made at an existing U.S. gateway or the additional points are served on a code-share basis only. PAL will offer code-share service to the four points named in this application in connection with its transpacific flights between the Philippines and its Los Angeles and San Francisco

1/ Concurrently with this request, American is filing an application pursuant to Part 207 of the Department's regulations requesting a statement of authorization to display the "PR" designator code between Los Angeles/San Francisco and the code-share points named in this application.

gateways. Pursuant to the Agreement, the Philippine Government has forwarded a diplomatic note to the U.S. Department of State selecting the four U.S. code-share points listed above.

3. PAL will commence service to these points under a code-share arrangement with American. Under the code-share agreement, PAL will place its code on American Airlines flights operating between Los Angeles and San Francisco on the one hand,; and some or all of the four named points, on the other hand. /2 A list of all the code-share pairings covered under the PAL/American agreement is attached as Attachment A. The code share service with American is scheduled to commence on October 1, 1997.

4. Grant of the authority requested herein is fully consistent with the public interest. Aviation relations between the United States and the Philippines are extremely cordial. U.S. carriers are already enjoying the

2/ PAL's codeshare agreement with American also includes service to Newark/New York (JFK). PAL already hold. ; an exemption to serve Newark, New Jersey, rights which it currently exercises via the intermediate point Vancouver, Canada with local traffic rights between Vancouver and Newark. Notice of Action Taken (August 30, 1996). Under longstanding Department policy, the right to serve Newark encompasses the authority to serve New York (JFK) as well. Consequently, it is not necessary for PAL to include New York as one of the named points in this application, although PAL's agreement with American also covers codeshare services to JFK (with Fifth Freedom traffic rights between Vancouver and Newark/New York (JFK)).

additional rights created by the 1995 MOU; approval of this application would allow PAL to do the same. In addition, the code-share arrangement between PAL and American will provide significant benefits for passengers through coordination of schedules and expedited baggage transfers. The Department has routinely granted exemptions to foreign carriers in support of code-share services with U.S. carriers.

5. In order to allow adequate time to market the proposed codeshare services in advance of the start-up date, PAL hereby requests approval of this application no later than July 15, 1997.

6. PAL will accept all terms, limitations and conditions which the Department normally attaches to code-share operations and will fully comply with the provisions of 14 C.F.R. § 399.88.

WHEREFORE, PAL respectfully requests that the Department (1) grant an exemption from 49 U.S.C. § 41301 in order to permit PAL to conduct scheduled foreign air transportation of passengers, property and mail between Manila and Chicago, Dallas/Ft. Worth, Miami, and Washington, D.C., via Los Angeles/San Francisco, pursuant to a code-share agreement with American Airlines commencing on October 1, 1997, and (2) grant such other and additional relief as the Department may deem appropriate.

Respectfully submitted, ZUCKERT, SCOUTT & RASENBERGER, L.L.P.

Raymond J. Rasenberger

Malcolm L. Benge

Counsel for Philippine Airlines, Inc.

June 18, 1997