Docket OST-97-2548 / FedEx, Arrow, FWIA / June 25, 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)

June 25, 1997

Rule 6(b) of the Rules of Practice of the Department does not permit the filing of various types of "further responsive documents" filed in response to pleadings filed in response to an Application. Rule 4(f) of the Rules of Practice, however, provides that the Department will consider accepting an otherwise unauthorized document for filing if it is accompanied by a Motion for leave to file for good cause shown.

The Joint Applicants submit that receipt and consideration of the within Consolidated Joint Surreply will clarify the issues in this proceeding, will assist the Department in reaching a sound result in this case, and will not delay the processing of the Joint Application. Accordingly, Joint Applicants hereby move the Department to accept the within Consolidated Joint Surreply as an otherwise unauthorized document.

Polar asserts that the primary purpose of its Response is to develop "a more complete and accurate record" pertaining to Polar's view of the current and asserted future competitive market structure in the U.S.-Argentina cargo market (Response, p. 1).

The content of Polar's Response, however, makes it abundantly clear that Polar is simply attempting to hold the relief requested by the Joint Applicants hostage to the desire of Polar to obtain the reallocation to itself of certain dormant Argentina cargo frequencies, currently allocated to Challenge Air Cargo, Inc. (Challenge). The Joint Applicants have no objection to Polar's effort to obtain the two Argentina frequencies now assigned to, and unused by, Challenge, but the Joint Applicants submit that the authority-transfer matters at issue in this proceeding have no relationship to the Polar-Challenge frequency reallocation application in Docket OST-97-2578 as a matter of fact, law or policy.

On the contrary, the Department has repeatedly and consistently held that, as a matter of general policy, it will not entertain competing applications for authority in the context of an application for approval of the transfer of that authority between two carriers in the absence of overriding aviation policy or public interest reasons for deviating from that policy (see, e g, Braniff South American Route Transfer Case, Order 82-9-81, September 22, 1982, pp. 7-11).

The central theme of Polar's Response (and of its prior Answer) is its attempt to argue that the Joint Application should not be approved unless Polar is simultaneously granted the ability to compete effectively in the U.S.-Argentina cargo market- through the operation of a second weekly B-747 freighter roundtrip flight. Polar seeks the authority to expand its existing service through the reallocation to Polar of the two Argentina frequencies currently allocated to Challenge. Polar asserts that the two Challenge frequencies are dormant and should be reallocated to Polar in order to enable Polar to compete more effectively with Federal Express and other U.S. and foreign carriers serving the U.S.-Argentina market. Polar has plainly stated that it would have no objection to grant of the Joint Application if it were able to obtain the authority to operate two weekly B-747 roundtrip flights to Argentina, rather than only one (Response, p. 3; Polar Answer, p. 5)).

Contrary to Polar's effort to link these two separate proceedings, however, there is no basis in law or DOT policy for doing so, and, as noted above, there is substantial precedent that the authority-transfer issues in Docket OST-97-2548 should be considered and decided independent of any competing applications by third-party carriers for the same authority (See, e g, Federal Express-Flying Tigers, Order 89-3-21, March 8, 1989, pp. 6-8; finalized by Order 89-5-10, served May 2, 1989, pp. 6-8).

Second, Polar reiterates its prior assertion that there is no precedent involving the sale of a stand-alone frequency allocation without related certificate or exemption authority, and attempts to assert that such a transaction results in a "net reduction" of competition (Response, p. 2). In fact, the opposite conclusion is true. The transaction between Federal Express, Arrow and FWIA does not take away the ability-of either Arrow or FWIA to serve the U.S.-Argentina market. On the contrary, both carriers retain their basic economic authority to serve the market, and both remain free to operate cargo charter services in the market and both remain free to apply for new frequency allocations to provide scheduled cargo service when the total pool of such frequencies is expanded, or when other frequencies become dormant in the future.

Moreover, the absence of an "all-fours" precedent exactly fitting the facts in this case does not alter the fact that the sale of Argentina frequencies by Arrow and FWIA to Federal Express constitutes precisely the type of marketplace-driven transaction which the Department has found to be the best method of allocating (and reallocating) scarce and valuable international service authority in an economically efficient manner (See, e g, Delta-Pan American Route Transfer Case, Order 92-3-62, March 31, 1992, pp. 7-8; finalized by Order 92-4-33, April 14, 1992, p. 20).

Polar's competition arguments rest heavily on an unwarranted assumption that the current 12-weekly-frequency ceiling on U.S.-flag all-cargo operations between the U.S. and Argentina is necessarily static and immutable. Contrary to that assumption, however, the Joint Applicants believe that there are substantial reasons to anticipate that a significant relaxation of frequency limitations on U.S.-Argentina cargo operations may occur in the near future. Among other factors presaging such a shift in Argentina Government policy are the dramatic growth in trade between the U.S. and Argentina, the express desire of the primary Argentinean carrier, Aerolineas Argentinas, for expanded access to the U.S. market, and the growing proliferation -- and success -- of more liberal aviation bilateral agreements between the U.S. and other countries throughout Europe, the Asia/Pacific region, Canada, Mexico and Latin America.

Finally, it bear reemphasis that neither the purpose nor the effect of the frequency transfers at issue in the Joint Application is to strengthen the competitive position of Federal Express in the U.S.-Argentina cargo market. Rather, as the Joint Application makes abundantly clear, the motivation behind the decision of Federal Express to purchase three Argentina frequencies from Arrow and FWIA is net to gain a competitive advantage in the market, but solely to alleviate an increasingly severe problem of insufficient capacity and operational inefficiency affecting the Argentina operations of Federal Express resulting from its present limitation to five weekly B-727 narrowbody aircraft operations serving Buenos Aires.

WHEREFORE, for the reasons discussed in their Joint Application, Federal Express, Arrow and FWIA urge the Department to issue a Final Order approving the proposed transfer of the three U.S.-Argentina all-cargo operating frequencies at issue to Federal Express.

Respectfully submitted,

Allan Markham for Arrow Air

Nathaniel Breed of Shaw Pittman for Federal Express

Marshall Sinick of Squire Sanders for FWIA

1. Doyle Cloud of Federal Express

June 25, 1997