OST-97-2633 / Undocketed / Philippine and American / July 3, 1997

Application of

PHILIPPINE AIRLINES, INC.

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

Application of

AMERICAN AIRLINES, INC.

for statement of authorizations under 14 CFR Part 207 (Code-Sharing With Philippine Airlines, Inc.)

DATED: July 3, 1997

CONSOLIDATED ANSWER OF UNITED AIR LINES. INC.

Consolidated Answer of United

Page 2

1. Article 6 of the bilateral aviation agreement between the United States and Philippines ("1995 MOC") provides that a designated airline of one party may enter into "cooperative marketing arrangements, such as blocked-space, code-sharing or leasing arrangement with a designated airline" of the other party. Both carriers in such an arrangement must hold the appropriate authority. Memorandum of Consultations, Annex I (September 18, 1995) (emphasis added). /1

2. Although PAL is a designated airline of the Philippines, American is not a designated airline of the United States under the U.S.-Philippine bilateral agreement. Due to bilaterally-agreed limits on designations, American cannot be designated to operate services under the U.S./Philippines air services agreement. Therefore, the statement of authorization and exemption requested by American and PAL, respectively, are extrabilateral in nature.

1/ The prior Memorandum of Understanding ("1989 MOW") provided that a designated airline of one party could enter into cooperative arrangements with other airlines, including nondesignated airlines, for services on the U.S. or Philippine route 2. Memorandum of Understanding, Article VI (April 24, 1989). PAL formerly code shared with TWA, a non-designated U.S. carrier, under that 1989 MOU provision. The 1995 MOC superseded and replaced the 1989 MOU which would have expired by its own terms on September 30, 1996 in any event. Moreover, the code sharing arrangements proposed by American and PAL relate to Philippine route 2 bis not to route 2 as was authorized by the 1989 MOU provision.

Consolidated Answer of United

Page 3

3. A code share of the type proposed by American and PAL would produce benefits, particularly for those carriers, but benefits for the public from code sharing are fully realized only when carriers are able to offer code share services that compete with each other. Such competitive services offer the public additional choices that are not available under the sort of codeshare arrangements proposed by PAL and American which, under the present bilateral agreement, would be insulated from competition. In order to compete effectively with PAL, United and other U.S. carriers should be permitted to offer code-share services to points beyond Manila with any Philippine air carrier authorized to serve those points, whether or not that Philippine carrier is designated under the U.S.-Philippine air services agreement.

United is concerned that, given the history of U.S.-Philippine aviation relations /2, it would be a serious mistake for

2/ For instance, the enforcement of certain provisions of the bilateral agreement relating to ground handling by U.S. carriers at Philippine airports has been problematic. Article 8 of the 1995 MOC provides that U.S. carriers may handle up to six non-U.S. airlines in addition to an unlimited number of U.S. carriers. Likewise, the 1995 MOC extended the ability of Philippine carriers to ground handle a total of six non-Philippine airlines at U.S. airports. Significantly, the MOC noted that local airport authorities in the U.S. may limit the rights of Philippine carriers to perform ground handling services. No such restriction was placed on U.S. carriers ground handling non-U.S. carriers at Philippine airports, however.

Nonetheless, local airport authorities in the Philippines have disallowed United from self-handling and from providing ground handling and maintenance services whether to U.S. or non-U.S. carriers. Despite Philippine assurances at the bilateral negotiating sessions of their commitment to enforcing this provision, as well as repeated attempts by United to resolve the matter, the Philippine government has failed to enforce this provision of the bilateral agreement. In these circumstances, even if there were a bilateral right authorizing PAL to code share with a non-designated U.S. carrier such as American (which, as noted, in the text, there is not) the Department should not grant approval of the PAL/American code share unless and until the Philippines allows United to exercise its bilaterally-agreed ground handling rights.

Consolidated Answer of United

Page 4

DOT to grant unilateral and discretionary approval of this extrabilateral code share. The language restricting code sharing to "designated" carriers was included in the 1995 MOC at the insistence of the Philippines and over the objection of the U.S. which sought a broader code-share term. In these circumstances, there must be an assurance provided by the government of the Philippines that United and other designated U.S. carriers may code share with non-designated Philippine carriers before any discretionary approval is given for the extrabilateral American/PAL arrangement. That assurance should take the form of an exchange of notes amending Article 6 to allow code sharing by designated carriers with non-designated carriers of either side. /3

WHEREFORE, for the reasons listed above, the Department should approve the applications of American Airlines and Philippine Airlines for a statement of authorization and

3/ United would much prefer a code-share term which included the right to code share with non-designated carriers of third countries as well. The Philippines government made it apparent, however, in the last round of talks that it is not yet prepared to accept third-country code sharing.

Consolidated Answer of United

Page 5

exemption authority, respectively, relating to a code sharing arrangement between those carriers only upon receiving assurances from the Philippine government that designated airlines of the United States or the Philippines would be permitted to enter into cooperative marketing arrangements with non-designated airlines of either country.

Respectfully submitted,

JOEL STEPHEN BURTON

GINSBURG, FELDMAN and BRESS, CHARTERED

1250 Connecticut Avenue, N.W.

Suite 800

Washington, D.C. 20036

(202) 637-9130

Counsel for UNITED AIR LINES, INC.

DATED: July 3, 1997