Docket OST-95-234, Docket OST-96-1380, OST-96-1381 / Korean / Answer of World / July 10, 1997

Application of

KOREAN AIR LINES CO., LTD.

for Renewal of Exemption from 49 U.S.C. § 41301

(Seoul - Washington, D.C.)

Applications of

KOREAN AIR LINES CO., LTD.

for Renewal of Exemption from 49 U.S.C. § 41301

(Seoul - Boston/Denver)

ANSWER OF WORLD AIRWAYS. INC.

The Department and all parties are well aware of the long and tortured history of World's effort to institute basic, straight-forward, single plane service in the U.S.-Korea-Malaysia

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market. That effort began in April of 1996, almost fifteen months ago, with the publication of a new schedule by World. Shortly thereafter, without any stated reason or justification, World was informed by the Korean authorities that it would not be permitted to institute its proposed service in this market.

The Korean action was surprising not only because the authority was clearly available to World under the governing bilateral and its operating licences, but also because the U.S.-Korea bilateral does not permit either Korea or the U.S. to deny a priori carriers of the other country the right to conduct air transport operations. Moreover, under the applicable principles of comity, one bilateral partner should not act in a manner inconsistent with the terms of the bilateral without providing to the other partner an explanation for its actions. Nevertheless, that is what happened, and the problem is still unresolved and unexplained--to the economic disadvantage of World.

In this situation, it might have been expected that the U.S. Government would take firm and decisive action against Korea and its carriers. See, Docket OST-97-2296. Unfortunately, that has not been the result. Despite many meetings between the U.S. Government, the Korean Government and World, no progress has been realized, and World is still barred from providing service in a market undeniably open to it under the express terms of the bilateral and its operating authority. Moreover, neither World nor, to World's knowledge, the U.S. Government has received an explanation from the Korean Government for its action.

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It should not be assumed that this disappointing result was caused by inattention or neglect by World or the U.S. Government. As noted, there have been many meetings and discussions designed to ameliorate the situation. Although the U.S. Government has refused to use any of the remedial resources available to it-despite World's request that it do so--it has devoted much attention to the problem, and U.S. Government officials have traveled to Seoul to support World's position and to encourage the Korean Government to change its position.

It is apparent that, to date, the U.S. Government has determined that it is better to use the carrot rather than the -stick, and World has no quarrel with that policy decision. At the same time, all must now acknowledge that that policy has not been successful. It might have been suggested that it was unwise for the U.S. Government to continue to discuss the possibility of a new, more generous bilateral with Korea while the Korean Government remained in open violation of the existing bilateral. And one could wonder whether it was reasonable to award Korean carriers new, expanded authority they did not need while their government refused to accord even less comity and reciprocity to a U.S. carrier. But the carrot approach may have worked, and it was reasonable to rely on it while the U.S. Government was, at the same time, pursuing its "open skies" initiative with the Korean Government. But it was not a productive approach. World is still not permitted by the Government of Korea to provide scheduled service in the U.S.-Korea-Malaysia market.

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Recent events confirm the validity of this conclusion even more. For the last several months, World has been following a new strategy and, in accordance with that strategy, it determined that it should file a new U.S.-Korea-Malaysia schedule with the Korean authorities. That schedule was filed in May with a requested effective date of June 2, 1997. Despite optimistic expectations, on June 2, 1997, the Korean authorities rejected World's schedule filing and, to date, they have refused to permit it to become effective. And, in the succeeding weeks, the Korean authorities have never explained their action to World in any written document. World will provide- the Department with more details about these events in the near future.

Against this background, it is simply untrue to contend, as KAL does in each of the pending applications, that approval of its requests for extra-bilateral authority would be consistent with the principles of the Department's Cities Program or otherwise consistent with principles of comity and reciprocity. And with that failure, which KAL clearly knew about when it filed its applications, the requests certainly should not be approved.

At the same time, World is aware of the Department's continuing interest in an open skies agreement with the Korean Government, and it knows that further negotiations to that end are scheduled for next week. Moreover, World anticipates that, in those negotiations, the governments will continue their discussions about the permissible scope of cooperative

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arrangements under an open skies agreement and each government's attitude toward and anticipated actions with respect to different forms of cooperative arrangements carriers of the two countries may develop. Clearly, the Korean Government's attitude toward World's single plane service schedule is instructive in this connection. If the U.S. is willing to accept the unexplained rejection of World's schedule filing by the Korean authorities and tolerate it without effective retaliation for fifteen months, one could only speculate about the Korean reaction to third country code share transactions and even more sophisticated equipment exchange or joint use agreements commonly used around the world.

Two conclusions are clear. Neither of the pending KAL applications should be approved under present circumstances. At the same time, it would be premature for the Department to disapprove these applications until the current round of bilateral negotiations is completed and the U.S. has a clearer understanding of how the Korean authorities anticipate handling cooperative arrangements or other business plans which may be proposed for implementation in Korean markets. World, therefore, urges the Department to defer further consideration of these applications until it receives adequate assurances from the Korean authorities that they are approaching the issue of cooperative arrangements and schedule filings in a manner consistent with the U.S. Government's reasonable expectations. The Department clearly does not have those assurances now and

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will not have them until World is able to exercise the operating authority the U.S. Government bargained for with Korea and awarded to World.

Therefore, for all these reasons, World respectfully opposes approval of the pending applications and encourages the Department to take no positive action on them until the restrictions on World's operations in Korea are removed.

Respectfully submitted,

John Richardson

SEEGER POTTER RICHARDSON MUTTON JOSELOW & BROOKS

2121 K Street, N.W., Suite 700

Washington, D.C. 20037

(202) 496-1234

July 10, 1997