Docket OST-95-765 / Docket OST-97-2693 / US-Hong Kong/Northwest / July 15, 1997

Application of

NORTHWEST AIRLINES, INC.

for selection of a new gateway and designation of Northwest pursuant to the U.S.-Hong Kong bilateral air services agreement of 1995 (Minneapolis/St. Paul-Hong Kong)

CONSOLIDATED REPLY OF NORTHWEST AIRLINES, INC.

A. None of the objections dispute that Minneapolis/ St. Paul should be named as a new gateway to Hong Kong.

No party disputes that Northwest's Minneapolis/St. Paul-Hong Kong proposal will produce substantial service and economic benefits and that Minneapolis/St. Paul therefore should be named as a new gateway to Hong Kong. These benefits are confirmed in compelling detail in the Answer filed yesterday by the Minneapolis/St. Paul Metropolitan Airports Commission and the supporting letters attached thereto. Moreover, all parties concede that there is no bilateral obstacle to Northwest's service and no competing applications have been filed.

The only issue disputed in the Answers to Northwest's application is the bilateral mechanism by which the Minneapolis/St. Paul gateway should be named. For the reasons set forth below, the Department need not even consider these objections as they merely seek to relitigate issues relating to the Department's selection of Detroit as a gateway just one year ago. In the event the Department is inclined to consider these same arguments again, however, the following steps should be taken immediately to ensure that Northwest's new Minneapolis/St. Paul-Hong Kong service is not delayed as a result:

(1) The Department should grant Northwest a pendente lite exemption from 14 C.F.R. § 201.5 expressly authorizing Northwest immediately to begin marketing and selling its Minneapolis/St. Paul-Hong Kong service.

(2) The Department should notify the Hong Kong authorities that the United States intends to designate Minneapolis/St. Paul as a new gateway and Northwest to serve the route effective October 1, 1997. There is no need to delay such notification while the Department works out the details regarding the bilateral mechanism by which it intends to designate Minneapolis/St. Paul.

(3) The Department should begin working with the Hong Kong authorities to secure a waiver of the 90-day advance notice requirement under the bilateral so that Northwest's Minneapolis/St. Paul-Hong Kong service may be implemented on October 1, 1997, as scheduled.

B. The Department should open-up a gateway opportunity for Minneapolis/St. Paul by switching Seattle from multiple to single designation.

There are two bilateral mechanisms by which the Department may name Minneapolis/St. Paul as a new gateway to Hong Kong. First, the bilateral authorizes a seventh single designation U.S. gateway opportunity by switching an existing multiple designation gateway to single designation. The bilateral also would permit the U.S. to shift an existing single designation gateway opportunity to Minneapolis/St. Paul.

Detroit and Seattle are the only named U.S. gateways lacking service. /1 Unlike Seattle, however, there is a carrier with firm plans to serve Detroit. That carrier is Northwest. While there remain obstacles to Northwest's implementation of Detroit-Hong Kong service, the Department was fully aware of these obstacles when it selected Detroit as a gateway and designated Northwest to serve the route just one year ago. In so doing, the Department found it to be in the public interest to "allow . . . time to obtain a flight routing approval over China and Siberia." New U.S.-Hong Kong Combination Air Service Opportunities, Order 96-364 at 4.

Northwest remains interested in serving Detroit-Hong Kong. Unfortunately, securing a feasible air navigation routing and/or production of new generation aircraft is taking longer than Northwest anticipated. Despite this setback, Northwest's intentions with respect to Detroit-Hong Kong service have not changed. The city of Detroit and the State of Michigan should not be penalized just because Northwest is able to implement Minneapolis/St. Paul-Hong Kong authority now. Indeed, it would violate the due process rights of Northwest and Detroit for the Department to reverse its decision with respect to Detroit's designation when the facts are substantially the same today as they were when the Department selected Detroit just one year ago. See, erg, Achenar Broadcasting Co. v. FCC, 62 F.3d 1441, 1447

1/ Although Northwest currently provides Seattle-Hong Kong nonstop service, Northwest has announced its intention to discontinue that service effective September 8, 1997.

(D.C. Cir. 1995) (case remanded where failure to follow established procedures "violates the rudimentary principle that agencies are bound to adhere to their own rules and procedures"); Teleprompter Cable Comm. Corp. v. FCC, 565 F.2d 736, 742 (D.C. Cir. 1977) (case remanded; "[w]e need not belabor the elementary principle that an administrative agency is bound to adhere to its own rules and procedures"). This is particularly so given that there is another mechanism by which to open up a gateway for Minneapolis/St. Paul and the community from which this designation would come, Seattle, does not object.

By switching Seattle from multiple to single designation, the Department can name Minneapolis/St. Paul as a new gateway without depriving Seattle of the opportunity for nonstop Hong Kong service. While American, Delta and United go to great lengths to infer something sinister about Seattle's non-objection to Northwest's application, the reason Seattle does not object is quite simple. On three separate occasions carriers have attempted to serve Seattle-Hong Kong -- Northwest twice and United once. All three attempts were ultimately abandoned when the market failed to generate sufficient traffic to make such operations profitable. By not objecting to Northwest's request to switch Seattle from multiple to single designation, Seattle merely is acknowledging the reality that Seattle-Hong Kong traffic at the present time is too thin to support two carriers. /2

2/ The reason behind the change in Seattle's position since the Hong Kong proceeding a year ago is simple. At that time, Seattle-Hong Kong was being served, by Northwest. Northwest only last week announced its intention to suspend its Seattle-Hong Kong service, leaving Seattle with no Hong Kong nonstop service.

The Port of Seattle should be commended for its reasonableness, not ridiculed.

This is a completely different situation than the London gateway proceeding cited by American. Answer of American at 3-4 (citing Application of Laker Airways, Order 95-6-36 (issued May 28, 1996). In the London proceeding, two communities sought to retain their designations despite the fact that no carrier was proposing to serve those communities on bilaterally available route descriptions. In withdrawing those designations, the Department offered the following explanation:

Application of Laker Airways. Inc., Order 96-5-36 at 4. Here, Northwest has a longstanding interest in serving Detroit-Hong Kong and has put forth a firm service proposal. The underlying facts in the two proceedings are clearly distinguishable.

C. American's, Delta's and United's allegations of anticompetitive behavior by Northwest are completely unfounded.

Finally, Northwest is compelled to respond to accusations by American, Delta and United that Northwest's desire to serve Hong Kong from its two largest international hubs is somehow motivated by an anticompetitive intent. There clearly are ulterior motives behind these objections. Northwest deals with each separately below.

3/ In the U.S, Japan Gateways Case, Order 86-10-16, American broke its commitment to serve Houston with single-plane service behind Dallas Fort Worth-Tokyo. In the 1990 U.S.-Japan Gateways Proceeding, Order 90-10-15, American failed to deliver on its promise to provide single-plane service behind San Jose to Boston-Tokyo. American also failed to fulfill its commitment in1993 to maintain Philadelphia-London service. See Order 93-11-13. And this is not a comprehensive list. The Department should have serious questions about the credibility of American's commitment to serve Dallas Fort Worth-Hong Kong.

4/ United's suggestion that Northwest is seeking to switch Seattle from multiple to single designation so that Northwest will have a Seattle-Hong Kong monopoly is preposterous. Northwest has no present intention to serve Seattle-Hong Kong and would not object to a designation request for the route by United or any other carrier.

serving the U.S.-Hong Kong market in the foreseeable future. Indeed, Delta served Los Angeles-Hong Kong at one time but pulled out. The Department should not hold Northwest and Detroit hostage just in case Delta decides to begin serving an undefined U.S.-Hong Kong route at some unspecified point in the future.

Northwest urges the Department not to permit American, Delta and United to delay Northwest's Minneapolis/$t. Paul-Hong Kong service by raising again arguments already considered and rejected by the Department. The city of Detroit should retain its current gateway designation to Hong Kong for the same reasons the Department designated Detroit just one year ago. Minneapolis/St. Paul immediately should be named as a U.S. gateway to Hong Kong by switching Seattle from multiple to single designation.

Respectfully submitted,

Megan Rae Poldy

Associate General Counsel

NORTHWEST AIRLINES, INC.

901 15th Street, N.W.

Washington, D.C. 20005

(202) 842-3193

July 15, 1997