OST-97-2633 / Undocketed / American and Philippine Airlines / July 17, 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 17, 1997

 

RESPONSE OF UNITED AIR LINES, INC.

AND MOTION FOR LEAVE TO FILE

 

United Air Lines, Inc. ("United") submits the following response to the joint reply of Philippine Airlines, Inc. ("PAL") and American Airlines, Inc. ("American") dated July 14, 1997, in the above-captioned proceeding: /1

 

1. PAL and American claim that United is trying to "block" their code share in order to "frustrate additional competition" in the U.S.-Philippines market. In fact, United is seeking to assure that additional competition in this market can flourish notwithstanding anti-competitive provisions added to the

 

1/ United requests leave to file to address the misrepresentation of its position by PAL and American.

 

 

Response of United and

Motion for Leave to File

Page 2

 

bilateral code-share provision by the Philippine government during the last round of negotiations. United is seeking a bilateral regime in which all designated carriers of each side (not just PAL) are guaranteed the right to code share with non-designated carriers of the other side.

 

2. PAL and American have failed to cite any bilaterally agreed provision that overcomes the specific bilateral language that limits code sharing to designated carriers of each side. This language is contained in Article 8, pare. 6, which reads as follows (emphasis supplied):

 

6. In operating or holding out the authorized services on the agreed routes, any designated airline holding appropriate authority to provide such service, may, subject to the requirements normally applied to such arrangements, enter into cooperative marketing arrangements such as blocked-space, code-sharing or leasing arrangements with a designated airline or airlines of either Party which also holds appropriate authority to provide such services.

 

While claiming that bilateral discussions at the last round focussed on expansion of opportunities and should be properly construed accordingly, these carriers ignore the inconvenient fact that the Philippine government insisted upon the limitation of code sharing to designated carriers. The U.S. proposed a broadened code-share term that would have allowed code sharing with non-designated carriers. That term, if agreed,

 

Response of United and

Motion for Leave to File

Page 3

 

would have preserved PAL's right to code share with non-designated U.S. carriers such as American. The Philippines, however, inserted the word "designated" into the U.S. proposal. /2

 

3. PAL and American do not deny that the limitation was made at that insistence of the Philippines. Any departure from that limitation to benefit PAL should be approved only if the Philippines government itself, not PAL, gives an acceptable and formal assurance that it will allow U.S. designated carriers, such as United, to deviate from that same limitation by code sharing with non-designated Philippine carriers.

 

4. PAL and American seek to make light of the Philippine government's denial of ground-handling rights to United. Representatives of that government gave their assurances during

 

2/ PAL and American cite (p.3) DOT approval of statements of authorization permitting World Airways ("World") to wet lease aircraft to PAL as evidence of inconsistency by United in its position on the bilateral code-share provision. World did not, however, request approval for these wet leases under Article 8, pare. 6, or any other provision of the bilateral. Rather, World requested approval on the basis of comity and reciprocity for what they recognized was extrabilateral authority. United did not object to the cooperative arrangements between World, a non-designated U.S. carrier, and PAL in circumstances where those arrangements involved wet leases of aircraft, not code sharing. The wet leases appeared to United to be necessary in order to permit PAL to exercise its bilaterally-agreed right to increase its frequencies to the U.S. Because the FAA has placed the Philippines in Category 2 of its international air safety assessment program, PAL could only increase its frequencies by wet leasing from a U.S. carrier or a foreign carrier of a Category 1 country. The Department's approval of these extrabilateral wet leases in no way requires unconditional approval of the proposed code shares on an extrabilateral basis.

 

 

Response of United and

Motion for Leave to File

Page 4

 

the 1995 negotiations that there would be no impediment to the exercise by U.S. carriers of self-handling rights as well as the right to handle other carriers. It is, in part, because those informal assurances are now being ignored by the Philippines authorities that the U.S. must insist upon a formal undertaking by those same authorities that U.S. carrier code-share rights will extend to services with non-designated Philippine carriers. The mere assertion by PAL and American that "there is every reason to believe" that the government of the Philippines would approve extrabilateral code shares is not sufficient. If that government cannot live up to its informal assurances that there would be no objection to exercise by U.S. carriers of agreed ground-handling rights, it could hardly be expected to live up to the mere "expectation" of PAL that reciprocal code-share rights would be granted to U.S. carriers.

 

5. All that is needed here is a formal acknowledgement by the Philippines government that, notwithstanding the limitations of the agreed code-share term that were included at its own insistence, designated U.S. carriers may code share with non-designated Philippine carriers. Such a formal assurance should not be difficult to obtain if PAL and American are correct in their assessment of the position of the Philippines. Nor should the obtaining of such an assurance delay implementation of the PAL/American code-share services. Absent that formal assurance,

 

Response of United and

Motion for Leave to File

Page 5

 

however, the Department should not approve the PAL/American code share on an extrabilateral basis.

 

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 17, 1997