Docket OST-97-2058 / American and British Airways /

Reply of British Airways / August 5, 1997

Joint Application of

under 49 USC 41308 and 41309 for approval of and antitrust immunity for alliance agreement

Applications of

for exemptions, certificate authority, undocketed foreign air carrier permit authority, and statements of authorization

Continental 1/ opposes the requests of American and British Airways (the "Joint Applicants") for confidential treatment and in camera review of documents they each have submitted in response to Order 97-5-13. There is no basis for granting the requests for in camera review. The Department has already found that "each of the items" responsive to Order 97-6-13 "is relevant to our

1/ Common names of carriers are used.

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determination as to both the public benefits and the competitive impact of the proposed alliance," 2/ and the Joint Applicants have failed to demonstrate any reason the Department's normal confidential procedures under Rule 39 will not protect their interests adequately. Continental questions the need for confidential treatment of the few so-called "confidential" documents sufficiently described in the Joint Applicants' July 25 submissions and urges the Department to require the Joint Applicants to submit a Vaughn Index of all documents for which limited access is sought under Rule 39. Finally, these latest submissions demonstrate why an oral, evidentiary hearing is required in this unique case.

In support of its position, Continental states as follows:

1. The Joint Applicants' New Requests For In Camera Review Disregard The Department's Directives In This Case And Precedents In Similar Cases

American asks for in camera review of 111 documents, and British Airways seeks In camera review of 86 documents. The documents which the Joint Applicants seek to hide from interested parties go to the very heart of the competition and public interest issues raised by their Joint Applications for antitrust immunity. Those documents concern: the projected profits and revenue sharing of the American/British Airways mega-alliance; 3/ the recently-announced

2 Order 97-5-13 at 2.

3 AA documents III. 2, 4,7,-11, 13, 16, 2O, 23-24, 26-28, 31, 33, 34, 35, 37, 44, 4754, 56, 58; BAP in camera documents 1-8;

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new alliances between and among American, Aerolineas Argentinas, British Airways, and Iberia; 4/ other potential alliance partners for the Joint Applicants; 5/ Heathrow growth, strategy and slot valuation; 6/ and communications with the Office of Fair Trading. 7/ The primary basis advanced for blocking access to these documents is that they are either "irrelevant to" (American) 8/ or "not necessary for" (British Airways) 9/ the Department's decision in this case. The Department has already concluded just the opposite twice in this proceeding, and the Joint Applicants' position defies the Department's unequivocal conclusion.

In November 1996, the Department disagreed with the Joint Applicants that their document search should be limited to a July 10, 1996 cut-off date and declared, "We do not believe it would be in the public interest to exclude from your application the most recent reports, studies, documents, and other relevant information." 10/ Similarly, when it requested additional documents two months

4/ AA III. 6, 19, 86-111; BAP in camera documents 10-40.

5/ AA III. 1, 12, 14-15, 17-18, 21, 22, 29, 32, 42, 43, 57, 84, 85; BAP In camera documents 41-55.

6/ AA documents III. 3, 8, 36, 39, 40, 55. BAP in camera documents 63-79.

7/ BAP in camera documents 80-86.

8/ American July 25 Response at 7-40.

9/ British Airways July 25 Motion at 2-59.

10/ Memorandum from Regis P. Milan to Carl B. Nelson, Jr., and Jeffrey W. Jacobs, dated November 26, 1996, at 2 (emphasis added).

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ago, the Department announced that "each of the items [requested] is relevant to our determination as to both the public benefits and the competitive impact of the proposed alliance." (Order 97-5-13 at 2; emphasis added) Since neither Applicant has shown why routine Rule 39 confidential procedures will not protect the Joint Applicants' competitive and commercial interests, there is no reason to permit the Joint Applicants to deny interested parties access to these clearly relevant documents. The Department should permit access to these documents at least by outside counsel and experts for interested parties.

The fact the documents may contain extremely sensitive commercial information does not automatically qualify the documents for in camera review. As before, the Joint Applicants reliance on Order 95-11-5 (Delta/Swissair/Sabena/Austrian), Order 94-5-42 (Delta/Virgin) and Order 93-12-32 (United/Lufthansa) is misplaced. Those cases did not raise the same unique competition issues raised by a request seeking antitrust immunity for a potential alliance between the two most dominant carriers in the U.S.-U.K. market. In any event, those cases confirm that relevant documents with commercially or competitively-sensitive

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information should be filed in the docket, with access provided at least to outside counsel and experts for interested parties. 11/

In light of the Joint Applicants' recently-announced enhancement of their U.S.-Latin America and transatlantic dominance through investments and alliances with Aerolineas Argentinas, Austral and Iberia, the need for maximum access is even more compelling now than it was two months ago when the Department ordered further document production. American's claim that documents related to these new investments and alliances by the Joint Applicants, or other arrangements with these carriers considered by the Joint Applicants, are "not relevant" is ridiculous. As Continental has previously shown in its July 18 Motion To Require Supplemental Information Submission in this case and the American/TACA case, the investments in and arrangements with Aerolineas Argentinas and Iberia demonstrate that American and British Airways are attempting to monopolize both transatlantic and U.S.-Latin America service by preempting alliances among smaller airlines to prevent those airlines from competing with American and British Airways. These investments and alliances

11/ For example, in the Delta/Swissair/Sabena/Austrian case, the Department permitted counsel and outside experts for interested parties to review documents containing traffic, revenue, operating and financial results of code-share routes that "may contain certain information considered sensitive by the joint applicants." (Order 95-11-5 at 6-7) Similarly, in the United/Lufthansa case, the Department provided limited access to the confidential Slot Exchange Agreement for representatives of parties who filed affidavits pursuant to Rule 39.

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will have a cumulative effect on the dominance of American and British Airways in transatlantic services as well as American and the TACA Group in Central America. Because American already holds a commanding portion of U.S.-flag service in the U.S.-U.K. market and together the Joint Applicants control 60% of the U.S.-London seats, their additional alliances and investments in other carriers which can multiply American's Latin American dominance and the Joint Applicants' transatlantic power are related directly to the public interest analysis in this proceeding, and interested parties, or at least their representatives, must have a meaningful opportunity to review and comment on documents related to those new alliances and investments. 12/ Granting the Joint Applicants' requests for in camera review would deny interested parties those fundamental rights.

12/ See Order 97-6-30 at 31 (emphasis added), in which the Department concluded that the Star Alliance (composed of United, Air Canada, Lufthansa, SAS, Thai Airways and Varig) "involves matters relevant to our assessment of the competitive implications" raised in the United/Air Canada proceeding, ordered United and Air Canada to provide additional information concerning the Star Alliance and is giving interested parties an opportunity to comment on the information; Order 97-2-23 at 7, in which the Department consolidated the American-ALM and American-BWIA code-share and statement of authorization applications because the cases "raise[d] similar competitive concerns, . . . affect[ed] a common geographic region . . . [and presented] other public interest issues" which the Department needed to consider carefully.

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2. The Joint Applicants Should Be Required To Submit A Descriptive Index Of All Documents For Which Confidential Treatment Is Sought and Produce Documents Without Sensitive Material For Public Review

The Joint Applicants have asked for Rule 39 confidential treatment (that is, access limited to outside counsel and experts of interested parties) for five boxes of documents, but have failed to provide the Department or interested parties with a useable index to the documents for which they are seeking confidential treatment, despite the fact that Rule 39 requires the party seeking confidential treatment to provide "a description of the information sought to be withheld, sufficient for identification of the same." (14 C.F.R. § 302.39(e); see Order 97-3-42 at 2 & n.3) 13/ The Department should direct the Joint Applicants to file the appropriate index so interested parties can determine the validity of their characterizations without reviewing each document. 14/

Based on the few descriptions of so-called "confidential" documents included in the Joint Applicants' July 25 submissions. that label is already suspect. For example, American includes in its list of "Documents Submitted As Confidential With Redacted Portions Withheld," existing code-share agreements with Qantas,

13/ British Airways provided no index, and American's index fails to describe or even give titles of documents.

14/ In light of the volume of the documents and the Joint Applicants' failure to index the documents properly, Continental reserves the right to comment further on the Joint Applicants' July 25 Rule 39 motions and submissions, as well as their further responses to Order 97-5-13.

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British Midlands and Gulf Air. although it has included other code-share agreements in its submission for the public docket 15/ and the Department routinely requires carriers to file redacted versions of their code-share agreement as public documents. American gives no reason why some of its code-share agreements should receive special, confidential treatment, and they should all be released immediately for public review.

3. The Joint Applicants' July 25 Submissions Underscore The Need For An Oral Evidentiary Hearing

The Joint Applicants' brazen attempt to deny interested parties access to clearly relevant material shows precisely why the Department must set this case for a full, oral evidentiary hearing. Simply ordering the Joint Applicants to comply with the Department's previous orders for production of all relevant documents for review by interested parties will not guarantee a full and fair airing of all public interest and competition issues in this unprecedented case. As TWA has recently explained, the documentary record can be manipulated by the Joint Applicants, and only oral testimony, subject to cross examination, can fully answer the key issues raised by the Joint Applications. 16/ These issues include the motive

15/ American July 25 Response at 5-6. In contrast, American's existing code-share agreements with LOT, Canadian Airlines and South African Airways are submitted for public review, with redactions of sensitive data. See id. at 4-5.

16/ See Answer of TWA in Dockets OST-97-2058 and OST-97-1700, filed July 24, 1997.

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for and strategic goals of the Joint Applicants in this and related alliances and investments, additional alliances and investments contemplated by the Joint Applicants and the availability of less anticompetitive alternatives.

The Joint Applicants have advanced no reason why the documents they have produced in compliance with Order 97-6-13 are entitled to in camera review, and the Department has already determined that those documents are relevant to both the "public benefits and competitive impact" of the unique and substantial competition issues raised by the Joint Application. (Order 97-5-13 at 2) Accordingly, the Joint Applicants should be required to produce the documents for which they have sought in camera review, without pricing information or attorney-client privileged material. subject to normal Rule 39 procedures for review at least by outside counsel and experts for interested parties. The Department also should require the Joint Applicants to properly index the documents for which they seek confidential treatment and produce non-confidential documents for the public

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docket. Finally, the Department should set this proceeding for a full, oral evidentiary hearing.

Respectfully submitted,

CROWELL & MORING LLP

|s| R. Bruce Keiner, Jr.

R. Bruce Keiner, Jr.

|s| Lorraine B. Halloway

Lorraine B. Halloway

Counsel for

Continental Airlines, Inc.

CERTIFICATE OF SERVICE

I certify that I have this date served a copy of the foregoing document on the Joint Applicants and all parties served with their July 25 Rule 39 motion, in accordance with the Department's Rules of Practice.

|s| Lorraine B. Halloway

Lorraine B. Halloway

August 5, 1997