OST-97-2477 / OST-97-2481 / Undocketed / OST-96-1988 / OST-97-2161 and Undocketed / Undocketed / Joint Comments of American and Aero California / August 14, 1997

I. CODESHARE COORDINATION COMMITTEE

Order 97-7-31 requires American and Aero California to amend Sections 7.2.2 and 7.2.3 of their Codeshare Agreement with respect to the authority of the Codeshare Coordination Committee. The Joint Applicants have amended these provisions in compliance with the Department's directive, and a copy of this amendment is attached.

II. REPLACEMENT OF CODESHARE SERVICES BY DIRECT SERVICES

Order 97-7-31 tentatively imposes a condition on all codeshare services in the U.S.-Mexico market, providing a rebuttal presumption that a U.S. carrier proposing operations with its town aircraft would be favored over codeshare operatars. Under this condition, authorization of codeshare services would be withdrawn in any city-pair market where another U.S. carrier proposes to operate direct service and (1) additional designations are not available, and (2) the Depart

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ment determines that the proposed direct carrier services would provide superior benefits and service options (p. 9).

American and Aero California support the Department's proposed condition. It has long been established that in limited-designation markets, direct U.S. carrier operations should be favored over codeshare services operated by foreign carriers. See, egg, Delta/Varig, Order 94-3-33, April 26, 1994; American/South African Airways, Order 92-10-19, October 9, 1992, p. 5 n. 9. The Joint Applicants have no objection to the imposition of the proposed condition on their codeshare authorization, provided that the same condition is imposed on Delta/Aeromexico, United/Mexicana, and all other similarly situated codeshare operators in U.S.-Mexico markets.

III. DEFERRAL OF CERTAIN AMERICAN/AERO CALIFORNIA REQUESTS

Order 97-7-31 defers action on certain exemption/ statement of authorization requests of the Joint Applicants "until Aero California provides evidence of its underlying authority and designation from Mexico to serve the subject markets" (p. 7).

The Joint Applicants submit that the Department should reconsider this deferral and grant the application in its entirety, subject to (1) the designation of Aero California by the Mexican Government to serve the additional points identified in the codeshare application for which Aero Cali

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fornia has not yet been designated, and (2) the receipt by Aero California of underlying authority to serve the points for which it has been so designated.

The operational result of such actin by the Department may be no different than the Department's deferral action, i.e., in neither case would the Joint Applicants operate in any particular market until required designations or economic authority are issued. However, granting the application subject to the identified conditions offers several benefits.

First, it would clarify the Department's intentions with respect to the remainder of the codeshare application. This would facilitate planning by the Joint Applicants, who have invested considerable resources in fashioning their codeshare arrangement so as to offer the public extensive new competitive services.

Second, and even more importantly, a conditional grant of the application would unambiguously signal to the Mexican authorities that the Department favors, as the Order 97-7-31 states, the expansion of U.S.-Mexico service options through codeshare arrangements. In this connection, the Joint Applicants believe that the grant of the application subject to the issuance of designations and underlying economic authority could further the bilateral discussions between the U.S. and Mexico on codesharing arrangements and leave no question as to

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the intent of the Department to allow extensive codesharing services to be offered in the U.S.-Mexico market.

The above approach will not prejudice any party. On the other hand, it will serve to reaffirm the Department's position on these matters, and could prompt a more affirmative and expeditious response from Mexican aviation officials with respect to the proposed American/Aero California codeshare arrangement.

CONCLUSION

American and Aero California jointly urge the Department to enter a further order with respect to U.S.-Mexico codeshare services consistent with the foregoing comments.

Respectfully submitted,

CARL B. NELSON for American

DAVID H. COBURN of Steptoe Johnson for Aero California

August 14, 1997