Docket OST-96-2764 / Docket OST-97-2646 / Federal Express and FWIA / FWIA / August 22, 1997

In the matter of the Joint Application of

for approval of a transfer of route authority (U.S.-Colombia)

In the matter of the Application of

for renewal of certificate and exemption authority

This is the second application in as many months in which FedEx seeks to purchase - in exchange for massive amounts of cash—authority to operate in a highly restricted South American market from a carrier that has never used the authority. In Docket OST-97-2548, FedEx sought to acquire for $1.5 million two U.S.-Argentina allcargo scheduled frequencies awarded by the Department to Arrow Air, Inc. ("Arrow"). Arrow, it turned out, had not utilized these frequencies since being allocated them 17 months ago. In the instant proceeding, FedEx seeks to purchase for $5.5 million FWIA's authority to operate scheduled all-cargo services in the restricted-entry U.S.-Colombia market (and with it, FWIA's status as an Authorized carrier" under the U.S.-Colombia bilateral agreement), even though FWIA has not utilized this authority since it was transferred to the carrier a year ago. It is antithetical to Departmental policy and the public interest to permit a carrier to sell for private profit a valuable public franchise which it applied for, was granted, but has never used.

FWIA's attempt to sell its dormant U.S.-Colombia authority is especially repugnant to Fine Air because of Fine Air's long-standing inability to secure scheduled all-cargo authority from the Colombian Government. Fine Air obtained exemption

1/ To the extent necessary, Fine Air asks for leave necessary to file and have this pleading considered in Docket OST-97-2646.

authority from the Department to operate scheduled all-cargo services between the U.S. and Colombia in April 1995. For over a year thereafter, Fine Air sought corresponding scheduled authority from the Colombian Government. In clear violation of the bilateral agreement then in existence, the Colombian Government refused to issue Fine Air such authority. Finally, in August 1996, the U.S. and Colombian Governments agreed that no new scheduled all-cargo carriers (apparently, including Fine Air) would be permitted to enter the market for over two years. If - as the Joint Application contemplates - Colombian authorities are ready to permit the substitution of a new U.S. carrier for an existing designated U.S. carrier, it is the Department who should decide which U.S. carrier should be the substitute, not the carrier which failed to make use of its valuable authority for months and now seeks to profit from the transfer. The Department should reclaim FWIA's unused authority and designation and either reallocate them immediately to a carrier previously authorized by the Department to conduct scheduled all-cargo services in the market but unable to secure corresponding Colombian authority due to the bilateral freeze on designations, or, as the Department has chosen to do in the U.S.-Argentina case, reallocate them after it has sought applications from all interested carriers.

In any event, the instant application should not even be considered until the Department has acted on FWIA's currently pending application to renew its certificate and exemption authorities (including the U.S.-Colombia authority at issue here) currently pending in Docket OST-97-2646. FWIA's authorities have expired and remains exercisable by FWIA only by means of the automatic extension provisions of the Administrative Procedures Act. Serious questions have arisen in FWIA's certificate and exemption renewal proceeding regarding FWIA's compliance disposition and its financial fitness. Until FWIA's certificate authority is renewed and made permanent, even entertaining any FWIA application to sell part of its authority would be entirely inappropriate.

A. The U.S.-Colombia Bilateral Agreement

Prior to August 1996, the U.S.-Colombia Air Transport Agreement contained no limitation on the number of U.S. or Colombian carriers that could be designated to operate scheduled air services between the two countries. However, pursuant to a Memorandum of Consultations dated August 22, 1996 ("1996 MOC"), the U.S. and Colombian Governments agreed:

By virtue of the above-quoted provision, the U.S.-Colombian all-cargo scheduled market has effectively become designation-restricted: the number of U. S. carriers permitted to conduct scheduled U.S.-Colombian all-cargo services is frozen at the number authorized by both Governments as of August 22.

B. FWIA's application for U.S.-Colombia Authority and Its Non-Use of that Authority.

In August 1995, FWIA applied in Docket OST-95-418 for the transfer of the certificate and exemption authorities held by Florida West Gateway, Inc. ("Florida West"), including the U.S.-Colombia scheduled all-cargo authority contained in Florida West's certificate. Pending action on the application, the Department authorized FWIA to utilize Florida West's authorities on a wet lease basis in October 1995. Finally, on August 30, 1996, the Department issued Order 96-8-36, granting FWIA's application subject to certain conditions and transferring to FWIA on a provisional one-year basis Florida West's certificate and exemption authorities, including the authority to conduct scheduled all-cargo services between the U.S. and Colombia.

Notwithstanding the transfer of the U.S.-Colombia authority, FWIA apparently did not conduct any scheduled services between the U.S. and Colombia during the pendency of the certificate transfer proceeding and has continued to conduct no scheduled U.S.-Colombia services since being issued the authority approximately one year ago. /2 Although the Joint Application does not state exactly when the FWIA/Florida West U.S.-Colombia authority was last utilized, it indicates that has not been used for over two years.

2/ The Cargo OAGs for the past 18 months do not disclose any scheduled FWIA services to Colombia.

described below, the application remains pending.

The Joint Application suggests that, because FWIA's predecessor, Florida West, conducted scheduled all-cargo service between the U.S. and Colombia prior to 1995, the Colombian Government is prepared to treat FWIA, under the 1996 MOO, as a carrier which "which holds authority and has been designated to provide scheduled all cargo air service between the United States and Colombian Jt. App. at 6. /3 Further, the Joint Application necessarily implies that the Colombian Government will be willing to accept the substitution of a new carrier that acquires FWIA's authority for FWIA. /4 In exchange for the transfer of FWIA's U.S.-Colombia authority - never once used by FWIA - FedEx proposes to pay FWIA $5.5 million dollars.

3/ The Joint Application notes that: At the present time, FWIA is in the final stages of the process of obtaining authority from the Government of Colombia to operate scheduled all-cargo service between Miami and Bogota. Prior to the bankruptcy of FWIA's predecessor and its suspension of flight operations in 1995, FWIA provided regular scheduled all-cargo service between the U.S. and Colombian Jt. App. at 5-6.

4/ How the Joint Applicants know the Colombian Government would be willing to accept this substitution is not explained. Fine Air assumes, however, that such a substitution would be acceptable under the 1996 MOC because it would not constitute an Increase in the number of carriers authorized to conduct scheduled all-cargo services. In any event, Fine Air accepts Joint Applicants' implicit contention that the Colombian Government would be willing to accept such a substitution.

In May 1994, Fine Air filed an application with the Department for, and was granted, exemption authority to conduct scheduled all-cargo services between Miami and Bogota; two months later, it applied for and was granted similar authority to operate between Miami and Barranquilla, Call and Cartagena. See Order 94-8-9. Fine Air soon thereafter filed an application with the Colombian Government for the corresponding Colombian scheduled authority. Notwithstanding the fact that Fine Air's application was clearly supported by the bilateral agreement then in effect, the Colombian authorities refused to approve the application.

In October 1995, the Department wrote directly to the Colombian Ministry of Foreign Relations to reconfirm that Fine Air holds all necessary authority to engage in scheduled foreign air transportation between Miami and the above-listed points in Colombia. Still, the Colombian Government refused to act upon Fine Air's application.

Between April and August 1996, U.S.-Colombian bilateral negotiations were conducted. Those negotiations culminated in the 1996 MOC described above.

Approximately one year after Fine Air received its U.S.-Colombia authority from the Department, and after bilateral negotiations between the U.S. and Colombia had already commenced, FedEx sought and received exemption authority from the Department to operate between Miami and Bogota, Colombia. Order 96-6-38. Fine Air understands that FedEx too has been unable to obtain corresponding scheduled authority from the Colombian Government, although Fine Air is unaware of when FedEx filed an application for such authority.

A. FWIA Should Not Be Permitted to Sell Valuable Scheduled U.S.-Colombia in a Limited Entry Market When It Has Never Used that Authority.

It is antithetical to Departmental policy and the public interest to permit a carrier to do what FWIA seeks to do here: obtain authority to operate in a restricted-entry market, never utilize that authority, and then sell it to another carrier for a windfall. In the instant case, FWIA's application for the transfer of authority to conduct scheduled services in the U.S.-Colombian market was granted on August 30, 1996. /5 By virtue of the freeze on all new carrier designations pursuant to the 1996 MOC then in effect and Florida West's status under that MOC as Ha carrier designated and authorized prior to August 22, 1996," the authority transferred to FWIA was extremely valuable. As evidenced by the Joint Application, the authority transferred to FWIA could have supported scheduled all-cargo services for the past year. Yet FWIA has apparently not once used its U.S.-Colombia scheduled authority.

The Department has clearly established and enforced a policy whereby it will reclaim and reallocate authority to operate in a restricted market that goes unused for an extended period of time. As recently as last month, for example, the Department rescinded U.S.-Ecuador frequencies granted to Millon Air, Inc. (Dillon) because Millon

5/ As noted above, FWIA was in fact permitted to conduct scheduled services on a wet lease basis ten months earlier.

had failed to utilize those frequencies since October 1996. The Department explained:

B. The Instant Application is Unripe Until the Department has Acted Upon FWIA's Certificate Renewal Application.

FWIA's application dated August 18, 1995 for transfer of Florida West's certificate and exemption authority set in motion a lengthy proceeding in which serious issues regarding FWIA's financial fitness, compliance disposition and citizenship arose. In June 1996—ten months after the initial application was filed and after FWIA had supplemented its initial application at least eight times - the Department issued an order to show cause proposing to grant FWIA's application, notwithstanding "troubling" disclosures about the compliance disposition of FWIA's majority shareholder, Several other issues that concern [the Department] about FWIA's fitness, and the Department's inability to find FWIA financially fit to support a fleet of more than two aircraft. Order 96-6-19. Two months later, the Department transferred Florida West's certificate authority (including its scheduled U.S.-Colombia authority) to FWIA subject, however, to certain carefully tailored reporting requirements and other limitations. The order provided that the carrier's certificate authority would expire on August 6, 1997.

As noted above, on June 23 of this year, FWIA filed an application to renew its certificate and exemption authority. Its application has raised serious questions -contained in two letters from the Department's Air Carrier Fitness Division to FWIA attached hereto as Exhibit 1 - regarding the carrier's failure to comply with the explicit reporting requirements imposed upon it and its financial fitness, citizenship and compliance disposition. FWIA has not yet furnished a response to any of the Fitness Division's questions; by letter dated August 12, 1997, the carrier requested an extension of time to respond.

Pending Departmental action on FWIA's certificate, FWIA remains able to exercise the authority contained therein pursuant to the automatic extension provisions of the Administrative Procedure Act, 5 U.S.C. §558, as implemented by Part 377 of the Department's regulations. However, the proposition implicit in the Joint Application that the Department's automatic extension provisions extend FWIA's U.S.-Colombia authority so as to permit it to sell that authority is, at best, unsupported. Both the language and history of the Administrative Procedure Act and Part 377 make clear that the purpose of the automatic extension provision is to permit the licensee to continue to exercise the authority pending Departmental action. It was never intended - and should not be permitted - to enable carriers to extend temporary and provisional authority for the purpose of selling that authority before the Department can act on the renewal application.

As the Department can well appreciate, Fine Air sympathizes with FedEx's desire to participate in the U.S.-Colombia all cargo scheduled market. Indeed, Fine Air has been actively seeking entry to that market for at least a year longer than FedEx. Fine Air agrees, moreover, that FWIA's authority and designation should not be permitted to languish dormant, while there are U.S. carriers willing and able to use that authority. But those U.S. carriers should not be required to pay exorbitant sums (which, although perhaps affordable to a major carrier such as FedEx, are prohibitive to a smaller carrier like Fine Air) to pry such authority loose. The Department has a clearly established policy to deal with such non-use of valuable authority: it rescinds the award and reallocates it. As it has in several other cases recently, it should do the same here.

In any event, FWIA is currently in no position to sell its U.S.-Colombia authority to anyone. The authority was granted to it a year ago on a one-year, provisional basis, and expired on August 6, 1997. While FWIA should be permitted to operate scheduled service to Colombia pursuant to the automatic extension provisions of the Administrative Procedure Act pending Departmental action on its application to renew this and all other authorities held by it - although it apparently has no intention of providing such service - it would be entirely inappropriate to permit FWIA to treat the automatic extension as an opportunity to shop its wholly unused authorities to the highest bidder.

Respectfully

Jeffrey N. Shane

Karan K. Bhatia

WILMER, CUTLER PICKERING

2445 M Street, NW

Washington, D.C. 20037

Tel. (202) 6634000

Fax. (202) 6634363

Counsel for FINE AIR SERVICES

Dated: August 22,1997