Undocketed / OST-97-2548 / US-Argentina / Answer of Fine / September 2, 1997

Joint Application of

FEDERAL EXPRESS CORPORATION and ARROW AIR, INC. and FLORIDA WEST INTERNATIONAL AIRWAYS, INC.

for approval of a transfer of frequency allocations pursuant to 49 U.S.C. §41105

(U.S.-Argentina All-Cargo Frequencies) )

The Joint Petitioners' challenge to the Notice hinges on only one of six "issues" /1 raised in the Petition: the dormancy of Arrow's frequencies. The Petition specifically raises two questions of law: (1 ) whether, under the Department's dormancy policy, Arrow's frequencies automatically reverted to the Department when it did not use them, and (2) whether that automatic reverser violated Arrow's due process rights.

For the reasons stated herein, Fine Air maintains that (1 ) pursuant to Departmental policy -- of which Arrow undeniably had notice -- the two Arrow frequencies automatically reverted to the Department months ago, and (2) Arrow has

1/ The other five issues (complaining of Notice's effect on Joint Petitioners' application, pending in a separate docket, to transfer the frequencies from Arrow to FedEx) all presume that Arrow validly holds frequencies eligible to be transferred. Clearly, this presumption is erroneous if, as this Answer contends, the frequencies were dormant and validly reverted to the Department. See Section III infra.

no right to a hearing (or to hearing-type findings) before such an automatic reversion becomes effective. Accordingly, the Petition should be denied.

1. Arrow's Frequencies Automatically Reverted to the Department When Arrow Failed to Conduct any "Regularly Scheduled Service During a Period of More Than 90 Days.

A. The Department Imposes Dormancy Conditions to Prevent Wasting Valuable Public Assets.

To ensure that valuable authority to operate scheduled services in a limited entry market is not wasted, the Department typically imposes a dormancy condition on allocations of frequencies, pursuant to which frequencies expire automatically and revert back to the Department if they are not used for 90 days. See. e.g., Order 97-8-20; 97-8-17; 97-7-35; 97-1-17; 96-9-16. /2 As the dormancy condition was explained in a recent order: "if the frequencies allocated are not used for 90 days, the frequency allocation will expire automatically and the frequencies will revert to the Department for

2/ Dormancy clauses may permit carriers not to operate services for more than 90 days without the frequencies automatically reverting to the Department where service in the market is seasonal. See, e.g., Order 97-6-4; 97-4-13; 96-8-48. In such cases, the carrier must notify the Department that its service is seasonal; otherwise, the allocation will expire automatically.

allocation so that they will be available for other carriers on an immediate basis should they seek to use them., Order 95-12-26 (U.S.-Peru Combination Service Proceeding).

B. Arrow's Frequency Allocation Was Explicitly Subject to the Department's Standard 90-day Dormancy Condition.

To ensure even application of its dormancy policy, the Department has recently begun subjecting previous allocations of frequencies (which may not have included an explicit dormancy provision) to its standard 90-day dormancy condition when renewing a carrier's frequency allocation or underlying economic authority. Thus, on February 25, 1997, the Department issued a Notice of Action Taken subjecting Arrow's allocation of two U.S.-Argentina frequencies to the standard dormancy condition ("February 25 NOAT"). The NOAT stated:

Order 97-3-6 (emphasis added). By NOATs issued that same day, the U.S.-Argentina frequency allocations of FedEx and Polar were subjected to the same dormancy conditions. Id.

The decision to impose the standard dormancy condition on the U.S.-Argentina frequency allocations was well merited. The market for U.S.-Argentina all-cargo services was, and continues to be, marked by considerable excess demand. /3 Moreover, there are numerous carriers (including Fine Air) eager to participate in the scheduled all-cargo market, were frequencies available.

C. Arrow Did Not Conduct "Regularly Scheduled" U.S.-Argentina All-Cargo Services in More than 90 Days.

The Notice states -- and Joint Petitioners do not contest -- that reports filed by Arrow with the Department indicate that, for the seventeen-month period from January 1996 to date - Arrow has conducted a total of three flights. Nonetheless, Joint Petitioners contend that the dormancy condition has not been triggered because lithe Argentina frequency allocation held by Arrow has been utilized by Arrow to provide a limited amount of scheduled service between the U.S. and Argentina." Joint Petition at 5.

Although the Joint Petition does not state exactly when Arrow provided this `'scheduled service," previous pleadings and the Notice suggest that it occurred when Arrow operated a single "scheduled" flight on June 21, 1997, apparently in a deliberate

3/ See Joint Application of FedEx, Arrow and FWIA at 6-7 ("existing traffic demand [in the U.S.-Argentina market] exceeds the limits of the payload capacity of Federal Express' B-727-200 aircraft").

attempt to avoid application of the dormancy provisions. Prior thereto, Arrow last operated a .`flight,, to Argentina on March 25, 1997.

As a preliminary matter, to the best of Fine Air's knowledge, Joint Petitioners have not even contended (let alone demonstrated) that the March 25, 1997 flight was a `4scheduled,, flight. If it was not, then Arrow indisputably failed to use its frequency allocation for more than 90 days (i.e., between February 25 -- when the NOAT was issued -- and June 21).

In any event, Joint Petitioners' contention that the operation of a single flight once every 90 days constitutes a ``limited amount of scheduled service" sufficient to avoid triggering the dormancy condition is manifestly ridiculous. By no reasonable definition does a single flight every three months constitute "regularly scheduled" service for which a carrier requires an allocation of two precious frequencies (sufficient to support two flights per week). /4 Indeed, as noted in Section II below, when enacting the legislation authorizing the Department to revoke air carrier authority for dormancy, Congress made unmistakeably clear that "it believes regularly scheduled service to consist of at least one flight a week. except in unusual circumstances." /5 Whether Arrow reported the February 25 and June 21 flights to U.S. (or Argentinian) authorities as "scheduled" is irrelevant.

4/ It should be noted that even if Arrow's single "flights" on March 25 and June 21 were somehow considered to be "scheduled service" sufficient to avoid triggering the 90-day dormancy provisions, Joint Petitioners fail to explain how these two flights -- which certainly require no more than one frequency -- are sufficient-to save both of Arrow's frequencies.

5/ See S. Conf. Rep. No. 96-531 at 18 as quoted in Section II below.

Clearly, if the Department's dormancy policy -- adopted, as noted above, to ensure that valuable public assets are used -- is to be effective and Congress' intent to be given effect, the Department cannot permit carriers willfully to waste valuable public assets for months and then, on the eve of dormancy, reset the 90-day clock by operating a single, self-proclaimed "scheduled" flight, as Joint Petitioners here have attempted to do.

D. Arrow's Allocation Expired and Its Frequencies Reverted to the Department for Reallocation.

The terms of the standard dormancy condition -- applied to Arrow by the February 25 NOAT -- are very clear: as noted above, in the event that the frequency allocation is not used -- i.e., that the carrier fails to conduct "regularly scheduled" service -- for 90 days, the allocation expires automatically and the frequencies revert back to the Department so that they may be reallocated on an immediate basis. At the very latest, Arrow's allocation expired and reverted to the Department on May 26, 1997 (90 days after February 25).

Joint Petitioners contend that the Department has violated their due process rights by issuing a Notice that "presumes" the dormancy of Arrow's frequencies before it has issued an order containing "any findings of fact or conclusions of law with respect to the issue of whether the Argentina frequencies allocated to Arrow and Challenge have become dormant under the terms of the 90-day dormancy condition applicable to those allocations." Joint Application at 5. At its essence, Joint Petitioners' complaint is that their rights were violated by a fundamental feature of the Department's standard, long-established dormancy policy -- that if frequencies are unused for 90 days, they automatically revert to the Department for reallocation. Joint Petitioners contend that before frequencies revert (and before the Department takes actions based on such reversion, such as issuing the Notice), the Department is obligated to issue ..an order,' that "makes findings of fact" and "conclusions of law" -- in short, to conduct a hearing and produce hearing-type findings.

In support of their contention that they have a right to such a hearing and hearing-type findings, Joint Petitioners cite CAB v. Delta Air Lines, 367 U.S. 321 (1961). At issue in Delta Air Lines was whether the Civil Aeronautics Board had failed to comply with its statutory mandate when it substantively amended a certificate of public convenience and necessity held by Delta -- barring Delta operations between certain intermediate points in the Great Lakes region unless the flights commenced at Atlanta or points further south -- without formal notice or a hearing. The Court concluded that whether Delta was entitled to notice and a hearing before the Board could modify its certificate should be determined by reference to the Board's enabling statute. After quoting then Section 401(9) of the Federal Aviation Act (Authority to Modify, Suspend or Revoke") and considering the legislative history of the provision, the Supreme Court concluded that Congress had intended that the CAB give a certificate holder notice and a hearing before modifying, suspending or revoking its certificate in the way the CAB had done in that case.

Far from invalidating the Department's action here, however, Delta Air Lines makes clear that the Department's action with respect to Arrows frequencies was entirely lawful. Delta Air Lines did not deal with a revocation for dormancy, but rather with a substantive amendment of a certificate of public convenience and necessity. Unlike the rationale for the Board's action in Delta Air Lines, dormancy for 90 days is explicitly recognized in the statute as a basis for revocation without a hearing, but merely after notice and an opportunity to present its views -- both of which Arrow has clearly enjoyed. /6

The Transportation Code's successor provision to Section 401(9) of the Federal Aviation Act provides:

49 U.S.C. §41110(c)(1) (formerly, Federal Aviation Act, Section 401(g)(3)). The statute strongly suggests that Congress wanted to permit the Department to revoke carrier

6/ There can be no question that the February 25 NOAT put Arrow on notice of the applicability of the 90-day dormancy condition to its U.S.-Argentina frequency allocation. Similarly, there can be no question that Arrow has been given -- and taken advantage of -- an opportunity to present its views; Arrow has filed at least three pleadings, including the Joint Petition' directly addressing whether and how it has made use of its two frequencies.

authority in the event the carrier "does not provide regularly scheduled transportation to the place for 90 days" without a hearing or hearing-type findings. This intent is made manifest by the Report of the Conference Committee issued when the above-quoted language was enacted. /7 It states in pertinent part:

Conference Report at 18 (emphasis added). /8 Thus, applying the Delta Air Lines rationale -- reference to the Department's enabling legislation -- the Department clearly

7/ The above-quoted language was enacted as part of the International Air Transportation Competition Act of 1979, P.L. 96-192, 94 Stat. 35 (1980).

8/ S. Conf. Rep. No. 96-531 at 18.

needed to provide Arrow nothing more than notice of the 90-day dormancy condition and an opportunity for it to present its views. /9

It should also be noted that the Department's practice in the instant case appears to have been completely consistent with its practice in prior cases where dormant frequencies have come to its attention. For example, in December 1996, the Director of the Office of International Aviation issued a Notice (dated December 16, 1996) stating that evidence indicated that Challenge Air Cargo ("Challenge") had not utilized some of the U.S.-Brazil all-cargo frequencies it had been allocated and seeking applications for those frequencies from eligible carriers. /10 The Notice stated:

9/ Twenty-three years after Delta Air Lines was handed down, the Supreme Court decided Chevron U.S.A. v. Natural Resource Defense Council, 467 U.S. 837 (1984). Notably, the Court in Delta Air Lines declined to give the agency's interpretation of its enabling statute any deference. See 367 U.S. at 322 ("the fact is that the Board is entirely a creature of Congress and the determinative question is not what the Board thinks it should do but what Congress has said it can do"). Today, by contrast, consistent with Chevron, the Department's interpretation of its own authority would be given far more deference by the courts. Thus, even if the Department's authority to revoke for dormancy without holding a hearing were less explicit in the statute, the Department's action in a case like this would almost certainly be upheld under today's standards of judicial review.

10/ The Notice also invited applications for frequencies that had recently become available under the bilateral agreement. The distinction is not relevant here.

As in the instant case, the Director of the Office of International Aviation had provided Challenge with notice of the dormancy condition, issued a Notice noting the basis for the Department's belief that frequencies had fallen dormant and seeking applications for the frequencies, and afforded Challenge an opportunity to express its views. /11 It conducted no hearing nor did it produce hearing-type findings of fact and conclusions of law.

III. The Other Objections to the Notice Raised in the Joint Petition Are Moot.

The Joint Petition raises other arguments which, although comprising the bulk of the pleading, all focus on the impact of the Notice's solicitation of additional

11/ Indeed, the Department subsequently modified the number of Challenge frequencies held to have reverted to the Department when it emerged that Challenge had operated U.S.-Brazil all-cargo services that it had not reported to the Department. See Order 97-2-20 ("Challenge has stated that, due to a reporting error, it failed to report a number of frequencies operated and that it is, indeed, using 2 of its previously allocated 3.5 wide-body frequencies in the market. No party objected to Challenge's statements regarding the number of frequencies it has actually operated in the market. We have carefully considered the information presented by Challenge and the fact that no party disputes the level of services it claims to have operated, and we have decided to modify the total number of U.S.-Brazil all-cargo frequencies available for reallocation at this time.") In the instant case, Joint Petitioners have presented no comparable evidence that they have utilized frequencies by operating flights unknown to the Department.

applications on the Joint Application, pending in a separate docket, to transfer the Arrow frequencies to FedEx. These arguments are uniformly based on the presumption that Arrow validly holds frequencies which can, subject to Departmental approval, be transferred. Specifically, Joint Petitioners argue that, because it solicits additional applications in competition with their Joint Application, the Notice is Crossly prejudicial" to the Joint Application, contrary to Departmental precedent supposedly disfavoring competing applications in route transfer cases, exceeds the delegated authority of the Director of the Office of International Aviation, /12 could unfairly delay processing of the Joint Application and is unnecessary. Clearly, all these arguments -and the Joint Application itself, insofar as its seeks the transfer of "Arrow's" frequencies -- are moot if, as the instant Answer contends, the two frequencies at issue properly reverted to the Department and no longer belong to Arrow.

12/ Joint Applicants argue that "the Director does not have delegated authority to solicit competing applications for the authority at issue in a route transfer proceeding." The argument is clearly premised on the belief that there is a valid route transfer application pending. In the instant case, however, there is no valid route transfer application pending; Arrow clearly no longer possesses the two frequencies it once was allocated. Those frequencies have reverted to the Department. As in numerous other cases where new economic authority becomes available (including the U.S.-Brazil case discussed above), the Director acted in full conformity with his mandate under the Department's regulations and with Departmental precedent in notifying all carriers of the availability of the authority and in seeking applications from carriers interested in utilizing that authority.

WHEREFORE, for the reasons set forth above, Fine Air urges the Department to reject the Joint Petitioners' petition to modify and clarify the Notice.

Jeffrey N. Shane

Karan K. Bhatia

WILMER, CUTLER & PICKERING

2445 M Street, N.W.

Washington, D.C. 20037

Counsel for Fine Air Services, Inc.

Dated: September 2, 1997