OST-97-2965 / OST-97-2966 / Undocketed / OST-96-1700 / American Airlines and Iberia, Codeshare / Consolidated Answer of Continental and Motion to Consolidate / October 17, 1997

Application of :

AMERICAN AIRLINES, INC.

Docket OST-97-2965

under 49 U.S.C. 40109 for exemption (U.S.-Spain and beyond; code-sharing with Iberia)

Application of :

IBERIA LINEAS AEREAS DE ESPANA, S.A./ IBERIA AIRLINES OF SPAIN

Docket OST-97-2966

for exemption under 49 U.S.C. 40109 (former Section 416(b) of the Federal Aviation Act of 1958, as amended)

Joint Application of:

AMERICAN AIRLINES, INC. and IBERIA LINEAS AEREAS DE ESPANA, S.A. Undocketed

for Statements of Authorization Under 14 CFR Parts 207 and 212 (Reciprocal Code-Share Services)

AMERICAN AIRLINES, INC., et al., and THE TACA GROUP RECIPROCAL CODE-SHARE SERVICES PROCEEDING

Docket OST-96-1700

CONSOLIDATED ANSWER OF

CONTINENTAL AIRLINES, INC. AND

CONTINGENT MOTION TO CONSOLIDATE

If the Department is serious about preserving competition, it has no choice but to deny the requests of American /1 and Iberia (collectively "the Joint Applicants") for U.S.-Central America code-share authority. Iberia is the sole

1/ Common names of carriers are used.

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competitor to the American/TACA Group alliance on Miami-Central America routes and a junior partner in the American/British Airways mega-alliance. Permitting both American/Iberia and American/TACA Group code-sharing would guarantee American an effective monopoly on the key Miami-Central America routes, tighten American's stranglehold on air travel between the U.S. and Latin America, strengthen American's dominance over Miami-Europe routes, further American's pernicious scheme to pre-empt competition in Latin America, and facilitate global dominance by American and British Airways.

The Department should also dismiss or deny those portions of the American and Iberia requests which seek extra-bilateral authority, including Iberia's request to serve both Washington National and Baltimore/Washington International airports and American's requests to serve points in Spain other than Barcelona, Malaga, and Palma de Mallorca and to operate beyond Spain to Geneva, Vienna, Lisbon and Porto and to Marseille when it is served with Nice. The Joint Applicants have not demonstrated sufficient comity and reciprocity to grant the requested extra-bilateral authority.

If the Department does not deny the American/Iberia applications outright, the Department should defer the applications until American submits complete information concerning its potential ownership and control of Iberia, its relationship with Sociedad Estatal de Participaciones Industriales ("SEPI," the Spanish government company that owns Iberia) and its affiliates and the

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interrelationship between the American/Iberia code-share and American's numerous other alliances with Latin American carriers, including particularly the TACA Group carriers. The Department should also consolidate this proceeding with the American/TACA Group code-share proceeding in Docket OST-96-1700, because it involves the same competitive issues, the same Miami-Central America routes and flow traffic between Central America and Spain via Miami and make relevant confidential information from other dockets available in the American/Iberia docket.

Continental states as follows in support of its position:

I. AMERICAN AND IBERIA CODE-SHARING WOULD ELIMINATE COMPETITION AND BE CONTRARY TO THE PUBLIC INTEREST

American's proposal to code-share with Iberia is but the latest front in American's drive to assure its perpetual domination of U.S.-Latin America and Miami-Europe routes by pre-empting alliances between its foreign competitors and U.S. airlines with smaller presences on these routes and by securing sufficient market dominance to drive out competitors and prevent new entry.

A. American's Proposal to Code-Share With Iberia and Every Carrier in the TACA Group on All of the Miami Central America Routes Would Co-opt Every American Competitor on Virtually All of Those Routes

Continental and others have warned the Department repeatedly about the steady destruction of competition from U.S. and foreign carriers alike resulting from the Department's failure to deny the American/TACA Group code-share

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applications. /2 Emboldened by the Department's failure to deny the American/ TACA Group application, American is now proposing to code-share with Iberia, the only competitor to American and its TACA Group partners on six of the routes where American plans to code-share with its TACA Group partners. The American/Iberia code-share requests are anticompetitive and contrary to the public interest on their face, and they should be denied outright.

The American alliances with Iberia, Aviateca, COPA, LACSA, NICA, TACA and TACA de Honduras would create a virtual monopoly between Miami and all of Central America, and American is now proposing to code-share with Iberia on six Miami-Central America routes (Miami-Guatemala City/Managua/Panama City/San Jose/San Pedro Sula/San Salvador) which are also covered by the American/TACA Group code-share application. /3 If allowed to proceed, American and its alliance partners would offer 100% of the seats available between Miami and Guatemala City, Managua, Panama City, San Pedro Sula and San Salvador and 86% of the seats available between Miami and San Jose. Moreover, it seems likely that the total number of seats in these markets will be reduced. As a result of American's dominance at Miami and its overwhelming presence throughout Central America,

2/ See, e.g., Answer of Continental Airlines, Inc. In Support of Motion of United Airlines, Inc., dated September 22, 1997; and Consolidated Answer of Continental Airlines, Inc., dated July 17, 1996, in Docket OST-96-1700.

3/ American and Iberia have also applied for authority to code-share between Miami and Cancun, where American, Iberia and Aerolineas Argentinas offer a majority of the seats.

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United -- one of the world's largest airlines -- has already withdrawn from the Miami-Central America routes, and it seems likely that Iberia will soon follow United through the exit. The Joint Application implies as much since American is seeking authority to display the "IB" code on its flights, but Iberia is not requesting authority to display the "AA" code on any Iberia flights between Miami and Central America.

American is far more than a potential code-share partner for Iberia. American will likely become an investor in Iberia, acquire half of Iberia's 20% interest in Aerolineas Argentinas and Austral, and share management of the Argentine carriers with Iberia. In the American/TACA proceeding, American has acknowledged that it "has agreed to consider an equity investment in Iberia, as soon as appropriate financial information is available." /4 According to the European Union Transport Commissioner, American is "the likely purchaser for" half of the 20% interest Iberia holds in Aerolineas Argentinas. American has also said that: (1) AMR, American's parent, will be represented on the board of Interinvest, which holds almost all the equity in Iberia subsidiaries Aerolineas Argentinas and Austral, and on the boards of those two Argentine carriers; (2) Interinvest will appoint "new executive officers" for Aerolineas Argentinas and Austral; and (3) AMR "has agreed to identify new, independent investors" to

4/ American August 27, 1997 Response in Docket 96-1700 at 7-8.

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acquire the remaining shares of Interinvest." /5 Under these circumstances, the American/Iberia code-share is simply a prelude to control of Iberia by American, and the Department should have complete information before it considers acting on any American/Iberia alliance.

Well before American divulged its investment and code-share plans concerning Iberia, the Department recognized that American/TACA Group codesharing itself raised "serious competitive issues," particularly in view of the fact that "American [is] the only U.S. airline with a hub at Miami, the dominant gateway for U.S.-Central America services." /6 The Department's failure to deny the American/TACA Group request outright and make clear that an alliance between carriers which now control 86% of the total Miami-Central America seats /7 and over 66% of the total U.S.-Central America seats has encouraged American to continue expanding its Latin American empire with a host of intertwined investments and alliances that have already pre-empted alliances which would compete with American. If approved, those alliances would create even more overwhelming competitive advantages for American in that region to the further detriment of the traveling and shipping public. The proposed American/Iberia

5/ American August 27, 1997 Response in Docket 96-1700 at 6. American has failed to disclose the extent to which it has conditional obligations to SEPI, Interinvest or Iberia with respect to the proposed further disposition of Interinvest shares.

6/ Order 97-1-15 at 6.

7/ OAG, September 1997. Iberia holds another 10% seat share.

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code-share, involving a foreign carrier in which American and its mega-alliance partner British Airways plan to invest and the only competitor to the American/TACA Group alliance, is so clearly anticompetitive and contrary to the public interest that it should be denied without further consideration.

B. There is No Public Interest Justification for an American/Iberia Alliance, and the Combined Impact of the American/Iberia Alliance With Other American Alliances Would be Disastrous

There is no public interest in approving a code-share between American and Iberia. The code-share does not extend either carrier's geographic reach because both proposed partners already serve and compete on the Spain-Miami-Central America routes at issue. An American/Iberia code-share will decrease competition and service between Miami and Central America, since Iberia would apparently discontinue its own Miami-Central America Bights if it is allowed to put its code on American's flights. /8 The only potential effects on the traveling and shipping public from an American/Iberia are negative:

reduced service options if Iberia eliminates its own Miami-Central America flights in favor of code-sharing on American's flights, as seems likely;

8/ The Joint Application implies that Iberia will discontinue its own existing service between Miami and Cancun, Guatemala City, Managua, Panama City, San Jose and San Pedro Sula, since American is seeking authority to display the "IB" code on American flights between Miami and those Central American points, but Iberia is not seeking reciprocal authority to display the "AA" code on flights serving those points.

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exclusion of future U.S. or foreign competition on U.S.-Central America routes, since American has pre-empted the possibility of another U.S. carrier alliance on U.S.-Central America routes with either the TACA Group carriers or Iberia, its only significant competitors;

further strengthening of American, the already-dominant U.S. carrier serving Latin America, making it even harder for Continental and other U.S. carriers to compete with American in that region;

higher fares in the absence of effective competition for American and its allied foreign carriers on U.S.-Latin America routes; and

monopolization of U.S.-Latin America traffic via Miami.

American has already constructed a network of interrelated investments in, and alliances with, foreign carriers. Those alliances have pre-empted potential alliances which could compete with American, and the American alliances would result in distressing levels of concentration throughout Latin America. For example, American's investment in and alliance with Aerolineas Argentinas would give American control over 72% of all Miami-Argentina seats and 70% of all U.S.-Argentina seats; American's proposed alliance and eventual merger with Lan Chile would give American control over 77% of all Miami-Chile seats and 81% of all U.S.-Chile seats; American's proposed alliance with Avianca would give American control of 80% of all Miami-Colombia seats and 73% of all U.S.-Colombia seats. Adding Lan Chile's Miami-Colombia and U.S.-Colombia seats to the equation increases American's control of those markets to 83% and 76%, respectively. American is the sole U.S.-flag carrier serving Paraguay, and

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additional Paraguay service is offered by American's partners Aerolineas Argentinas, Lan Chile and TAM Mercosur.

The first step in halting American's pre-emptive and anticompetitive investments and alliances throughout Latin America is denying American authority for code-sharing with Iberia, which will soon be partially owned by American (and possibly its mega-alliance partner British Airways) and to deny American authority to code-share with the TACA Group carriers. The American/Aviateca/COPA/Iberia/LACSA/NICA/TACA/TACA de Honduras conglomerate would have total control over the Miami-Belize/El Salvador/ Guatemala/Honduras/Nicaragua/Panama markets, with 100% of the available seats. The concentration of such dominance at the key Miami gateway for Central America is reason alone to disapprove the American/Iberia and American/TACA Group alliances. Moreover, the American/TACA Group/Iberia dominance of the entire U.S.-Central America service ranges from 80% of the U.S.-Nicaragua seats to 65% of the U.S.-Panama seats.

In determining the public interest, the Department has a statutory mandate to "avoid . . . unreasonable industry concentration, excessive market domination, monopoly powers, and other conditions that would tend to allow at least one carrier or foreign air carrier unreasonably to increase prices, reduce services, or exclude competition." /9 Approving the proposed American/Iberia alliance, or an

9/ 49 U.S.C. 40101(a)(10).

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alliance between American and either the TACA Group or Aerolineas Argentinas/ Austral, particularly in light of American's ability to influence management decisions of Iberia and its Argentine subsidiaries through its representation on their boards of directors and exercise of shareholder rights, would turn the statutory objective on its head.

Foreign carriers are watching the Department. Unless the Department tells American that its proposed alliances are anticompetitive and will not be approved, foreign carriers will continue to capitulate to American's advances, believing they have no other alternative. The only way to preserve competition between the U.S. and Latin America is to encourage alliances between foreign carriers and U.S. carriers other than American. Without such partnerships, American's monopoly on the U.S.-Latin America routes is assured.

C. American/Iberia Code-Sharing Between Miami and Spain Would Be Anticompetitive, and Extra-Bilateral Code-Sharing Authority Should Not be Given to American and Iberia

Iberia is not only the sole challenger to American and the TACA Group at Miami, but also American's sole competitor between Madrid and Miami and between Madrid and Central and South America via Miami. An American/Iberia alliance would concentrate 97% of the Miami-Madrid seats and 100% of the Spain

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Central and South America online connections via Miami in one alliance. /10 The American/Iberia alliance would increase American's dominance. pre-empt competition in the U.S.-Spain and Spain-Central/South America markets by other carriers and result in fewer service options and higher fares.

With American and Iberia allied for Miami-Spain service and American allied with the TACA Group and Iberia between Miami and Central America, American and its partners will control the substantial flow traffic between Central America and Spain, further entrenching their dominance in both the Miami-Central America and Miami-Spain markets. Similarly, combining American's dominance of Miami-South America service with its Miami-Spain alliance will create further roadblocks which will prevent any other carriers from serving either Miami-South America or Miami-Spain routes. Still worse, if American's other Miami-South America alliances were approved, even carriers currently serving the Miami-South America routes could be driven out.

Given the predominance of a combined American and Iberia on U.S.-Spain routes, the Department should deny these carriers' requests for extra-bilateral authority which would further enhance their dominance on these routes. Thus, the Department should dismiss or deny Iberia's request for authority to serve both

10/ Although Air Europa has been operating three weekly flights between Miami and Madrid, those flights are being discontinued at the end of October, leaving American and Iberia operating 100% of the Miami-Madrid seats (OAG Desktop Guide (Worldwide Edition) October 1997).

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Washington National and Baltimore/Washington International airports and American's requests for authority to serve points in Spain other than Barcelona, Malaga and Palma de Mallorca and to offer services beyond Spain to Geneva, Vienna and to Porto and to Marseille when it is served with Nice. Since these requests would expand the anticompetitive effects of the alliance and the applicants have failed to demonstrate sufficient reciprocity and comity to justify their requests in any event, the Department should dismiss or deny the requests for extra-bilateral authority.

II. THE DEPARTMENT SHOULD DIRECT THE JOINT APPLICANTS TO PROVIDE FULL INFORMATION CONCERNING AMERICAN'S OWNERSHIP AND CONTROL OF IBERIA AND SEPI

If the Department refuses to send a clear signal to American and its potential foreign code-share partners by denying swiftly the code-share authority they have requested, the Department should at least direct the Joint Applicants to provide full and complete information concerning American's ownership and control of Iberia and SEPI. The Department has already requested some of the information it needs to consider the American/Iberia applications in the American/ TACA Group proceeding, but American has failed to provide it. There is no basis for processing the American and Iberia applications (or the American/TACA Group applications) unless and until American and its proposed partners comply with the Department's pending request and provide the further information outlined below.

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In its Notice of August 22, 1997 in the American/TACA case, the Department directed American to disclose inter alia "Complete information concerning investment by American in Aerolineas Argentinas, Austral and Iberia" and "Complete information . . . on the various cooperative arrangements, particularly on its relationship to the proposed American/TACA Group alliance, in terms of corporate strategy, marketing, yield and capacity management, and pricing." Defying this directive, American has failed to comply with those information requests, as Continental and others have previously pointed out. /11 The Joint Application for code-share authority filed by American and Iberia makes it even more critical that the Department and interested parties have access to the documentary evidence which American refuses to provide.

American's disclosures concerning potential investment in and management of Iberia, Aerolineas Argentinas and Austral raise the real possibility that American will acquire effective control of those carriers. The Department routinely presumes control of an airline and its subsidiaries if ownership of a firm's voting stock amounts to ten percent, /12 and American apparently has

11/ See Comments of Continental, Delta and United, filed September 11, 1997.

|2 See, e.g. Orders 87-7-42 and 86-12-19. These cases were decided under Section 408(f), which made it unlawful without Board approval for two or more air carriers to consolidate their ownership, management or operations into one person. Section 408(f) was repealed in 1994, and the Department of Justice now enforces the antitrust laws under the Clayton Act for acquisitions of airlines. As a result, American's August 27 submission also raises issues warranting review by the Department of Justice.

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structured its acquisitions to fall just short of that presumption. Regardless whether that numerical threshold is met, however, the Department has defined "control" as "the ability to exert significant influence over a carrier." (Order 87-7-42 at 4). Moreover, in considering control in the context of determining citizenship, the Department looks:

beyond the bare technical requirements to see if the foreign interest has the power -- either directly or indirectly -- to influence the directors, officers, or stockholders. We have found control to embrace every form of control and to include negative as well as positive influence; we have recognized that a dominating influence may be exercised in ways other than through a vote.

Order 83-7-5 at 2-3 (Page Avjet Corporation). See also Eastern Colonial Control, 20 CAB 629, 634-35 (1955). The Department has recognized the ability to exercise control of an airline through participation in important committee assignments. /13 Given American's relationship with Interinvest, SEPI and Iberia and its refusal to provide complete information on all of those relationships, American's reported payment of $300 million for a 10% interest in Aerolineas Argentinas and Austral and its commitment to seek investors for Iberia reflect a valuation based on effective control of Aerolineas Argentinas/Austral, as

13/ [Naming] foreign director representatives to important committees, such as the executive committee, nominating committee, or finance committee may be taken as an indication of control for us to review the citizenship of the affected air carrier." (Order 91-1-41 at 11) (In the matter of the acquisition of Northwest Airlines, Inc. by Wings Holdings, Inc.).

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demonstrated by American's right to appoint board members who choose executive officers and select new investors, and the reduction or elimination of competition by Iberia and Aerolineas Argentinas with American.

Because American's effective "control" of Iberia, Aerolineas Argentinas and Austral through American's ownership interest and infiltration of their corporate structures specifically relates to the issues relevant to the Department's consideration of the American/Iberia code-sharing, the Department must require American and its partners to submit in Dockets OST-97-2965 and 2966:

all current or proposed agreements among and between shareholders of Aerolineas Argentinas, Austral, Iberia and Interinvest;

all current or proposed by-laws of Aerolineas Argentinas, Austral, Iberia and Interinvest;

any and all documents related to the ownership and voting rights of shareholders in Aerolineas Argentinas, Austral, Iberia and Interinvest, and any current or proposed agreements between or among shareholders of those carriers and American or AMR;

all current and proposed articles of incorporation and/or charter documents of Aerolineas Argentinas, Austral, Iberia and Interinvest;

any and all documents related to corporate governance of Aerolineas Argentinas, Austral, Iberia and Interinvest, including any current or proposed documents affecting the appointment or election of officers or directors or their appointment or election to committees of the board of directors for any of these companies;

any and all documents related to route selection or aircraft purchases of Aerolineas Argentinas, Austral and Iberia;

any other document requiring or proposing to require the consent of any shareholder, lender or other third party with respect to any

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proposed action of Aerolineas Argentinas, Austral, Iberia or Interinvest;

any other current or proposed agreements between American andlor AMR and Aerolineas Argentinas, Austral, Iberia, Interinvest or their lenders, shareholders, officers or management;

all current and proposed trust and financing documents related to the purchase, financing or sale of shares in Iberia, Interinvest, Aerolineas Argentinas or Austral; and

all current and proposed documents related to American's commitment to seek investors in Interinvest or to invest in Iberia.

In addition, American must explain how its two code shares involving U.S.-Central America services will be coordinated. The Department should require a full explanation of the relationship between American-Iberia and American-TACA Group code sharing. The Department and interested parties also need to know which airlines will continue to operate what flights on routes between the U.S. and Central America and whether Iberia will continue any of its own Miami-Central America flights.

Additionally, the Department should consider in this proceeding the implications of American's proposed alliance with British Airways and the potential investments of both mega-alliance partners in Iberia, the only competitor to American and the TACA Group in the Miami-Central American markets. American's transatlantic partner, British Airways, has entered into an alliance with Iberia and may also be investing in the Spanish carrier. British Airways' parallel acquisition of code-share arrangements and corporate positions in Iberia,

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and the possibility of similar British Airways alliances with and interests in Aerolineas Argentinas and Austral increases exponentially the anti-competitive effects of American's involvement with each of those carriers.

As a result, the Department should require American and/or British Airways to submit in this docket the following documentary evidence sought by Continental's July 18 motion to require supplemental information in the AA/TACA and AA/BA proceeding:

(1) a detailed explanation (not a cursory one) of the scope and timing of American's and British Airways' investments in and arrangements with Aerolineas Argentinas, Austral, Iberia and Interinvest;

(2) complete prospectuses, analyses, and memoranda concerning investment by American and/or British Airways in Aerolineas Argentinas, Austral, Iberia and/or Interinvest;

(3) descriptions of each party's strategic objectives in investing in Aerolineas Argentinas, Austral and Iberia;

(4) all studies, reports and analyses that discuss route development, internal expansion, service expansion, marketing plans or strategies on air services between (a) the U.S. and Central America, (b) the U.S. and Argentina, (c) the U.S. and Spain, (d) the U.S. and Europe, (e) Europe and Argentina, (f) Central America and Argentina, (g) Central America and Europe, (h) air services behind and beyond those points, and (i) services at American's Miami and Dallas/Ft. worth hubs and at New York (JO;

(5) all corporate documents dated or produced within the last two years addressing the subject of competition (or lack of competition or any impediments or restrictions on competition) in air travel between: (a) the U.S. and Central America; (b) the U.S. and South America; (c) Central and South America; (d) Central America and Europe, (e) South America and Europe; and (f) the U.S. and Europe, as well as travel beyond those regions;

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(6) complete information on how the investments in and arrangements with Aerolineas Argentinas, Austral, Iberia and Interinvest would affect operations between the U.S. and U.K. by American and British Airways with respect to passengers with an origin and destination in third countries;

(7) complete information on how the investment in and the arrangements with Aerolineas Argentinas, Austral, Iberia and Interinvest would affect operations between the U.S. and Latin America by American and TACA; and

(8) all current investments of any of these carriers in other airlines (and vice versa) and all such investments which the parties are in any way contemplating.

III. THE DEPARTMENT SHOULD CONSOLIDATE THE AMERICAN/IBERIA AND AMERICAN/TACA GROUP APPLICATIONS AND MAKE CONEIDENTLAL INFORMATION FROM THE AMERICAN/BRITISH AIRWAYS PROCEEDING AVAILABLE FOR USE IN THE AMERICAN/IBERIA AND AMERICAN/TACA GROUP PROCEEDING

The Department consolidated the American/ALM and American/BWIA proceedings because the two cases "raise[d] similar competitive concerns and affect[ed] a common geographic region," citing "administrative efficiency" as an additional factor favoring consolidation. (Order 97-2-29 at 4-5) The identity of issues between this proceeding and the AA/TACA proceeding is even closer, and the case for consolidating the two proceedings is even more compelling. The American/Iberia and American/TACA Group proceedings raise identical competitive concerns and affect precisely the same geographic region and overlapping city-pair markets. The Department has already said that American's plans to code-share with the TACA Group carriers "raise serious competition

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concerns," and those concerns are multiplied exponentially by adding Iberia to the equation. The Department should consolidate the two proceedings so it can consider the all of the public interest concerns raised by American's code-share plans for Central America in one proceeding.

Fundamental fairness and administrative efficiency dictate that the Department consolidate the American/TACA Group and American/Iberia codeshare proceedings. Much of the evidence relevant to the cross-ownership and control involving American and Iberia has already been requested in the American/TACA Group proceeding. Unless the two cases are consolidated, interested parties will not be able to use the evidence submitted under seal in one proceeding to formulate comments on the other, since confidentiality affidavits restrict use of the confidential information to the proceeding in which it is submitted. Selectively placing information from the American/TACA Group case in Docket OST-96-1700 in the record of the Amnerican/Iberia case is cumbersome and may deprive interested parties access to relevant material. The Department and interested parties need full access to all of the evidence in both proceedings and to measure the full anticompetitive effect of an American/Iberia/TACA Group triumvirate between the U.S. and Latin America and between Spain and Latin America.

For similar reasons, the Department should also permit interested parties in the American/Iberia proceeding to use relevant information from the

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American/British Airways proceeding in responding to the American and Iberia applications. /14 The Department has already concluded that documents related to American's arrangements with Aerolineas Argentinas, Austral and Iberia are relevant to the American/British Airways arrangement (see Order 97-9-4 at 12). The confidential documents submitted in response to Order 97-9-4 provide further significant evidence on the American/Iberia arrangements, but Continental is precluded from discussing those documents here by the terms of its confidentiality affidavits. Providing a meaningful opportunity will require access to those documents in connection with American and Iberia's applications and additional time to comment on that information.

CONCLUSION

Continental urges the Department to deny the American/Iberia and American/TACA Group code-share requests as anticompetitive and contrary to the public interest. If the Department does not do so, it should defer consideration of the American/Iberia applications until the Joint Applicants have submitted all evidence required to evaluate the substantial competitive issues raised by their applications and the other interrelated investments and alliances American has already announced. If the American/TACA Group applications are denied immediately, the Department could then consider the American/Iberia alliance

14/ If necessary to accomplish this objective, the Department could consolidate the American/TACA and American/Iberia proceedings with the American/British Airways proceeding in Docket OST-97-2058.

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independently on its own merits, but the Department should consolidate the American and Iberia applications with the American/TACA Group proceeding if the applications are not denied immediately.

Respectfully submitted,

CROWELL & MORING LLP

R. Bruce Keiner, Jr.

Lorraine B. Halloway

Steven A. Mirmina

Counsel for Continental Airlines, Inc.

October 17, 1997