OST-96-2022 / OST-97-3115 / US-Brazil All-Cargo / Federal Express / Start-Up Delay / November 12, 1997

NOTICE: Any person wishing to support or oppose this Application must file an answer with the DOT's Documentary Services Division by November 28, 1997. A copy of such answer must be served upon Federal Express and its counsel and all persons named on the attached Service List.

Application of

for grant of an exemption pursuant to 49 U.S.C. § 40109 (Brazil start-up delay)

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Federal Express submits that grant of the requested limited exemption is in the public interest in order to enable Federal Express to complete its phased expansion of DC-10 freighter service between the U.S. and Brazil to the full level of 10 weekly frequencies on an operationally-efficient and economically-sound basis.

In further support of this application, Federal Express states as

follows:

1. By Order 97-2-20, the Department granted Federal Express an allocation of five additional U.S.-Brazil all-cargo frequencies, in addition to the five weekly frequencies previously allocated to, and utilized by, Federal Express. In accordance with the 90-day dormancy condition applicable to that allocation, Federal Express was required to commence expanded U.S.-Brazil service utilizing 1.5 weekly frequencies not later than June 28, 1997 and utilizing 3.5 additional frequencies not later than June 30, 1997. /1 Prior to the enlargement of its U.S.-Brazil cargo frequency allocation by Order 97-2-20, Federal Express operated five (5) weekly DC-10-30 all-cargo roundtrip flights between the U.S.

1/ The different mandatory start-up deadlines are attributable to slight differences in the beginning date for the 90-day dormancy condition imposed by Order 97-2-20. In the case of 1.5 frequencies, that beginning date is March 30, 1997, and in the case of 3.5 frequencies, the beginning date is April 1, 1997.

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3. Federal Express expanded its existing U.S.-Brazil service through the addition of four new DC-10-30 freighter roundtrip flights a week between Memphis/Miami and Sao Paulo during the week of September 28, 1997. /2 As a result of the operational considerations noted below, Federal Express has not yet begun utilizing its fifth new Brazil frequency, which must be utilized on or before November 30, 1997, in order to avoid termination for dormancy and reversion back to the Department for reallocation.

4. The U.S.-Brazil operations of Federal Express continue to be impacted by a severe bottleneck affecting its operations between the U.S. and Argentina, Uruguay and Chile, all of which are served as an extension of the existing line-haul DC-10-30 operations by Federal Express between the United

2/ Under the terms of Order 97-7-16, Federal Express was permitted to "tack" its 90-day dormancy period onto its September 1, 1997 start-up deadline, so that its newly-awarded frequencies would not expire by reason of dormancy until November 30, 1997.

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States and Brazil. At the present time, Federal Express serves Argentina, Uruguay and Chile via a change-of-gauge connection at Sao Paulo, Brazil, between its 150,000-pound payload DC-10-30 freighter operations between the U.S. and Brazil and its 49,000-pound payload B-727-200 freighter operations between Sao Paulo and Buenos Aires, Montevideo and Santiago.

As the Department is aware, the maximum capacity which Federal Express is able to operate between the U.S. and Argentina is severely constrained by the cargo frequency and capacity limitations imposed by the existing U.S.-Argentina Bilateral Agreement. Under that Agreement, Federal Express is currently limited to five weekly narrow-body frequencies serving Argentina. Federal Express has sought to obtain relief from that capacity constraint through the bilateral negotiation process for a number of years. In light of the failure of those efforts to produce any significant relaxation of the Argentina frequency/capacity limits, Federal Express entered into an agreement to purchase

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three additional Argentina frequencies now held by two other U.S. carriers. That proposed frequency transfer is currently awaiting action by the Department in Docket OST-97-2548. If the proposed frequency transfer is approved, Federal Express will be able to replace its current B-727 operations with the three-fold larger DC-10-30 freighter in its Argentina operations on a five-day-a-week basis. That aircraft expansion will triple the amount of cargo capacity operated by Federal Express between Sao Paulo and Buenos Aires, and will make it possible for Federal Express to accommodate the expanded U.S.-Argentina traffic which its expanded DC-10 operations between the U.S. and Brazil will generate.

5. In the short run, however, Federal Express needs to delay the inauguration of its tenth U.S.-Brazil DC-10 frequency until it can increase its capacity beyond Sao Paulo. In order to achieve that desirable degree of service expansion flexibility, and to avoid placing greater strains on its limited capacity south of Sao Paulo, Federal Express requests the Department to grant it an exemption from the currently-established 90-day dormancy condition to the extent necessary to enable Federal Express to delay the implementation of its fifth additional Brazil cargo frequency until February 28, 1998, or until 60 days after issuance of a Final Order in Docket OST-97-2548 transferring three additional Argentina cargo frequencies to Federal Express, whichever is sooner.

Federal Express submits that its request for a limited further delay of its requirement to utilize its fifth additional Brazil frequency is warranted by the current substantial volume of all-cargo capacity available in the U.S.-Brazil

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market, and by related aircraft scheduling efficiency considerations, arising from the present limitation of Sao Paulo-Buenos Aires extended service by Federal Express to the B-727-200 freighter aircraft. 6. In prior frequency-allocation proceedings, the Department has recognized that circumstances might arise which would warrant granting relief from the standard start-up condition and/or 90-day dormancy condition. Thus, in the U.S.-Russia All-Cargo Frequency Allocation Case, Docket OST-95-877, the Department specifically noted that:

Federal Express submits that the circumstances described in this application clearly fall within the ambit of the type of circumstances contemplated by Order 96-2-17 which would warrant relief from the mandatory start-up condition on a case-by-case basis. 7. The Department has previously granted other applications for exemptions to postpone the commencement of newly-awarded international route authority under similar circumstances in the past. See, e.g., Polar Air Cargo, Order 97-2-14, served February 21, 1997 (delay in receipt of foreign operating authority); Evergreen International Airlines, Order 93-6-31, served June 29, 1993;

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Order 93-8-31, served August 27, 1993; Order 93-12-13, served December 10, 1993 (delay in receipt of foreign operating authority); United Parcel Service Co., Order 91-1-50, January 25, 1991 (delay in completion of operational arrangements).

WHEREFORE, Federal Express hereby requests the Department to grant it an exemption from the presently-established November 30, 1997 start-up deadline applicable to its fifth Brazil frequency awarded by Order 97-2-20 so as to enable Federal Express to delay its utilization of that fifth additional frequency until [date], 1998, or until 60 days after issuance of a Final Order in Docket OST-97-2548 transferring three Argentina cargo frequencies to Federal Express, whichever is earlier.

Respectfully submitted,

Nathaniel P. Breed, Jr.

SHAW, PITTMAN, POTTS & TROWBRIDGE

Attorneys for FEDERAL EXPRESS CORPORATION