OST-98-3435 / Federal Express / US-Japan All-Cargo Service

Application of :

for amendment of a certificate of public convenience and necessity pursuant to 49 U.S.C. §41110

(U.S.-Japan All-Cargo Service)

I. MOTION FOR LEAVE TO FILE.

Section 302.1720 of the Rules of Practice of the Department does not provide for the filing of a Reply to an Answer filed in response to a Subpart Q Application. Rule 4(f) of the Rules of Practice, however, provides that the

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Federal Express Reply U.S.-Japan All-Cargo

Department will consider accepting an otherwise unauthorized document for filing if it is accompanied by a Motion for leave to file for good cause shown.

Federal Express submits that receipt and consideration of the within Reply will clarify the issues in this proceeding, will assist the Department in reaching a sound result in this case, and will not delay the processing of the Application. Accordingly, Federal Express hereby moves the Department to accept the within Reply as an otherwise unauthorized document.

II. REPLY TO ANSWER OF UNITED.

The purpose of Federal Express' application in this proceeding is to amend the route description in the U.S.-Japan all-cargo certificate of Federal Express for Route 205-F to conform to the liberalized U.S.-flag all-cargo route authority for "incumbent" carriers designated pursuant to the August 11, 1952 Civil Air Transport Agreement between the U.S. and Japan, as amended (the 1952 Agreement), as provided for in the recently-signed January 30, 1998 Memorandum of Consultations between the U.S. and Japan (the 1998 MOC).

United does not oppose grant of the expanded U.S.-Japan authority requested by Federal Express, but raises several questions pertaining to the unrestricted scope and terms of the authority applied for by Federal Express. Federal Express responds to those questions as follows:

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U.S.-Japan All-Cargo

asserts that unrestricted traffic rights in all beyond markets are an automatic right conveyed by every bilateral agreement which provides for services to points beyond the granting country, unless such rights are specifically limited in the bilateral. United fears that inclusion of the phrase "with full traffic rights" in U.S.-Japan route descriptions could create an inference that such unrestricted traffic rights may not be available in the context of other countries' route descriptions where that phrase does not appear.

Federal Express proposed the inclusion of the phrase, "with full traffic rights", in its U.S.-Japan route description precisely because of a long and difficult history in which the Government of Japan unjustly refused to allow Federal Express, and other U.S. carriers including United, to exercise unrestricted beyond-Japan traffic rights, notwithstanding the fact that such rights were clearly contemplated, and granted, by the 1952 Bilateral Agreement. On the basis of that history, Federal Express felt that it was prudent to leave nothing to chance or possible future misinterpretation in its U.S.-Japan route description.

For the reasons stated by United, however, Federal Express recognizes that inclusion of the phrase, "with full traffic rights", should be unnecessary and could produce unintended doubt about the traffic rights granted in other contexts where that phrase does not appear. Accordingly, Federal Express is willing to withdraw its request for the inclusion of that phrase in its amended U.S.-Japan route description, with the proviso that the Order issuing an amended Certificate to Federal Express should specifically confirm the understanding of the

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U.S.-Japan All-Cargo

Department regarding the unrestricted scope of operating and traffic rights granted to incumbent carriers under the January 1998 MOC.

United's other expressed concerns, about beyond-Japan route integration and the designation of specific named points to be served beyond Japan, are more puzzling but they appear to come down to a request by United that, if such broad unrestricted beyond-Japan rights are granted to Federal Express (and Northwest), identical rights should also be granted to United.

Federal Express has no objection to the grant of identical U.S.-Japan authority to Federal Express, Northwest and United, who are the three U.S.-flag "incumbent" carriers under the 1952 Agreement. To the extent that United is urging that the U.S.-Japan certificate authority of those three carriers must specifically name the countries which each carrier is authorized to serve beyond Japan, however, Federal Express is strongly opposed to that position. The essence of air cargo deregulation, and a key element of the January 1998 MOC between the U.S. and Japan, is the concept of unrestricted operating flexibility and traffic rights. It would be antithetical to that unrestricted flexibility, and extremely cumbersome, to require that U.S.-Japan route certificates name every specific country and point which the holder of that certificate might desire to serve at some point in the future. Even more objectionable would be a requirement that only those countries which a carrier specifically plans to serve immediately be named in the certificate, with a requirement that future points must be added by specific

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U.S.-Japan All-Cargo

certificate amendments or exemption authority when specific new services are proposed by the carrier.

It is imperative, particularly in the air cargo and express business, that a carrier be free to revise its flight schedules, routines and frequencies rapidly in response to changing market conditions and shifting traffic flows. That degree of efficiency and flexibility is completely incompatible with the out-moded and unnecessary concept of fixed route descriptions, such as those contemplated by Section 201.4(c) of the Department's Economic Regulations, cited by United (United Answer, pp. 4-5, In. 3). /1 Federal Express strongly urges the Department to continue its policy of incorporating unrestricted "all points" route descriptions into air carrier certificates, wherever such open-route descriptions are consistent with applicable bilateral agreements, including, in this instance, the January 1998 U.S.-Japan MOC.

Finally, United's expressed concern about route integration appears to be principally related to United's perception of the circumstances of its own certificate and exemption authority (United Answer, p. 4). That concern does not appear to be applicable to Federal Express, which holds an exemption granting Federal Express broad world-wide operating flexibility to provide services between

1/ Section 201.4(e), which requires specific-point route descriptions for foreign scheduled route authority, is an increasingly archaic remnant of an earlier era of intense economic regulation, and should be modified or deleted to conform to the modern trend toward elimination of all unnecessary regulatory restrictions on carrier operating flexibility.

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U.S.-Japan All-Cargo

WHEREFORE, Federal Express respectfully requests that the Department issue an order amending Federal Express' Certificate for Route 205-F authorizing Federal Express to provide scheduled foreign air transportation of property and mail between points in the United States and points in Japan, via intermediate points and beyond Japan, as requested in its application, as modified in this Reply.

Respectfully submitted,

Nathaniel P. Breed, Jr.

SHAW PITTMAN POTTS