OST-98-3624 / United Air Lines / US-Japan / Reply of United Air Lines / March 27, 1998

 

Application of:

UNITED AIR LINES, INC. / Docket OST-98-3624

for exemption pursuant to 49 U.S.C. 543109 (U.S.-Japan)

 

REPLY OF UNITED AIR LINES, INC.

 

United Air Lines, Inc. ("United"), pursuant to the Department's Notice dated March 23, 1998, submits the following reply to the answer of Delta Air Lines, Inc. ("Delta") dated March 25, 1998, in the above-captioned ease: /1

1. In its application, United requested new U.S.-Japan authority consistent with the U.S./Japan Memorandum of Understanding signed on March 14, 1998. One of the primary benefits of that new agreement was the expansion of the operating authority of an incumbent carrier such as United to operate service between any point in the U.S. and any point in Japan. The agreement also confirmed incumbent carrier rights to operate such service via any intermediate or beyond points.

1/ Delta also answered an application of Northwest Airlines, Inc., in the same consolidated pleading. The issues raised by Delta are common to both proceedings.

 

2. De to does not dispute that United's exemption application seeks authority to operate services that are entirely consistent with the new U.S./Japan MOU. Rather, Delta urges that the Department follow its "longstanding policy on exemptions, which is to grant exemption authority only for specific services n discrete city-pairs where service is proposed." Delta demands the imposition of this policy in the case of United's application "unless the Department is prepared to revise [the policy]."

3. The Department has already revised its policy on the scope of exemption authority in response to the application of Federal Express Corporation ("FedEx") dated February 5, 1998, in Docket OST-98-3436. FedEx, as an incumbent U.S. carrier under the U.S./Japan MOU, was seeking U.S.-Japan exemption authority virtually identical to that of United and in response to the same bilateral agreement.

In the Notice granting FedEx's application, the Department awarded that carrier an exemption to operate services described as follows:

Scheduled foreign air transportation of property and mail between any point or points in the United States directly and via intermediate points and any point or points in Japan and beyond Japan to any point or points in third countries.

Notice of Action Taken, dated March 5, 1998, in Docket OST-98-3436 at 1. The notice also imposed the following condition on FedEx's exemption authority:

The authority granted to serve intermediate and beyond points in conjunct On with Japan service is limited to countries with which the United States has signed open-skies agreements and/or countries for which the carrier Molds authority to serve under certificates or exemptions issued by the Department, and for which it holds route integration authority, and all conditions attached to that authority. Federal Express already holds route integration authority to combine all of its authorized international authority. (See Order 98-1-23)

Id. at 2.

In response to a concern raised by Northwest with respect to the blanket nature of the authority requested by FedEx, the Department added the following remarks:

The authority granted here is subject to the conditions imposed on the route integration authority granted Federal Express. That route integration authority requires compliance with all applicable bilateral aviation agreements and makes clear that the route integration authority does not confer on Federal Express any new limited-entry route rights unless and until the Department has first completed the necessary carrier selection procedures to award such authority. Northwest's concerns, therefore, have been addressed by the condition imposed on Federal Express' authority here and in previous actions by the Department.

4. The concerns of Delta with respect to the scope of exemption authority have already been fully addressed in the FedEx notice. As a result of the Department's consideration of those issues, the policy to which Delta refers in its answer has already been revised. In fact, it was United's recognition of this revision of the Department's exemption policy in the FedEx notice that led it to file its application for a broad U.S.-Japan exemption in this proceeding. United specifically cited the FedEx notice as the basis for the broad U.S.-Japan exemption authority for which it applied. (Application at 5). /2 United has agreed in its application to accept the same conditions on its blanket U.S.-Japan authority as were imposed on that of FedEx.

The two orders cited by Delta and applying a policy to limit the scope of exemptions to points where services are proposed were both issued before the FedEx notice. One of those -- that dismissing Delta's application for certain U.S.-Peru authority -- would not fall within the scope of the Department's new policy in any event. What was dismissed was that portion of Delta's U.S.-Peru application requesting authority to operate service to any point beyond Lima, Peru. As explained by the Department:

Such route rights are restricted under the U.S.-Peru aviation agreement. Should Delta develop plans to provide specific service

2/ In its initial application for exemption authority in response to the new U.S.-Japan agreement (Docket OST-98-3440), United sought only exemption authority for the specific U.S.Japan city pair in which it proposed new service, consistent with the Department's practice then in effect. United's exemption, authorizing nonstop service between Chicago and Osaka, was granted on February 13, 1998, prior to the action on the broader FedEx exemption, despite the fact that both applications were filed at virtually the same time -- United's on February 6 and FedEx's on February 5. Order 98-3-1. FedEx's application was granted three weeks later and reflected the Department's new policy on exemption authority that was developed during that interval.

 

beyond Lima, it may file an application to amend the exemption authority granted here.

Notice of Action Taken, dated February 20, 1998 n Docket OST-97-3124 at 2. In fact, the U.S.-Peru agreement limits the points which may be served beyond Peru, the size of aircraft that may be used to each such point, and the number of frequencies which may be operated to each such point. The policy underlying the issuance of conditional open intermediate and beyond points to incumbent carriers consistent with their rights under the new U.S./Japan MOU does not apply to services in bilaterally-restricted markets such as those beyond Peru in which Delta sought unlimited authority. /3

5. The Department's new policy applicable to the scope of U.S. carrier exemption authority was not adopted in a vacuum. In recent years, the Department has developed a practice of awarding broad exemption authority to foreign air carriers. Such authority is typically consistent with the bilaterally-agreed route applicable to such carriers. In several cases where open

3/ The other order cited by Delta in which an application for exemption was dismissed involved service between the U.S. and the Netherlands Antilles. Although the applicant (Sunworld International Airlines) requested authority to operate "via intermediate points," the Department dismissed that portion of its application, "consistent with the Department practice in comparable cases." That action was taken on December 2, 1997, long before issuance of the FedEx notice. There is an open skies agreement between the U.S. and the Netherlands Antilles. It is quite likely that were Sunworld to reapply, its broader application would be approved in full as a result of the new policy applied in the recent FedEx case and subject to the same conditions.

 

skies agreements have been reached, the Department has issued foreign carriers exemptions with open route descriptions comparable to the one issued to FedEx and to that requested by United. /4

Most recently, the Department issued Japan Air Lines, Inc. ("JAL") an exemption with an open route description as follows:

Exemption from 49 U.S.C. §41301 to engage in scheduled foreign air transportation of persons, property and mail between any point or points behind Japan via any points or points in Japan and any intermediate point or points and any point or points in the United States and any point or points beyond.

Order 98-3-16. The basis for that broad exemption is the same U.S.-Japan MOU on which United's own application is premised. JAL, like United, is an incumbent carrier under that agreement and United, like JAL, is entitled to the same flexibility to exercise those agreed rights to the fullest extent consistent with that agreement.

6. In conclusion, Delta has offered no basis for limiting United's U.S.-Japan exemption authority except by reference to a policy that has already been abandoned. In these circumstances,

4/ See, e.g., Orders 98-2-7 (Singapore Airlines), 98-1-4 (Finnair), 96-11-29 (Condor). See also Notice of Action Taken dated July 2, 1997 in Docket OST-97-2674 (TACA).

 

the Department should immediately grant United the full exemption authority it has requested. /5

 

Respectfully submitted,

JOEL STEPHEN BURTON

GINSBURG, FELDMAN and PRESS CHARTERED

1250 Connecticut Avenue, N.W.

Suite 800

Washington, D.C. 20036

(202) 637-9130

Counsel for UNITED AIR LINES, INC.

DATED: March 27, 1998

5/ United seeks authority to operate services between the U.S. and Japan via intermediate and beyond points. Northwest filed its application under emergency procedures limited to services between the U.S. and Japan. Northwest did indicate, however, that when United's broader application was granted, it would expect the same scope of authority to be issued to Northwest sue sponte. United is now requesting the grant of its application in full, including intermediate and beyond rights and agrees that Northwest is entitled to receive the same authority notwithstanding the narrower scope of its emergency application. United would object, however, to any delay in granting its own application in full should the Department find it necessary to require Northwest to amend its application in order to receive the broader scope of authority sought by United.