OST-98-3982 / OST-98-3603 / Atlantic Coast Airlines / Savannah-Chicago O'Hare / June 24, 1998

Answers supporting or opposing this Application should be filed with the Department of Transportation on July 9, 1998.

Application of

ATLANTIC COAST AIRLINES / Docket OST-98-3982

for an Exemption from Subparts K and S of Part 93 of the FAR's pursuant to 49 U.S.C. § 41714

Application of

THE COMMUNITY OF SAVANNAH, GEORGIA/HILTON HEAD, SOUTH CAROLINA

for an Exemption from 14 C.F.R. Part 93, Subparts K and S. 49 U.S.C. § 41714 as to allow non-stop service to Chicago O'Hare Airport

The combined Savannah, Georgia/Hilton Head, South Carolina market: is the largest Chicago O'Hare market without nonstop service with almost 70,000 annual O&D passengers in 1997. Pursuant to 49 U.S.C. § 41714(c), Atlantic Coast Airlines d/b/a United Express ("ACA") hereby seeks an exemption from the provisions of Subparts K and S of the Part 93 of the Federal Aviation Regulations ("FAR's") (14 C.F.R. Part 93, Subparts K and S) ("Subparts K and S" or the "High Density Rule") to authorize ACA to conduct five controlled hour operations at O'Hare utilizing 50-seat regional jet aircraft to and from Savannah/Hilton Head through the Savannah International Airport. ACA has constructed a three times daily roundtrip flight schedule using the requested exemption authority and combined it with one O'Hare operation in a non-controlled honor. Exhibit 1 contains ACA's proposed schedule. ACA proposes to commence Savannah/Hilton Head-O'Hare service on November 3, 1998.

ACA makes this request pursuant to 49 U.S.C. § 41714(c) which authorizes the Secretary to grant exemptions to new entrant air carriers based on a public interest finding under circumstances deemed to be exceptional. As further described below, ACA falls within the ambit of this statutory provision. In the alternative, arid if ACA is not deemed a new entrant air carrier for purposes of this application, ACA requests the DOT grant the application of the Communities of Savannah and Hilton Head ("Savannah/Hilton Head," or the "Communities") in Docket OST-98-3605. 1/ ACA and the Communities have agreed that if DOT grants the alternative relief requested herein, ACA will utilize the exemption authority to operate to and from Savannah/Hilton Head with its modern regional jet equipment. Either way, the traveling public will benefit by ACA's three daily roundtrip flights in the Savannah/Hilton Head-O'Hare market.

In further support of this application, ACA states as follows.

1/ Nothing contained in this application should be deemed as amending the application of the Communities for an exemption from Subparts K and S to permit eight O'Hare operations.

International Airport. 2/ While ACA could not formally support the application of the Communities at the time it filed its answer, it favorably noted the impressive traffic generating capacity of the Savannah/Hilton Head market and that it was unfortunate that service to High Density Airports, such as O'Hare, was not freely available. ACA also questioned, on policy grounds, the appropriateness of granting exemption slots to civic parties although --is concern has now been addressed to ACA's satisfaction.

2. Over the course of the last nine months the Department has strongly and correctly reacted to the pleas of several communities that have demonstrated a need for enhanced service to slot controlled airports. Hence, the DOT has granted exemptions from Subparts K and S to a variety of carriers (Reno Air, Trans States, Frontier, ValuJet, AirTran, American Trans Air, Air South and Atlantic Coast Airlines) to authorize operations at O'Hare, LaGuardia and John F. Kennedy Airports. See Orders 94-9-30, 95-4-33, 95-8-38, 96-5-33, 97-10-16, 97-10-17 and 98-4-21. In doing so, the Department acknowledged that Congress, community groups and the General Accounting Office argued the Department should more vigorously use its statutory authority set out in section 41714 to grant relief from the High Density Rule so as to promote airline competition. By Orders 97-10-16 and 97-10-17 the DOT responded to these calls by reframing the "exceptional circumstances" test to expand it to more broadly recognize the need for competitive

2/ ACA has since commenced serving the Washington Dulles-Savannah/Hilton Head market with great success and high passenger acceptance of ACA's regional jet service.

service in qualifying Markets. Previously, the Department had Insisted that exceptional circumstances were only to be found in markets that were demonstrably large enough to support nonstop operations, but which lacked such service.

3. The Savannah/Hilton Head-O'Hare market is sufficiently large to support nonstop service which it had up until 1995. However, as a result of circumstances unrelated to the ability Of Savannah/Hilton Head to generate traffic, the then incumbent carrier ceased providing nonstop jet operations. However, even after the nonstop service was terminated and passenger traffic initially (and naturally) declined, the market has more recently begun to grow, lending considerable weight to ACA's judgment that the Savannah/Hilton Head market can readily support nonstop O'Hare service. 3/ ACA forecasts that it will carry over 78,000 passengers in the first full year of three times daily nonstop service at an average fare of $124.00 and achieve a 71.7% load factor. ACA is forecasting a segment operating profit of $1.6 million. Exhibit 2.

ACA will attract both local and connecting passengers to its nonstop service with the support of the United's O'Hare connecting complex. By the introduction of ACA's service, 43 markets will gain single connecting online service to and from Savannah/Hilton Head that previously could only claim double connecting service, at best. An additional seven city-pair markets will see the quantity of their connecting service to and from Savannah/Hilton Head to at

least double. Exhibit 3. In short, the qualitative and quantitative improvement in service the DOT historically required to fend "exceptional circumstances" is evident in this ACA application. See Order 97-10-17. Indeed, as ACA proposes to offer nonstop Savannah/Hilton Head-O'Hare service, the DOT need not even invoke the more liberal articulation of the exceptional circumstances standard to find in favor of ACA's application.

ACA proposes to serve the Savannah/Hilton Head-O'Hare market commencing November 3, 1998 utilizing its 50-seat Canadair Stage 3 regional jet aircraft--the quietest jet in the commercial fleet. This aircraft, with its favorable operating costs over the 773 mile segment, is ideally suited to the size of the market and can be profitably deployed therein. Further, ACA will readily be able to integrate the Savannah/Hilton Head market into its route structure since ACA already provides Savannah/Hilton Head regional jet service from its Dulles hub, thereby minimizing aircraft routing issues and maintenance costs. Likewise, by November 3, ACA will be providing regional jet service to O'Hare from Charleston, W. VA., Wilkes Barre/Scranton, Pa. and Springfield/Branson, Mo. making it unnecessary for ACA to open any new stations upon the grant of the relief requested herein.

4. ACA is making this application pursuant to section 41714(c) of the federal transportation statute. This section authorizes the Secretary of Transportation to grant exemptions from Subparts K and S to enable defined new entrant air carriers to provide air transportation at High Density Airports upon a finding of exceptional circumstances. ACA, as described above, has demonstrated that the public and exceptional circumstances support the grant of the relief from the High Density Rule; namely, We financially viable introduction of nonstop, Stage 3 regional jet service in a market in which nonstop service is rot available. The only remaining issue is whether ACA is a new entrant air carrier within -he meaning of the term as defined in section 41714 (b)(3).

New entrant air carriers are defined as carriers that do not "hold a slot at the airport concerned and have never sold or given up a slot at that airport after December 16, 1985, and a limited incumbent carrier as defined in subpart S of part 93..." A limited incumbent carrier is, in turn, defined in § 93.213(a)(5) of the Federal Aviation Regulations as an air carrier that holds or operates fewer than 12 air carrier or commuter slots, in any combination, at a particular airport.

ACA is a new entrant air carrier within the meaning of section 41714. First, as of the date of this application, ACA does not operate any slots at O'Hare. However, pursuant to Order 98-4-21, ACA has been granted relief from the High Density Rule to permit it to operate at O'Hare 16 times a day outside of the limits of Subparts K and S. ACA intends to commence to exercise its exemption authority when it begins Charleston, W. VA., Springfield/ Branson and Wilkes-Barre/Scranton service on August 3, September 1 and October 1, respectively. However, the conduct of these O'Hare services does not cause ACA to fall outside of the definition of new entrant air carrier. ACA neither "holds" nor "operates" any slots at O'Hare nor will it do so in the future. Rather, the Department has exempted ACA from the requirement that it hold slots in order to conduct 16 operations at O'Hare. Specifically, ordering paragraph no. 2 of Order 98-4-21 states:

Since ACA has been granted an exemption from the High Density Rule, it cannot be said to either "hold" or, once it commences flight operations, "operate" any O'Hare "slots."

In adopting the definition of new entrant carrier, the Congress did not intend a carrier with multiples of slots obtained on the open market, such as American Eagle with its 262 O'Hare slots, to be eligible for the award of exemption slots. See Order 98-4-21. p.16. However, a carrier whose right to serve a High Density Airport is only by the virtue of a section 41714 exemption award will never amass the wealth of slots the Congress considered should make a carrier ineligible for additional exemption awards. 4/ This is so whether the applicant for a section 41714 award had previously been granted relief from the High Density Rule authorizing 12 or more operations.

If the Congress wanted exemption awards to be counted against new entrant air carriers, it could easily have specified in section

4/ It is doubtful the Department would ever find exceptional circumstances under section 41714(c) in the case of a carrier that holds a significant number of slots in its own right and not only by exemption.

41714(b)(3) that an exemption award under section 41714(c) would be treated as a "held" or "operated" slot. But Congress did Arc so specify, leaving the meaning of new entrant carrier definition very Wear and unambiguous. An air carrier is neither a "holder" nor "operator" of slots if its only right to serve a High Density Airport is based on an award under section 41714 (notwithstanding the number of flight operations authorized by exemption for Congress knew that under section 41714, the Secretary was authorized to relieve carriers of the need to be slot holders in order to serve High Density Airports, not to grant an award of slots to the applicant carriers.

The courts have made it a matter of horn book law that the first step in interpreting a statute is to determine whether the language at issue has a plain and unambiguous meaning. When this is so, a judicial inquiry into the statute's meaning is over in all but the most extraordinary circumstances. Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 112 S.Ct. 2589 (1992); Robinson v. Shell Oil Co., 117 S.Ct. 843 (1997). The clear language of section 41714 means that the Department need not go beyond the text to determine the meaning of the statute.

Connecticut National Bank v. Germain, 503 U.S. 249, 253-254, 112 S. Ct. 1146, 1149 (1992).

Congress obviously intended that slots granted by exemption not be counted for purposes of determining a carriers status as a new entrant and the language of the new entrant definition, which is clear and unambiguous, confirms this intent. This reading is clearly consistent with the DOT's interpretation of the law since the Department has scanted ACA and other carriers exemptions from the requirement to hold slots O'Hare slots in Order 98-4-21, as opposed to granting the carriers slots pursuant to Subparts K and S. If Congress and the DOT intended that exemptions awards under section 41714 be counted as slots under the new entrant carrier definition, the structure of section 41714 and the structure of the DOT's numerous exemption orders would be quite different. Specifically, section 41714 would have authorized the Secretary to grant slots to exemption applicants, not relieve them from the obligation of holding slots with which to conduct operations and the prior DOT exemption orders would order the award of such slots.

5. If, however, the Department were to conclude that it does not have a legal basis to award ACA relief from Subparts K and S to authorize five additional O'Hare operations with which ACA will serve Savannah/Hilton Head, then ACA requests that the Application of the Communities in Docket OST-98-3606 be granted to the fullest extent possible. ACA has entered into an agreement with Savannah/ Hilton Head that if the Communities are awarded the O'Hare slots for which it has applied, it will make the exemption authority available to ACA for use. ACA would accept the slots from the Communities and the parties have agreed that as long as ACA utilizes the exemption authority to serve the Communities, the Communities w 11 grant ACA the right of quiet enjoyment to the slots. For its part, the Communities favor ACA's use of the exemption authority since ACA, as a United Airlines code share partner, will offer the Savannah/Hilton Head market all of the benefits of United online service with connections to the vast United route network. /5 Further, passengers on ACA will benefit by being eligible to earn United frequent flyer awards.

The Savannah/Hilton Head parties have amply demonstrated their resolve to improve their air service to O'Hare by taking the unusual step of making application in its own name in Docket OST-98-3606. This admirable self-help approach deserves the DOT's most favorable consideration. While ACA initially suggested in its answer to the civic party application that it was concerned about turning the carrier selection process over to the Communities, this issue has been resolved to ACA's satisfaction on the basis of its understanding with the city leaders that ACA would operate the O'Hare service. Further, ACA's concerns over the authority of the Department to grant an exemption to Savannah/Hilton Head is likewise resolved since a closer reading of section 41714 indicates that the Secretary can award slots to a community or to any other entity. Section 41714(c) states that exemptions from Subparts K and S are to "enable," new entrant carriers to operate at a High Density Airport. The statute does not state that the recipient of the exemption award must be a new entrant carrier. Just as the FAA

has long recognized the right of any person, including c v c part es, to hold slots under Subparts K and S for the express purpose of facilitating self-help measures, section 417i4 recognizes that entities other than new entrant carriers can be awarded exemption authority under subsection (c). See, 14 C.F.R. 93.221(c). In short, the Communities of Savannah/Hilton Head can lawfully be awarded an exemption pursuant to section 41714 and ACA urges this alternative approach if the Department were to conclude that ACA is not eligible to receive an award under section 41714(c).

WHEREFORE, for the reasons set forth above, Atlantic Coast Airlines hereby requests it be exempted from Subparts K and S of Part 93 of the Federal Aviation Regulations to authorize it to conduct five operations at Chicago O'Hare International Airport in connection with nonstop Savannah/Hilton Head regional jet service, or in the alternative, to grant the application of the Communities of Savannah and Hilton Head in Docket OST-98-3606.

Respectfully submitted,

BAGILEO, SILVERBERG & GOLDMAN, L.L.P.

Attorneys for ATLANTIC COAST AIRLINES

By:

Robert P. Silverberg

Dated: June 24, 1998