OST-98-4291 / OST-98-4292 / Aero Continente / Peru-US / Answer of Fine Air Services / August 24, 1998

In the matter of the applications of

for a foreign air carrier permit and exemption

ANSWER OF FINE AIR SERVICES, INC.

Fine Air Services, Inc. ("Fine Air") submits the instant Answer to the applications submitted by Peruvian carrier Aero Continente in the above-captioned dockets. As set forth herein, Fine Air urges the Department to defer all action on Aero Continente's applications until the Government of Peru lifts the ban on Fine Air services to and from Peru which has now been in place for over three and a half years. Further toleration of this indefinite ban is irreconcilable with clearly stated Departmental policy. The Peruvian Government's most recent explanation for the ban's extension -- that it is awaiting the outcome of a (second) judicial inquiry into Fine Air's actions /1 -- is patently indefensible. As long as Peru continues to be unresponsive to Fine Air's and the U.S. Government's repeated

1/ An earlier Peruvian judicial inquiry concluded that there was no basis for taking any action against Fine Air. See page 3, infra.

entreaties to lift this unjust and unmerited ban, no expansion of the traffic rights of any Peruvian carrier can be accepted.

Fine Air also urges the Department to conduct a thorough inquiry into the relationship between Aero Continente and Mr. Fernando Zevallos. While Aero Continente's applications contain no mention of Mr. Zevallos, news reports suggest that he is in fact the "founder" and "head" of Aero Continente. Such reports also suggest that, at least as of earlier this year, Mr. Zevallos faced charges for drug trafficking. While Fine Air has no knowledge of and takes no position on the accuracy of these reports or the underlying allegations, clearly they merit the Department's close attention. Should it turn out that Aero Continente has a relationship with Mr. Zevallos, the Department has an independent responsibility to inquire into Mr. Zevallos' history. At a minimum, should it be determined that Mr. Zevallos has a relationship with Aero Continente, the Department must defer action on Aero Continente's applications until all investigations into and proceedings against Mr. Zevallos have been completed.

1. The Department Should Defer Action on Aero Continente's Application until Peru ha. Lifted Its Unlawful Ban

As the Department is well aware, the Peruvian Government has banned all Fine Air flights to and from Peru for over three and a half years. /2 The ban was summarily imposed in March 1995 when an Argentinian newspaper reported that a Fine Air aircraft, chartered in its entirety by a third-party charterer (Airline Equipment Specialists), had transported arms to Ecuador at a time when Ecuador and Peru were engaged in hostilities.

No culpability on the part of Fine Air or any of its employees in connection with this incident has ever been demonstrated. Indeed, to the contrary, every administrative and judicial inquiry into the incident to have reached a conclusion has exculpated Fine Air of any intentional wrongdoing, and supported Fine Air's position that it had no knowledge of the nature of the cargo transported by Airline Equipment Specialists. For example, the Federal Aviation Administration has reported that its thorough investigation of the incident did not uncover any evidence supporting a conclusion that Fine Air had violated FAA hazmat regulations (which would have been violated had Fine Air knowingly transported arms). Indeed, even the Peruvian Public Prosecutor ("Fiscalia") originally charged with deciding whether to bring charges against Fine Air concluded that there was not reasonable evidence to support such charges.

Nonetheless, the Peruvian Government has maintained the ban on Fine Air. Its explanation for doing so has changed repeatedly. Originally, Peru stated it would not lift the ban until the FAA had completed its investigation of the incident.

2/ See, generally, Fine Air filings in Docket 96-691.

When the FAA publicly concluded that there was no evidence supporting any charges against Fine Air, the Peruvian Government complained that the conclusions hadn't been communicated directly to it. When the FAA Administrator subsequently sent a letter personally informing the Peruvian Minister of Transportation, Communications, Housing and Construction of the FAA's conclusions, Peru changed its explanation: it now took the position that maintenance of the ban was necessary to protect Peruvian national security. When Peruvian-Ecuadorian hostilities ended (indeed, even Ecuadorian carriers were permitted to enter Peru) and the national security excuse was no longer viable, the Peruvian Government changed its explanation again: extension of the ban was now required pending the outcome of a Peruvian investigation of the incident. As described above, the first such investigation concluded that no charges could be brought against Fine Air. This conclusion was apparently unacceptable to the Peruvian Government; accordingly, another Físcalía was appointed. The investigation of this second Fiscalia has now been pending for over 18 months. No charges have been brought, and the proceeding remains in limbo.

Enough is enough. It is the stated position of the U.S. Government -- as expressed in Order 96-7-5, the statements of the Departments staff and long-standing U.S. policy -- that an indefinite foreign government ban on the operations of a U.S. air carrier is not reasonable and will not be tolerated. Peru's ban is indefinite, and its actions with respect to Fine Air both unreasonable and unjustifiable. Accordingly, the Department should defer action on Aero Continente's applications until Peru lifts the ban on Fine Air's services.

Aero Continente's applications indicate that the carrier is owned by a Ms. Lupe Zevallos. See Permit Application, Exh. AER-1 at 2, 4 (Ms. Lupe Zevallos is Chairperson of the Board and President and owns 95t of the carrier's stock). However, articles published in the Miami Herald (attached hereto) indicate that the carrier is in fact run by a Mr. Fernando Zevallos. These articles state that Mr. Zevallos created the "Aero Continente charter airline in 1991," is "the head of Aero Continente" and has "steered Aero Continente." They go on to report that, at least as of last year, Mr. Zevallos "has tangled with the U.S. Drug Enforcement Administration," "faces his third trial in Peru on charges of cocaine trafficking" and is subject to an arrest order issued by a Peruvian judge and Interpol.

Fine Air has no knowledge of and takes no position on the accuracy of these reports. However, for several reasons, they merit close scrutiny by the Department.

First, they call into question the accuracy of Aero Continente's application with respect to ownership and control of the carrier. Aero Continente's applications suggest that such ownership and control is vested in Lupe Zevallos; they contain no mention of Fernando Zevallos, to whom published accounts attribute control of the carrier. /3

Second, if there is any possibility of Fernando Zevallos having any direct or indirect relationship with the carrier, it is incumbent upon the Department to inquire closely into the accuracy of the allegations that have reportedly been made against him. Awarding a federal license to a carrier with a relationship with (let alone one controlled by) an alleged drug trafficker would be fundamentally irreconcilable with U.S. Government foreign policy and its policy on fighting illicit drugs generally.

Third, if it is determined that Fernando Zevallos has a relationship with the carrier and that he is the subject of an investigation or charge either in the U.S. or Peru, reciprocity clearly dictates that the Department must defer action on Aero Continente's applications pending the outcome of such investigation/prosecution regardless of whether the investigation/prosecution is merited. As noted above, it is the

3/ The application also lists a "Ricardo Zevallos" among the carrier's key personnel. He holds the position of Director of Maintenance and is the brother of Lupe Zevallos.

position of the Peruvian Government that an unconcluded -- albeit stagnant and totally unsupported -- investigation into Fine Air and its principals precludes it from licensing Fine Air to commence service to Peru. Accordingly, reciprocity and fairness dictates that action on Aero Continente's applications be deferred until all investigations into Mr. Zevallos' actions are concluded.

WHEREFORE, Fine Air urges the Department to defer all action on Aero Continente's application until the Peruvian Government has lifted the ban on Fine Air Services, and investigate published reports suggesting that control of Aero Continente may be exercised by Fernando Zevallos.

Respectfully submitted,

Jeffry N. Shane

Karan K. Bhatia

WILMER, CUTLER & PICKERING

2445 M Street, N.W.

Washington, D.C. 20037-1420

Tel. (202)663-6000

Fax. (202)663-6363