OST-99-5670 / Southern Air and Southern Air Transport / Route Transfer / Answer of Polar Air Cargo / May 21, 1999

Joint Application of

for approval of a transfer of route authority under 49 U."11).C. §41105

Pursuant to 14 C.F.R. § 302.1720(d), Polar Air Cargo, Inc. ("Polar") submits this answer to the Joint Application of Southern Air Inc. ("SAI") and Southern Air Transport, Inc. ("Southern Air") seeking authority for Southern Air to transfer to SAI its certificates of public convenience and necessity and exemptions authorizing certain interstate, overseas and foreign all-cargo operations. Fundamentally, Polar does not oppose the transfer of Southern's operating authority to SAL So long as Polar lacks the all-cargo designation needed to serve the U.S.-Colombia market, however, Polar opposes any transfer of Southern's dormant U.S.-Colombia all-cargo designation to SAL In support of this answer, Polar submits the following: /1

1/ Answers to the Joint Application are not due until June 7, 1999. Polar is filing this answer before the due date in order to expedite the Department's action on its request for a designation to operate all-cargo services between Miami and Bogota. Polar reserves the right to supplement its answer by a subsequent filing made on or before the due date.

Polar Air Cargo Answer

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1. For a number of years, Polar has been seeking entry into the U.S.-Colombia market. For nearly nine months now, two U.S.-Colombia all-cargo designations have been available for use by U.S. air carriers. One has been available under the bilateral agreement since September 1, 1998, and the other has been held by Southern Air, a carrier that ceased operations in October 1998. Either of these two designations could be used to authorize Polar's service. As reflected in Polar's response to Southern Air's U.S.-Colombia exemption renewal application (Docket OST96-1153), Polar would urge the Department to promptly designate Polar for U.S.-Colombia service with one of these two designations, thereby invigorating the market with a new U.S.-flag competitor. /2

2. Although Southern Air seeks to retain its dormant U.S.-Colombia designation, SAI has stated that it does not even contemplate beginning scheduled service anywhere in the world until at least September 2000, and SAI has not identified the U.S.-Colombia market as one that it has definite plans to serve. The Joint Application only indicates that SAI plans to "provide aircraft, crew and insurance ("ACMI") domestic and international wet-lease services on a long-term basis to customers contracting with Southern for guaranteed monthly minimum ACMI services at fixed hourly rates.... Southern plans to use any excess aircraft capacity to provide short-term domestic and international charter services to the public. . . ." Joint

Polar Air Cargo Answer

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Application, Exhibit 1 at 1. SAI will, therefore, have absolutely no need for a limited-entry U.S.-Colombia designation for scheduled all-cargo service. Indeed, by the time SAI contemplates beginning any scheduled service at all, the designation would have gone unused for two years. SAI has not provided the Department any sound reason to allow SAI to hold a dormant U.S.-Colombia all-cargo service designation for such an extended period of time.

3. Southern and SAI attempt to remedy this deficiency by proposing that Polar might use the designation on a temporary basis until September 2000, when SAI may possibly want to use it. See April 30, 1999 Joint Surreply of Southern Air and Southern (Docket OST-96-1153) at 2, Joint Application at 5. Such a temporary allocation is not a workable option. Not only does SAI not have the legal right to retain a dormant limited-entry designation for which it has no use, but a temporary allocation would impair Polar's ability to mount a successful operation to Colombia. As experience demonstrates, launching service in a new international market is no small undertaking. It requires the establishment of the necessary infrastructure, promotion of the new service, and the patience to develop a market presence sufficient to support the operation, This is particularly true in many South American markets, where the traffic is predominantly northbound and the profit margin extremely thin. Polar simply could not afford to make the investment that its entry into the Colombia market would entail if Polar were subject to the substantial risk of losing its designation a little over a year after setting up business.

Polar Air Cargo Answer

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4. What Southern/SAI has requested is contrary to Department precedent and sound public policy because it would result in the shelving of a limited-entry designation for years based on the mere possibility that SAI may some day find a use for it. Indeed, the case quoted by Southern and SAI in their Joint Application makes this point quite succinctly: "the Department normally approves route transfers if the carrier'. . . would continue to make full use of our limited bilateral rights . . . .' (Order 90-5-5 at 8)." Joint Application at 3 (emphasis added). Indeed, when the Department finalized the route transfer case cited by Southern Air/SAI, the Department declined to transfer to American Airlines seven U.S.-Brazil frequencies and two U.S.-Ecuador frequencies "that it now does not propose immediately to use," so that the Department could "make possible additional, competitive U.S.-flag service to these countries." Order 90-5-5 at 5, 10. The same result is warranted here. The U.S.-Colombia all-cargo designation held by Southern Air is a bilateral resource for which the U.S. paid a dear price in negotiations with the Government of Colombia. U.S. shippers and consumers are entitled to the public benefits that were contemplated at the time the U.S. concluded its agreement with Colombia.

5. In addition to Southern Air's designation, a second designation has been available under the bilateral since September 1, 1998, but it remains unallocated. Based on the many pleadings submitted to the Department in recent months, Polar emerges as the on operating air carrier that is actively pursuing a Colombia designation for immediate use.

Polar Air Cargo Answer

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WHEREFORE, Polar Air Cargo, Inc. respectfully requests that the Department use one of the two available Colombia designations to enable Polar to enter the U.S.-Colombia market at the earliest possible date.

Respectfully submitted,

Jeffrey Manley

KIRKLAND & ELLIS

655 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 879-5161

Attorneys for POLAR AIR CARGO, INC.

DATED: May 21, 1999