OST-00-6824 / American and Cathay Pacific / Hong Kong-US Reciprocal Codesharing / Joint Reply of American and Cathay Pacific / February 17, 2000

Joint Application of

under 14 CFR Part 212 for statements of authorization (reciprocal codesharing) and under 49 USC 40109 for related exemption authority

AND CATHAY PACIFIC AIRWAYS, LIMITED.

American Airlines, Inc. and Cathay Pacific Airways, Limited hereby jointly reply to the answers submitted on February 8, 2000 by Continental Airlines, Inc., Northwest Airlines, Inc., and United Air Lines, Inc. /1

1/ In their joint application, American and Cathay Pacific are seeking both exemption and codesharing rights. The join applicants have a right of reply to the exemption portion of their request under 14 CFR 302.407. To the extent required, the joint applicants seek leave to file this reply to the codesharing portion of their request, in the interest of a complete record for the Department's consideration.

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All three answers in essence urge the Department to defer action on the American/Cathay Pacific application pending negotiation of an amended U.S.-Hong Kong Air Transport Agreement, which presently does not provide for codesharing services. In our application, we recognized that discussions between the two sides were initially held on January 19-20, 2000, and that formal negotiations are scheduled for April. We then expressed our view that "the ultimate result of those negotiations will be a bilateral framework in which the American/Cathay Pacific and comparable codeshare arrangements can thrive". Accordingly, the need for a negotiated codesharing provision in the U.S.-Hong Kong bilateral agreement is not in dispute.

However, United and Northwest venture far beyond the matter of codesharing in what they would demand from the U.S.-Hong Kong negotiations. In a tactic that appears designed to protect its transpacific dominance, United insists on "a full open skies agreement," with "both third-country codeshare opportunities and fifth freedom rights to establish a competitive network of services over Hong Kong". Northwest asserts that "Hong Kong must grant the United States broad fifth freedom and third-country codesharing rights" .

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While American and Cathay Pacific do not believe that it is appropriate to use this proceeding to engage in an extended discussion of the pending governmental negotiations, we do wish to observe that the U.S. has added codesharing provisions to a number of bilateral agreements without insisting on full open skies, open third-country codesharing, or broad fifth freedom rights in return. In this regard, we cite the codesharing provisions in U.S. bilateral agreements with such non-open skies partners as Brazil, China, and France, to name a few.

American, for its part, also wishes to comment that it is, particularly disingenuous for United and Northwest, which have long enjoyed exclusive fifth freedom rights at Tokyo, to demand that Cathay Pacific be denied codesharing authority with its chosen U.S. partner airline unless the U.S. secures extensive new fifth freedom rights at Hong Kong. It certainly is ironic to hear United and Northwest -- the only two U.S. carriers with fifth freedom rights at Tokyo -- arguing that competition would be impaired unless they receive broad fifth freedom authority at Hong Kong as well, in return for approval of the proposed third/fourth freedom codesharing arrangement between American and Cathay Pacific.

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These, however, are matters that will be addressed in the upcoming U.S.-Hong Kong bilateral negotiations. American and Cathay Pacific remain confident that the two sides will achieve a balanced codesharing provision sufficient to support the grant of our joint application in full.

Respectfully submitted,

WILLIAM C. EVANS

RUSSELL E. POMMER

Attorneys for Cathay Pacific Airways, Limited

CARL B. NELSON, JR.

Associate General Counsel American Airlines, Inc.

February 17, 2000