OST-00-6728 / OST-00-6726 / Aer Lingus / Ireland-US - Cities Program / Reply of Aer Lingus / March 22, 2000

Application of

for a Statement of Authorization under 14 C.F.R. Part 212 for code-share services with American Airlines, Inc. (Boston, Chicago, Los Angeles, New York-Shannon/Dublin)

Application of

for extra-bilateral authority under the Department's Program for Expanding International Air Service Opportunities To More U.S. Cities ("Cities Program")

(Dublin/Shannon-Baltimore)

Aer Lingus Limited ("Aer Lingus") hereby replies to answers submitted in the above captioned matters by respondents Delta Airlines Inc. ("Delta"), Continental Airlines, Inc. ("Continental"), Northwest Airlines, Inc. ("Northwest") and United Air Lines, Inc. ("United")

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(collectively the "respondents"). /1 As stated in Aer Lingus's letter of February 22, 2000, to the Department of Transportation, the parties previously consented to extending the date for answers to March 15, 2000, and the date for replies to March 22, 2000. /2

1. The claims Delta makes in its Consolidated Answer are inconsistent with arguments Delta presented to the Department of Transportation when seeking approval of its code-share arrangement with Aer Lingus.

Specifically, in its March 1999 submission, Delta claimed that renewal of the Delta/Aer Lingus code-share authority would be in the public interest since, under the agreement, Delta was able to initiate daily, non-stop service between New York and Shannon as well as between New York and Dublin. (Delta Joint Application for Renewal at 2-3 (Exhibit 1)). Further, Delta claimed that the traveling public benefits from competitive service "on these important U.S.-Ireland routes." (Id. at 3. Emphasis added.) Therefore, not long ago, Delta claimed that service to Ireland pursuant to a code-share arrangement with a U.S. air carrier, including service to Shannon, was a valuable service

2/ Continental did not file its pleading until March 16, 2000. Even though it is styled as a "reply," Continental's pleading is actually a late-filed answer. To the extent required, Aer Lingus requests leave to reply to Continental's document.

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that benefitted the public. This is completely inconsistent with its present position with regard to Aer Lingus's proposed code-share arrangement with American Airlines, Inc. ("American").

It so happens that Delta's March 1999 comity arguments also apply to the Aer Lingus/American application currently pending before the Department. Nothing has changed in the relationship between the United States and Ireland such that comity and reciprocity would be affected. U.S.-Irish relations are as strong as they were one year ago, if not stronger. Accordingly, the current state of comity and reciprocity solidly supports approval of the Aer Lingus/American code-share application.

In March 1999, Delta also claimed that continued approval of the Delta/Aer Lingus agreement was consistent with Department precedent and policy. (Delta Joint Application for Renewal at 3 (Exhibit 1), citing U.S. International Air Transportation Policy Statement (hereinafter "Policy

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Statement"), April 1995 at 4-5.) This assertion echoed a claim that Delta, together with Aer Lingus, presented to the Department in 1996 when Delta and Aer Lingus initially sought approval of their code-share arrangement. (Initial Delta/Aer Lingus Joint Application for A Statement of Authorization dated February 2, 1996 (hereinafter "Initial Delta/Aer Lingus Application") at 3, attached hereto as Exhibit 2.) This assertion also applies to the Aer Lingus/American code share application. In fact, in its Policy Statement, the Department held that

60 Fed. Reg. 21841 (May 3, 1995).

Approval of the Aer Lingus/American code-share arrangement is consistent with the Department's stated policy in that it provides a cost-efficient way for a U.S. carrier, American Airlines, to enter a new market, expand its system and obtain additional flow traffic. The end result of such an arrangement is that the public benefits through heightened competition, additional travel options and better service.

Further, no events have occurred in the last year which would have impacted the public interest discussed in the Delta/Aer Lingus Joint Application for Renewal. Accordingly, the arguments Delta made one year ago with regard to public interest issues also apply to the Aer Lingus/American application at issue in these proceedings.

II. The Respondents' Shannon Stop Arguments Lack Merit.

Delta strongly opposes the grant of any extra-bilateral authority to Aer Lingus because, according to Delta, the Shannon stop requirement is restrictive. (Delta Answer at 2.) Northwest

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argues that the Shannon stop requirement is an obstacle to code-sharing operations by U.S. carriers. (Northwest Answer at 2-3.) However, Delta and Northwest fail to recognize that the requirement applies to Irish as well as U.S. carriers, and thus establishes a fair playing field for any and all such carriers.

In addition, Delta avers that the Shannon stop requirement prevents the development of additional beneficial U.S.-Dublin services because it is too costly. (Delta Answer at 3.) However, completely undermining this claim is the fact that, as set forth in its answer, Delta recently commenced a second Shannon/Dublin service from New York's JFK Airport, (Id.) Obviously, if the requirement was so costly, Delta would not have begun additional service. Moreover, if Delta did not benefit economically from offering service to Ireland, it never would have instituted such additional service to Shannon/Dublin.

Additionally, United and Northwest complain that the Shannon stop requirement acts as an impediment to third-country code-share service. (United Answer at 2-5; Northwest Answer at 3.) This is inaccurate in that U.S. passenger carriers can request approval for third-country code-sharing arrangements as long as they comply with the Shannon stop requirement. Again, the requirement establishes an equal playing field because it applies to U.S. and Irish carriers alike. Moreover, both of these respondents currently have requests pending with the Irish Government for authority to engage in third-country code-sharing arrangements without offering service to Shannon. United and Northwest are hopeful that the Irish Government will act favorably on their requests in the near future and, as United and Northwest have both indicated, should the Irish Government grant their requests, they will have no continuing basis to oppose the Aer Lingus/American applications. (Northwest Answer at 3; United Answer at 2-3, 7.) Discussions in which Northwest has engaged the Irish

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Government on this issue also include code-sharing that Continental is seeking. (See Continental Answer at 1, 4.)

United also argues in its answer that the Department has no basis for a finding of adequate reciprocity and comity so long as the Irish Government declines to authorize United to code share with British Midland between London and Dublin without providing service to Shannon. (United Answer at 2.) This argument fails due to the fact that, as illustrated above, the Department has already determined that there is reciprocity and comity. (See § I., supra; Order 96-4-19, April 10, 1996; World Airways/Aer Lingus Notice of Action Taken dated April 1, 1998, Docket OST-98-3677 and Undocketed and Emery Air/Aer Lingus, Statement of Authorization dated November 20,1998.) Moreover, such a finding was issued by the Department while the Shannon stop requirement was in effect.

III. The U.S.-Ireland Bilateral Agreement is Pro-Competitive.

Delta claims that the bilateral agreement has an anti-competitive affect since only two U.S. carriers currently provide service to Ireland. (Delta Answer at 4.) This claim lacks merit in that approval of the Aer Lingus/American code-share application would introduce service by an additional carrier, American Airlines, and in fact, increase competition in this market, thereby better serving the public interest. In fact, Delta, together with Aer Lingus, claimed in its initial request for approval of the Aer Lingus/Delta code-share arrangement, that

(Initial Delta/Aer Lingus Application at 1-2 (Exhibit 2).)

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The Initial Delta/Aer Lingus Application continued:

(Id. at 2-3 (Exhibit 2). (Emphasis added). See also February 16, 1996, Delta/Aer Lingus Reply to Answers at 2, attached hereto as Exhibit 3.)

Further, Delta incorrectly focuses on the fact that certain areas, such as Boston, Philadelphia, Washington and Pittsburgh, all of which have multiple European services, lack U.S. flag service to Ireland. (Delta Answer at 4.) Delta's claim ignores the fact that,, if the Aer Lingus/American codeshare application is approved, the code of a U.S. air carrier, American Airlines, will be included in service from Boston. Moreover, if the Cities Program application is approved, the Washington area will obtain service to Ireland by Aer Lingus at Baltimore/Washington International ("BWI") Airport.

In addition, nothing within the bilateral agreement prevents U.S. flag carriers from offering service from the cities listed in Delta's answer and Delta has failed to cite specific language in the bilateral that has such an affect. Instead, U.S. flag carriers, including Delta, have chosen to target other markets, such as New York and Atlanta. In fact, granting Aer Lingus's applications would not impede U.S. flag carriers from seeking approval for offering service to Ireland from the cities Delta mentions in its answer, or any other U.S. city for that matter.

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Like Delta, United and Northwest also argue that the bilateral agreement is anti-competitive. United claims that the Shannon stop requirement is anti-competitive with regard to third-country code-sharing and Northwest argues that if the Department grants the Aer Lingus/American application the Irish Government will have no incentive to take procompetitive action by granting extra-bilateral authority to other U. S. carriers. (United Answer at 3 - Northwest Answer at 3 -4.) For its part, Continental argues that, in considering Aer Lingus's requests, the Department should weigh carefully the Irish Government's flexibility on grants of extrabilateral authority. (See, e.g., Continental Answer at 1-2.)

As to the Cities Program Application, Delta and United argue that a procompetitive agreement must first be in place before such an application is approved. (Delta Answer at 4; United Answer at 2,8.)

Each of the respondent's anti-competitive arguments fail due to the fact that the bilateral agreement is actually a procompetitive agreement which provides for (1) open entry; (2) unrestricted ,capacity; (3) U.S. carrier rights to operate service from any point in the U.S. to Ireland, and (4) pricing freedom. (Order 90-1-62 at 6 (stating that U.S. carriers have the right to operate service "from any point in the United States to the foreign country [, i.e., Ireland].")) Additionally, under the bilateral agreement, U.S. carriers are not required to seek additional authority from the Irish Government when operating from a U.S. city to Ireland.

The respondents' anti-competitive arguments also contravene the Department's previous holding that (1) comity, reciprocity and overall aviation relations with Ireland are positive; (2) U.S. aviation arrangements with Ireland include many of the features of an open-skies regime; and (3) there has been no indication of Irish failure to adhere to the terms of this arrangement. (Order 96-4-

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19.) Additionally, the respondents' claims contradict the Department's previous finding that the Delta/Aer Lingus code-share arrangement "would represent a major improvement in U.S.-Ireland service, substantially enhancing the quality of service available to travelers and shippers in this market" and provide "consumers with meaningful competitive alternatives." (Order 96-4-19 at 6-7. Emphasis added.)

Moreover, as presented in the Aer Lingus/American code-share and Cities Program applications, Ireland grants bilateral authority to U. S. carriers and is flexible with regard to reviewing extra-bilateral authorization requests submitted by such carriers. Delta itself acknowledges Ireland's previous approval of the Delta/Aer Lingus code-share/blocked space arrangement, as well as the operation of U.S. air carrier wet leases to Aer Lingus. (Delta Joint Application for Renewal at 3 (Exhibit 1).) In further contradiction to the respondents' assertions, Ireland has also approved a code-share application by Continental with regard to World Airways service.

Additionally, arguing that Aer Lingus's Cities Program request should be denied because the bilateral is allegedly anti-competitive ignores the purpose of the program's existence. The purpose of the Cities Program is to grant eligible foreign carriers, such as Aer Lingus, the authority to provide service to communities in the United States that do not have single-plane flights to the carriers' homeland. (Order 90-1-62 at 4-5.) Granting Aer Lingus's Cities Program application will fulfill such a purpose.

As shown above, the arguments set forth in Delta's answer to the Aer Lingus/American code share and Cities Program applications are inconsistent with arguments Delta made before the

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Department just one year ago when Delta sought continued approval of its code-share arrangement with Aer Lingus.

Moreover, the foregoing demonstrates that, upon consideration of the facts regarding U.S.-Ireland service, each of the respondents' Shannon stop and anti-competitive arguments fall. Based on the Department's precedent and stated policies, the respondents' claims should be rejected and the Aer Lingus/American code-share and Cities Program applications should be granted.

WHEREFORE, Aer Lingus respectfully requests that the Department promptly approve its code-share agreement with American Airlines, promptly approve the application for extra-bilateral authority under the Cities Program for a one-year, renewable term, and grant Aer Lingus such further and additional relief as the Department may deem appropriate under the circumstances.

Respectfully submitted,

Harold E. Mesirow, Esq.

G. Brent Connor, Esq.

Robins, Kaplan, Miller & Ciresi L.L.P.

1801 K Street, N.W. - Suite 1200

Washington, D.C. 20006

Telephone: (202) 775-0725

Facsimile: (202) 223-8604

Attorneys for AER LINGUS LIMITED