OST-00-7513 / US-Ecuador All-Cargo / Answer of Gemini / June 27, 2000

OF GEMINI AIR CARGO, INC.

The proposal of Gemini Air Cargo, Inc., to operate scheduled all-cargo service to Ecuador is superior in every respect to the proposals submitted by Atlas, Evergreen, Arrow, and Fine in their competing applications in this docket. The Department should therefore grant an exemption to Gemini and grant Gemini the three available frequencies in order for Gemini to operate scheduled all-cargo service twice a week between Miami, Florida, on the one hand, and Quito and Guayaquil, Ecuador, on the other, using Gemini DC10-F freighter aircraft.

1. The Gemini proposal is superior to the Atlas and Evergreen proposals, which would not result in the best utilization of the three available frequencies.

Gemini proposes to operate to Ecuador twice a week using Gemini DC-10-30F aircraft. Atlas and Evergreen, on the other hand, each propose service to Ecuador using B-747 freighter aircraft. Under the U.S.-Ecuador Air Transport Agreement, one round-trip flight with a wide-body 747 rotation is equivalent to two narrow-body frequencies. Thus one U.S.-Ecuador round-trip with a 747 would use two of the

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three weekly frequencies that are available, leaving one unutilized. one round-trip with a DC-10, however, uses 1.5 frequencies, meaning that the two Gemini round-trips would fully utilize the three available frequencies.

In its Application, Atlas argued that it could remedy the deficiency in its proposal by alternately operating one 747 flight one week and two the next. This would result in an average use of three narrow-body frequencies per week.

As Gemini pointed out its Application of June 8 in Docket OST-2000-7496, nothing in the U.S.-Ecuador Agreement allows frequencies that are not used in one week to be carried forward to the following or subsequent weeks, as Atlas proposes.

In its initial Application of May 8, 2000, in Docket OST-2000-7343, Evergreen proposed only to operate one 747 flight each week. In the Supplement to that Application that Evergreen filed in this docket, however, Evergreen matches the Atlas proposal and says that Evergreen will also operate service alternating between one and two flights per week "if permitted." (Evergreen Supplement, p.2) In so doing, however, Evergreen notes that it "has previously expressed some doubt as to whether this approach is permissible under the bilateral agreement." Id.

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Evergreen's reservations are well-founded. It is not permissible.

Since this approach is not authorized, Atlas or Evergreen could only operate one 747 flight per week in contrast to the two DC-10-30F rotations that Gemini would operate. The one weekly 747 flight that either Atlas or Evergreen would operate would provide less cargo capacity in the U.S.-Ecuador market than the two Gemini flights. In addition, using two of the frequencies for one 747 flight would either leave one frequency unallocated or would result in its allocation to one of the two incumbent narrow-body operators (Fine or Arrow) that have filed applications for additional frequencies. As discussed below, Fine and Arrow are in the process of merging, and an increase in their combined allocation of frequencies would not promote competition in the market.

Even if Atlas were able to operate the alternating one flight/two flight pattern that it proposes, there is no certainty that the U.S.-Ecuador scheduled all-cargo market would receive as much capacity as that proposed by Gemini since Atlas proposes to operate to Ecuador only on a routing in which Atlas would serve Quito and Guayaquil as points beyond its existing Miami-Bogota service. It is obvious that cargo traffic between Miami and Bogota would utilize a

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significant portion of the capacity of the Atlas 747 aircraft to the detriment of traffic between the U.S. and Ecuador. Otherwise, there would be no reason for Atlas to make a traffic stop in Bogota. Gemini, on the other hand, is proposing to operate dedicated U.S. service between the United States and Ecuador.

Lastly, the Evergreen argument that the Department should not pick Gemini because Gemini is allegedly an "ACMI carrier" is entirely without merit. Gemini does provide ACMI service to carriers around the world, but it also operates extensive scheduled and charter flights in its own right, as evidenced by its successful effort to obtain authority to operate scheduled all-cargo service to a broad range of international destinations. DOT Order 99-12-7.

Gemini is fully prepared to operate scheduled all-cargo service to Ecuador.

2. The Gemini proposal is superior to the proposals submitted by the soon to be merged Arrow and Fine, which would decrease competition in the market, contrary to DOT policy.

In addition to the Atlas and Evergreen applications, two of the incumbent carriers in the U.S.-Ecuador market, Arrow Air, Inc., and Fine Air Services Corporation, companies under common ownership that have sought Department

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approval for Fine to merge into Arrow Air, /1 have filed respective applications in which each asks for reallocation of the three available frequencies. Arrow currently has an allocation of three frequencies and Fine has two.

As the Department is aware, Gemini has previously expressed concerns about the Fine/Arrow combination in markets, such as Ecuador, where entry is restricted. /2 The five frequencies allocated to Fine/Arrow presently represent one-third of the fifteen total frequencies. If the Department were to reallocate the three available frequencies to either company, as requested in their Applications, Fine/Arrow would hold eight, or slightly more than half of the fifteen frequencies. Challenge would continue to hold the remaining seven. To allocate the total

1/ Amendment #2 to Joint Application of Fine Air Services Corp. and Arrow Air, Inc. for Approval of Transfer of Route Authority; Docket OST99-5140; April 6, 2000.

2/ Gemini stated as follows in its Answer of March 12, 1999, to the Joint Application of Arrow and Fine for Route Transfer Authority:

Gemini Answer, Docket OST-99-5140, pp. 4-5 (footnotes omitted).

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frequencies in a manner that would result in a duopoly between Challenge and Arrow/Fine in the U.S.-Ecuador scheduled all-cargo market is not in the public interest. Such a result would decrease, not increase, the incentive to compete on price and other elements of service.

The Department has previously recognized the importance of maximizing competition in the U.S.-Ecuador scheduled allcargo market. In 1997 the Department reallocated the same three frequencies that are in issue here to American International Airways (now Kitty Hawk), a new entrant to the market at that time, over the strenuous objections of Fine Air which had sought, at a minimum, one additional frequency. DOT stated: "We concluded that our overall goals in the U.S.-Ecuador all-cargo market would best be served by adding new competition rather than authorizing incumbent carriers to increase their services." Order on Reconsideration and Final Order, In the Matter of U.S.-Ecuador All-Cargo Frequencies, DOT Order 97-8-20, page 5.

The Arrow and Fine applications contain no compelling reasons why the Department should award the three frequencies to either carrier at the expense of the additional competition that Gemini would provide. Fine only states that the shippers and forwarders with which it does business "have indicated that any increase in Fine Air's

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twice-weekly service is highly desirable and would be well-received." Fine Application, p. 3. Gemini's proposed scheduled service is also very much in demand by its customers (Gemini Application, p. 3), but Gemini's service proposal has the significant, and critical, advantage of producing additional competition in the market.

Arrow states that "allocation of the three available frequencies to Arrow would insure continued viable competitive all-cargo service in the U.S.-Ecuador market." Arrow Application, p.2, a proposition that Arrow cannot justify since allocation to either Arrow or Fine would result in one less airline providing scheduled all-cargo service between the United States and Ecuador.

In contrast, Gemini is the U.S. carrier that is best positioned to compete successfully with Challenge and Fine in the U.S.-Ecuador market.

CONSOLIDATED ANSWER OF GEMINI AIR CARGO, INC.

For the foregoing reasons, the scheduled all-cargo service that Gemini proposes to operate to Ecuador is superior to the proposals set forth by Atlas, Evergreen, Arrow, and Fine. It is therefore in the public interest for the Department (1) to grant Gemini Air Cargo, Inc. an exemption from 49 U.S.C. 41102 to authorize it to provide scheduled foreign air transportation of property and mail between Miami, Florida, on the one hand, and Quito and Guayaquil, Ecuador, on the other; (2) to allocate to Gemini three weekly frequencies to Ecuador; and (3) to integrate this exemption with existing certificate and exemption authority held by Gemini.

Respectfully submitted,

Moffett B. Roller

ROLLER & BAUER, PLLC

1020 Nineteenth Street, N.W.

Suite 400

Washington, D.C. 20036

Phone: (202) 331-3300

Fax: (202) 331-3322

Attorneys for Gemini Air Cargo, Inc. June 27, 2000