BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

Transcription

1 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. Application of AVIATION SERVICES, LTD. DOCKET DOT-OST * (d/b/a FREEDOM AIR (Guam for a Certificate of Public Convenience and Necessity (Foreign Passenger Charter Service REPLY OF AVIATION SERVICES, LTD. (d/b/a FREEDOM AIR (Guam TO ANSWER OF AIR LINE PILOTS ASSOCIATION AND MOTION TO STRIKE Communications with respect to this document should be sent to: Gregory P. Cirillo Wiley Rein LLP 7925 Jones Branch Drive McLean, Virginia Ph: Fx: E: GCirillo@wileyrein.com November 2, 2010 * A substantively identical Reply and Motion to Strike has been filed in the related docket DOT-OST

2 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. Application of AVIATION SERVICES, LTD. DOCKET DOT-OST (d/b/a FREEDOM AIR (Guam for a Certificate of Public Convenience and Necessity (Foreign Passenger Charter Service REPLY OF AVIATION SERVICES, LTD. (d/b/a FREEDOM AIR (Guam TO ANSWER OF AIR LINE PILOTS ASSOCIATION AND MOTION TO STRIKE On October 22, 2010, the Air Line Pilots Association ( ALPA filed a Motion for Leave and Answer to the application of Aviation Services, Ltd. (d/b/a/ Freedom Air (Guam ( Freedom Air in the above-captioned matter. Freedom Air filed its application for Certificate of Public Convenience and Necessity on June 14, 2010 (more than four months prior to ALPA s answer seeking a determination of its fitness to conduct foreign charter air transportation. 1 In connection with its foreign and interstate applications, on September 13, 2010, Freedom Air received an Information Request (the DOT-IR from Vanessa R. Balgobin of the Department s Air Carrier Fitness Division. Freedom Air filed a response to the DOT-IR on October 4, Freedom Air herein responds to ALPA s answer, and moves to strike ALPA s answer as untimely. Pursuant to the Department s procedural regulations, interested 1 On July 28, 2010, Freedom Air filed a parallel application for a determination of its fitness to conduct interstate scheduled air transportation. See Docket DOT-OST

3 persons have 21 days from the filing date of an application to submit answers in support of or in opposition to authority requested. See 14 CFR (a. To the extent that interested parties may respond to amended applications, Freedom Air argues that it did not amend its application on October 4, 2010, but rather provided the Department with an answer to its information request. As such, ALPA s October 22, 2010 answer was submitted well past the 21 day window that it had to respond to Freedom Air s June 14, 2010 application and should not be accepted by the Department in this proceeding. Freedom Air believes that the issues have been adequately briefed and supported by its application and responses to Department inquiry, but feels compelled to reinforce its positions in response to ALPA s answer. In short, based on the following points, and applying the governing law, we see no basis to conclude that the proposed two-aircraft charter operations somehow alters the citizenship of Freedom Air. 1. All Objective Ownership, Management and Voting Control Standards are Met. Freedom Air is 100% owned by U.S. citizens and nothing in the pending applications will change that. Senior management and the entire board of directors is comprised of U.S. citizens. There are no actual or potential equity or debt instruments in play that will or could affect any change in ownership or voting control. Thus the only remaining analysis, for citizenship purposes, is that of actual control. The absence of any ownership, voting power and management concerns is, itself, a relevant consideration and part of the totality of the circumstances to be viewed in the Department s actual control analysis. 2 2 Fly Micronesia, Ltd. is an entity formed in Hong Kong making it ineligible to be a U.S. citizen. However, it is 80% owned by a single individual who is a U.S. citizen. Fly Micronesia prefers to maintain flexibility 2

4 2. Freedom Air is a Successful, Free-Standing Airline and will Remain so After this Process is Concluded. The specific operations in question (charter operations with two 737 aircraft will represent only a portion of Freedom Air s overall operations, and merely an addition to those operations. Freedom Air has operated aircraft in scheduled service under Part 121 and those airline operations will continue regardless of the disposition of the pending application. The 737 charter operations have been structured such that the existing operations of Freedom Air will remain in place and viable without regard to the 737 operations. Any analysis of how the proposed charter operations might influence the citizenship of Freedom Air must assess the entire, resulting operation. 3. The Financial and Operational Role of Fly Micronesia, Ltd. does not Constitute Actual Control. The operational and financial role of Fly Micronesia does not rise to the level of actual control of Freedom Air and it, in fact, represents a rare opportunity for a U.S. air carrier to employ the passive capital of a nominally foreign investor to increase the U.S. carrier s operating capabilities in a geographic area in need of additional transportation and poised for substantial growth, perhaps explaining the unusual competitive resistance on this docket. a. The operational relationship between Freedom Air and Fly Micronesia (which is solely with respect to the 737 charters is entirely consistent with DOT interpretations on citizenship, and comparable to the relationship between a network to raise capital from non-u.s. sources to expand operations. If the Department determines that the citizenship of the shareholders of Fly Micronesia is relevant to its determination, Freedom Air is willing to accept reasonable conditions relating thereto and will provide supplemental information as needed. 3

5 airline and its regional partners, or a public charter direct air carrier and the public charter operator, and is essentially an ACMI (aircraft, crew, maintenance and insurance relationship as assessed in the citizenship examination of DHL Airways, Inc. (Astar. 3 The allocation of marketing, sales and scheduling responsibilities does not cede operational or strategic control of flight operations. The Department faced this issue in the Astar decision and found that the ability of a non-u.s.-citizen to control as much as 90% of the airline s workload, revenue base and schedule does not rise to the level of actual control. Astar at Similarly, in its citizenship review of Virgin America, the Department was not convinced that the overarching role of Virgin Group (a non-u.s. entity compelled a finding of actual control. 4 The Agreement governing the relationship between Freedom Air and Fly Micronesia was prepared and negotiated with a complete understanding of the citizenship requirements. Section 2.4 of the Agreement reads: Notwithstanding anything herein implicitly or explicitly to the contrary, [Freedom Air] shall have and shall retain sole and exclusive control and authority over all flight operations, maintenance, repair and security relating to the Project [the 737 operations], to the fullest extent required by applicable law, as interpreted by [Freedom Air] in its sole discretion. 5 By its own terms, this clause supersedes anything implicitly or explicitly to the contrary, and gives Freedom Air sole discretion to make that determination. The laundry list of Fly Micronesia 3 Recommended Decision of Administrative Law Judge, DHL Airways, Inc. (Astar, December 19, 2003, Docket No. OST ( Astar. 4 Final Order, Application of Virgin America for certificate of public convenience and necessity, May 18, 2007, Docket No. OST ( Virgin America. 5 A copy of the Agreement between Freedom Air and Fly Micronesia was provided to the Department as Exhibit C of Freedom Air s Response to the DOT-IR, dated October 4,

6 responsibilities cited by ALPA do not individually or collectively alter the actual control of Freedom Air; but to the extent that any of those points could be misconstrued as doing so, it is expressly superseded by Section 2.4 of the Agreement. The role of Fly Micronesia in the 737 charters is well within the parameters established by the Department in Astar and Virgin America, and that is without further considering the remaining and pre-existing airline operations of Freedom Air that are completely unassociated with Fly Micronesia. b. The financial relationship does not support a finding that Fly Micronesia exercises actual control over Freedom Air. Indeed, Fly Micronesia bears substantially all of the marginal cost of Freedom Air s expanded operations and expressed in the Agreement. However, the arrangement is an arm s length transaction beneficial to both parties, with each party playing an essential role. Unlike Astar, the carrier and the foreign interest here are independent and utterly unrelated entities, and as such the business relationship is undoubtedly arm s length and commercially viable. 6 There is nothing in the economic arrangement that could suggest the ability of Fly Micronesia to influence the operations of Freedom Air. Even if Fly Micronesia were to withhold all performance, thus preventing all 737 operations, Freedom Air would continue operations as it does today, without material financial exposure to the cessation of 737 operations. The Department was quite clear in Astar that the proper analysis of financial influence is to ask whether the right of termination or audit by the foreign interest provides some leverage that could control the 6 In Astar, the ALJ was required to examine and dismiss suggestions that the restated relationship between the carrier and the foreign interest established an incurable continuum of control or that the commercial terms were so unnatural as to suggest control. Astar at No such concern exists here. 5

7 carrier s activities or operations. 7 The ALJ cited the practical and financial impediments to termination, as well as the financial consequences (many being positive if the foreign interest was to terminate. 8 By all measures the economic leverage exercisable in Astar far exceeds the leverage exercisable by Fly Micronesia (and that leverage was acceptable in Astar. Fly Micronesia s termination (or breach resulting in effective termination, in the worst case, would leave Freedom Air with an expanded operating certificate and economic authority, and no residual material liability. 4. Freedom Air Deserves Prompt Action. Freedom Air s applications have been before the Department for six months (and the facts and circumstances were presented to the Department well before the applications were filed, 9 and operationally Freedom Air and Fly Micronesia continue to invest funds and resources in the Federal Aviation Administration certification process, staff retention and related preparations. Freedom Air is surprised that a two aircraft charter proposal would engender so much commercial resistance, and that the Department would take so long to reach a conclusion on the few issues within its purview. 7 Astar at Id. at Freedom Air sought informal guidance from the Department in writing in March 2010 (before filing the applications with the express intent of securing an understanding on the citizenship issue prior to filing our application; and the Department declined to engage in informal discussions and instead asked that Freedom Air file an application. The procedural requirements, while important, have given third parties the ability to defer Freedom Air s business plan by months. 6

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