Order 2011-12-11 Served: December 19, 2011 DEPARTMENT UNITED OF STATES TRANSPORTATION OF AMERICA UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. Issued by the Department of Transportation on the 18 th day of October, 2011 Joint application of SKYWEST AIRLINES, INC., and ATLANTIC SOUTHEAST AIRLINES, INC. Docket DOT-OST-2005-22152 for approval of a de facto transfer of route authority under 49 U.S.C. 41105 Joint application of ATLANTIC SOUTHEAST AIRLINES, INC., EXPRESSJET AIRLINES, INC., and SKYWEST AIRLINES, INC. Docket DOT-OST-2010-0225 for approval of a de facto transfer of route authority under 49 U.S.C. 41105 Summary ORDER GRANTING TRANSFER OF AUTHORITY By this order, we grant a de facto transfer under section 41105 of Title 49 of the United States Code ( the Statute ) of the certificates and other economic authorities held by Atlantic Southeast Airlines, Inc. ( ASA ), and ExpressJet Airlines, Inc. ( ExpressJet ), to ASA and ExpressJet under the control of SkyWest, Inc. ( SkyWest ), the parent company of ASA and SkyWest Airlines, Inc. ( SkyWest Airlines ). Background On September 2, 2010, ASA, ExpressJet, and SkyWest Airlines (collectively the Joint Applicants ), filed the subject application, as amended, 1 for approval under 49 U.S.C. 41105. 2 1 On September 20, 2010, ASA and ExpressJet amended their transfer application to include SkyWest Airlines. ASA and ExpressJet state that, while SkyWest is not a party to the ASA-ExpressJet merger, because SkyWest Airlines holds international route authority and is under common ownership with ASA, SkyWest Airlines must, in accordance with Department policy, be a party to the route transfer application at issue herein. The original de facto transfer application submitted by ASA and SkyWest Airlines in Docket DOT-OST-2005-22152 is subsumed by the subject application.
2 In the application, the Joint Applicants state that SkyWest and ExpressJet Holdings, Inc. ( ExpressJet Holdings ), the parent company of ExpressJet, entered into an agreement under which ExpressJet Holdings would become a wholly owned subsidiary of ASA. According to the parties, upon closing, ExpressJet will continue its operations as a wholly owned subsidiary of ASA for approximately 12 to 18 months after which ASA and ExpressJet intend to merge into a single operating company, with ASA as the surviving entity. The Joint Applicants maintain that SkyWest Airlines will continue to operate as a separate air carrier, wholly independent of ASA following ASA s merger with ExpressJet, and that it will retain its common ownership arrangement with ASA. Interested persons were given 21 days to file objections to the application. No objections were received. The Joint Applicants ASA holds interstate scheduled certificate authority, 3 blanket open skies certificate authority, 4 a blanket route integration certificate, 5 and exemption authority to engage in foreign scheduled air transportation between Atlanta and Providenciales, Turks and Caicos; between Atlanta and Monterrey, Mexico; 6 between Detroit and Monterrey, Mexico; 7 between points in the United States and points in Belize; 8 and between points in the United States and points in the Dominican Republic. 9 The air carrier also holds statements of authorization permitting it to display the designator code of Czech Airlines, KLM Royal Dutch Airlines, C.A.I. Compagnia Aerea Italiana S.p.A., and China Eastern Airlines Corporation Ltd. on certain flights it operates within the United States (in conjunction with services in foreign air transportation) and between the United States and third countries. 10 ASA s fleet consists of more than 169 aircraft having a passenger seating capacity between 50 and 76 seats. ExpressJet holds interstate scheduled certificate authority 11 and serves several U.S.-Mexico citypair markets, 12 which it operates as Continental Express pursuant to a code-share agreement with 2 The Joint Applicants also filed an application in Docket DOT-OST-2010-0224 for a pendente lite exemption from section 41105 to the extent necessary to allow the acquisition of ExpressJet to be completed prior to our action on the transfer request. By Order 2010-9-30, as amended by Order 2010-10-2, the Department granted a pendente lite exemption with the condition that ASA, ExpressJet, and SkyWest Airlines remain separate entities until our decision on the de facto transfer application had been made. 3 See Order 98-7-6. 4 See Order 2008-4-26. 5 See Order 2010-12-24. 6 See Notice of Action Taken, dated May 4, 2011, in Docket DOT-OST-2011-0089. 7 See Notice of Action Taken, dated May 4, 2011, in Docket DOT-OST-2011-0089. 8 See Notice of Action Taken, dated May 13, 2010, in Docket DOT-OST-2006-25018. 9 See Notice of Action Taken, dated June 3, 2011, in Docket DOT-OST-2006-24591. 10 See Department action dated March 16, 2001, in Docket DOT-OST-2000-8207; Department action dated October 18, 2006, in Docket DOT-OST-2004-19214; Notice of Action Taken, dated December 23, 2008, in Docket DOT-OST-2001-10417; and Notice of Action Taken, dated May 6, 2011, in Docket DOT-OST-2011-0065. 11 See Order 2002-4-8. This authority was most recently amended by Order 2005-12-4. 12 These markets include: Houston-Acapulco, Aguascalientes, Chihuahua, Ciudad del Carmen, Durango, Guadalajara, Huatulco, Ixtapa/Zihuatanejo, Leon/Guanajuato, Manzanillo, Mazatlan, Mexico City, Monterrey, Morelia, Oaxaca, Puebla, Puerto Vallarta, Queretaro, Saltillo, San Jose del Cabo, San Luis Potosi, Tampico, Toluca, Torreon, Tuxtla Gutierrez, Veracruz, and Villahermosa; and Los Angeles-Leon/Guanajuato.
3 Continental Airlines, Inc. ExpressJet s foreign operations are conducted under the provisions of section 206.5 of our rules (14 CFR 206.5), which permits air carriers holding an effective certificate issued under section 41102 of the Statute to operate under the exemption provisions of 14 CFR 298 Subpart B when using aircraft having an original design capacity of no more than 60 passenger seats or 18,000 pound payload. The air carrier s fleet consists of more than 269 aircraft having a passenger seating capacity between 37 and 50 seats. SkyWest Airlines holds interstate scheduled certificate authority, as well as interstate scheduled all-cargo authority, 13 blanket open-skies certificate authority, 14 and exemption authority to engage in foreign scheduled air transportation between several U.S.-Mexico city-pair markets. 15 The air carrier also holds several statements of authorization permitting it to display the designator code of various foreign air carriers on certain flights it operates within the United States (in conjunction with services in foreign air transportation) and between the United States and third countries. SkyWest Airlines fleet consists of more than 308 aircraft having a passenger seating capacity between 30 and 90 seats. TRANSFER OF AUTHORITY The Department has held that a stock acquisition resulting in common control of two or more air carriers having international route authority constitutes a de facto certificate transfer subject to section 41105. 16 Thus, the Joint Applicants request that the Department approve (1) a de facto transfer of ASA and ExpressJet s authority to ASA and ExpressJet under the ownership and control of SkyWest; and (2) a de jure transfer of ExpressJet s international route authority, consisting of U.S.-Mexico designations, to ASA upon their eventual merger into a single operating entity. Public Interest Section 41105 of the Statute provides that no route authority may be transferred unless such transfer is approved by the Department as being consistent with the public interest. The primary criteria in determining the public interest are whether the certificate transfer would conflict with the important international aviation policy objectives and whether the surviving entities are U.S. citizens and whether they will be fit to hold authority. Further, section 41105(b) requires the Department to analyze the impact of the transaction on the viability of the air carrier applicants, competition in the domestic airline industry, and the trade position of the United States in the international air transportation market. 13 See Order 78-1-86 and Order 81-12-131. SkyWest Airlines interstate scheduled passenger and all-cargo certificate authority was reissued, most recently by Order 98-7-6 and Order 85-11-49, respectively. 14 See Order 2008-4-26. 15 These markets include: Salt Lake City-Guadalajara, Mazatlan, and San Jose del Cabo, Mexico (See Notice of Action Taken, dated November 3, 2010, in Docket DOT-OST-2006-25495); Salt Lake City-Puerto Vallarta, Mexico (See Notice of Action Taken, dated November 3, 2010, in Docket DOT-OST-2007-29016); and Houston-Puebla, Puerto Vallarta, San Jose del Cabo, San Luis Potosi, and Villahermosa, Mexico (See Notice of Action Taken, dated November 18, 2010, in Docket DOT-OST-2010-0273). 16 See Federal Express Corporation and The Flying Tiger Line, Order 89-3-21, at 2, note 2. See also Order 2001-12-15 and Order 2009-9-4.
4 The Joint Applicants maintain that the transactions are fully consistent with the public interest standards under 49 U.S.C. 41105. In this regard, the applicants state that ASA and SkyWest Airlines will each remain highly viable air carriers independently operating under the ownership and control of SkyWest. Moreover, the Joint Applicants contend that while ExpressJet will cease to provide air transportation following the merger with ASA, the merger of the two air carriers will produce administrative, operational, managerial, and financial synergies that would otherwise not be fully realized through their separate operations. The air carriers also assert that the proposed transactions will have no effect on domestic competition since neither ASA, ExpressJet, nor SkyWest Airlines holds out scheduled service under their own brands. Furthermore, the Joint Applicants state that the proposed transactions will have no effect on the relevant international air transportation markets as the air service agreements with countries SkyWest Airlines, ASA, and ExpressJet are authorized to serve are generally liberalized. In addition, the Joint Applicants state that while each air carrier serves Mexico, numerous other U.S. air carriers also serve Mexico and the U.S.-Mexico bilateral aviation agreement provides for multiple designations in every city-pair. Decision Our review of financial and other available information raises no issues that would lead us to question the fitness or citizenship of ASA, ExpressJet, or SkyWest Airlines as a result of these transactions. 17 Moreover, after careful review of applications, we have determined that the proposed transfers meet our standards for approval and are consistent with the public interest. We believe that ASA will remain a viable air carrier under the ownership of SkyWest, given the resources and experience of SkyWest. Moreover, the merger of personnel, equipment, and financial resources of ASA and ExpressJet should produce synergies that will enhance the viability of the surviving air carrier. In addition, our examination of the record in this case indicates that the proposed transfers should not have an undue effect on domestic airline competition. Furthermore, the Department of Justice, which has primary responsibility for evaluating the likely effects of proposed transactions on domestic competition, has decided not to oppose either acquisition on antitrust grounds. We have also found that the proposed transfers will have no negative effect on the trade position of the United Stated in international air transportation markets. With the exception of Mexico, none of our aviation agreements with any of the countries involved restricts the number of U.S. air carriers that may provide operations. Under the U.S.-Mexico Air Transport Agreement, as many as three and as few as two U.S. air carriers may be designated to provide scheduled passenger air transportation between specific designated city-pair markets. While the proposed transfers will result in the Joint Applicants holding all available designations in the Houston- Puebla, Villahermosa, and San Luis Potosi city-pair markets, under the U.S.-Mexico Air Transport Agreement multiple U.S. air carriers may serve these points albeit through alternative U.S. gateway cites. Thus, to the extent that the Joint Applicants have overlapping authority in limited entry U.S.-Mexico city pair markets, the air carriers coming under common ownership 17 The Department recently concluded continuing fitness reviews of the Joint Applicants and found that each remained fit to conduct operations as a U.S. certificated air carrier.
5 should not have a significant adverse impact on competition, as other airlines are free to serve those markets through alternative U.S. gateway cities. Taking into consideration these circumstances and the fact that no party has opposed the applications, we are persuaded that the proposed transfers will not produce significant adverse consequences in any of the foreign markets where the air carriers operate that would warrant withholding approval of the proposed transfers. Accordingly, we conclude that the approval of the de facto transfer of ASA and ExpressJet s certificates and other economic authorizations to ASA and ExpressJet under the ownership of SkyWest is in the public interest. Regarding the transfer of ExpressJet s international route authority, consisting of U.S.-Mexico designations, we will notify the Government of Mexico of the impending designation of ASA to serve the U.S.-Mexico city-pair markets currently served by ExpressJet, but we will not formally designate ASA in any of these markets until such time as ASA provides us with a date certain for the commencement of its operations. Upon notification by ASA of a date certain, we will withdraw the designation of ExpressJet in the relevant U.S.- Mexico city-pair market effective upon the departure of its last scheduled flight and designate ASA. However, should ASA desire to operate aircraft having an original design capacity of more than 60 passenger seats or 18,000 pound payload in any of the U.S.-Mexico city-pair markets currently served by ExpressJet, the air carrier would first need to obtain certificate or exemption authority to serve the specific city-pair market. ACCORDINGLY, 1. We grant the request of Atlantic Southeast Airlines, Inc., and ExpressJet Airlines, Inc., for approval under 49 U.S.C. 41105 of the de facto transfer of the certificates and other economic authorities held by Atlantic Southeast Airlines, Inc., and ExpressJet Airlines, Inc., to Atlantic Southeast Airlines, Inc., and ExpressJet Airlines, Inc., under the ownership of SkyWest, Inc. 2. The authority granted here may only be used in a manner consistent with the terms of the air transport agreements between the United States and our aviation partners. 3. Unless disapproved by the President of the United States under 49 U.S.C. 41307, this order shall become effective on the 61 st day after its submission for section 41307 review or upon the date of receipt of advice from the President or his designee under Executive Order 12597 and implementing regulations that he or she does not intend to disapprove the Department s order under that section, whichever occurs earlier. 18 18 This order was submitted for section 41307 review on October 18, 2011. The 61 st day is December 19, 2011. Since the President or his designee did not disapprove this order before that date it became effective on December 19, 2011..
6 4. We will serve a copy of this order on the persons listed in Attachment A. By: SUSAN L. KURLAND Assistant Secretary for Aviation and International Affairs An electronic version of this document is available on the World Wide Web at http://www.regulations.gov
7 Attachment A SERVICE LIST FORATLANTIC SOUTHEAST AIRLINES, INC., EXPRESSJET AIRLINES, INC., AND SKYWEST AIRLINES, INC. MS EILEEN M GLEIMER MS LORRAINE B HALLOWAY MR GERALD F MURPHY CROWELL & MORING LLP 1001 PENNSYLVANIA AVE NW WASHINGTON DC 20004 MR PETER LYNCH ASST CHIEF COUNSEL FOR ENFORCEMENT (AGC-300) FEDERAL AVIATION ADMINISTRATION 800 INDEPENDENCE AVE SW WASHINGTON DC 20591 MR ROBERT SILVERBERG 1101 30 TH STREET NW SUITE 120 WASHINGTON DC 20007 MR BRAD HOLT PRESIDENT ATLANTIC SOUTHEAST AIRLINES, INC. A-TECH CENTER 900 TOFFIE TERRACE ATLANTA GEORGIA 30354 MR WILLIAM J WEBER (AFS-900) CERTIFICATION SECTION MANAGER FEDERAL AVIATION ADMINISTRATION 45005 AVIATION DRIVE SUITE 131 DULLES VA 20166 MR TODD EMERSON GENERAL COUNSEL SKY WEST AIRLINES INC 444 SOUTH RIVER ROAD SAINT GEORGE UTAH 84790 MR THOMAS M HANLEY PRESIDENT AND CHIEF EXECUTIVE OFFICER EXPRESSJET AIRLINES INC 700 NORTH SAM HOUSTON PARKWAY WEST SUITE 200 HOUSTON TEXAS 77067 MR CLAY MORITZ OFFICE OF AIRLINE INFORMATION DOT/RSPA/BTS E-36 1200 NEW JERSEY AVE SE WASHINGTON DC 20590 MR BERNARD STANKUS RTS-42 OFFICE OF AIRLINE INFORMATION DOT/RSPA/BTS E-36 1200 NEW JERSEY AVE SE WASHINGTON DC 20590