O rder 2010

- 2

- 6

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 4 th day of February

, 20 10

Served: February 4, 2010

Applications of

Kalitta Air, L.L.C.

Southern Air , Inc.

for certificate and /or exemption authority (U.S.

- China All

- Cargo) Do ckets DOT

- OST

- 2009

- 0 329

- 0307

ORDER INSTITUTING PROCEEDING

SUMMARY

By this order we institute the 20 10 U.S.

- China All

- Cargo Designation a nd Frequency Allocation

Proc eeding to select a carrier for a designation to serve the U.S.

- China market

, and for allocation of frequencies that become available effective March 25, 20 10

. 1

BACKGROUND

On May 2 2 , 2007 , representatives of the United States and the People’s Republic of China (PRC) signed a memorandum of consultation s reflecting ad referendum agreement on an amended

U

. S

. - PRC aviation agreement that expand s opportunities for air carriers of both countries. The
agreement provides for annual incr eases in service opportuni ties through 20 12

. We are instituting this proceeding to award expanded rights available to U.S. air carriers effective March 25, 20 10

. Specifically, we note that one additional U.S. air carrier may be designated to operate either

1 We will also award economic authority, as appropriate. In the Matter of

2 0 10 U.S.

- CHINA A LL

- CARGO

DESIGNATION AND FREQUENCY

ALLOCATION PROCEEDING Docket DOT

- OST

- 20 10

- 00172 scheduled combination o r all

- cargo services between the United States and China . Also, 21 weekly combination frequencies and 15 weekly all

- cargo frequencies will become available to U.S. carriers to serve points in China Zone 1 or China Zone 2. 2 3

Southern Air, Inc

. (Southern) and Kalitta Air, L.L.C. (Kalitta) have each filed an application for

the av ailable designation opportunity to provide all

- cargo services , as well as frequencies to serve
the U.S.

- China market. Specifically, Southern request s exemption authority and alloc ation of six weekly all

- cargo frequencies. 4 Kalitta request s exemption authority, certificate authority and

allocation of six weekly all

- cargo frequencies. 5

15

- day answer period for Southern’s application had run

. Kalitta filed its application six days after the

6 Each carrier answered and replied t o the other’s application

. 7 Kalitta state s that the Department must consider the two applications together in a competitive proceeding , whereas Southern states that the Department should deny

Kalitta’s motion to late

- file and reject Kalitta’ s un timely pleadings as v i olative of the Department’s rules of practice and prejudicial to Southern

.

DECISION

We have carefully considered the arguments raised by Southern and Kalitta. Although we recognize that Kalitt a’s competing application was not timely filed , we do not believe, in the

circum stances presented, that the six

- day delay in filing by Kalitta warrants depriving the Department of an opportunity to determine which of the two proposal s presented would be tte r

serve the interests of the shipping public and would better maximize use of our rights under the

U.S.

- PRC aviation agreement

. Nor are we persuaded that Southern has suffered prejudice of a type or degree that would outweigh the benefits to the public of the Department’s engaging in such a comparative selection. Therefore, w e have determined that the public interest would best be served by considering Kalitta’s application along with Southern’s and by instituting a carrier selection proceeding f or that p urpose

.

W e have decided to institute the 2 010 U.S.

- China All

- Cargo Designation and Freq uency Allocation Proceeding to award the available designation to a U.S. all

- cargo air carrier to operate
air services between the United States and China and to allo cate to the selected carrier the

2 As defined by the amended agr eement, China Zone 1 consists of Beijing, Shanghai, and Guangzhou. China Zone 2 consists of Fujian, Guangdong (except Guangzhou), Hebei, Jiangsu, Shandong, Tianjin, and Zhejiang.

3 In addition to the frequencies that become available March 2010, t here are seven frequencies available for

combination and/or all

- cargo services specifically limited to serving points in China Zone 2 , and six as yet

unallocated all

- cargo frequencies available for services to points in China Zone 1 or China Zone 2

. Also, as a re sult of the return by US Airways, Inc., of its U.S.

- China designation and frequencies , a combination designation and seven weekly combination frequencies are currently available. See letter dated October 28, 2009, in Docket

DOT

- OST

- 2007

- 28567.

4 Southern states that it plans to operate three weekly round

- trips between Los Angeles and Shanghai, and three weekly round

- trips between Chicago and Shanghai.

5 Kalitta states that it plans to operate three weekly round

- trips between Shanghai

- Anchorage

- Chicago

- New York

Anchorage

- Shanghai and three weekly round

- trips between Guangzhou

- Khabarovsk (fuel)

- Anchorage

- Los Angeles

Anchorage

- Guangzhou.

6 Kalitta’s application was accompanied by a motion to consolidate its application with the exemption application filed by Southern.

7 Certain pleadings were accompanied by motions to late

- file and for leave to file. In the interest of ensuring a complete record, we will grant the various motions.3 frequencies to operate the services. We will also entertain applications from incumbent carriers

for the remaining all

- cargo frequencies

. 8 9 The designation opportunity and 15 newly available frequencies become available on March 25, 20 10

.

W hile we recognize that the March 2010 designation opportunity may be awarded to either a

combination or all

- cargo carrier, we note that a designation opportunity is available immediately for a combination carrier, as well as seven week ly combination frequencies

. 10 W e further note

that while there are no designations immediately available for all

- cargo carriers to serve the U.S.

- China market

, two all

- cargo carriers have applied for the designation opportunity and frequencies

available ef fective March 25, 2010. We now have the opportunity to utilize fully valuable rights

in the U.S.

- China market by awarding the 2010 designation opportunity and frequencies to an all

cargo carrier. 11

As the applications filed are already ripe and all inter ested parties have had an opportunity to file competing requests, we will not provide for additional applications here. Accordingly, we will (1) consolidate the captioned applications into the proceeding we are instituting here in a newly

established dock et for this proceeding ; (2) invite the captioned carriers in this proceeding to supplement and/or amend the already

- filed applications; and (3) establish the procedural schedule for deciding the case. All documents hereafter should be filed in the newly a ssigned docket for this proceeding. W e will award the U.S.

- China route authority at issue in the form of exemption authority and a temporary, experimental certificate of public convenience and necessity under 49 U.S.C. section 41109(c). 12 The duratio n of the exemption authority will be
two years or until the effective date of the certificate authority

, and the certificate a uthority will

be for five years

. 13

In awarding the rights available in this proceeding , our principal objective will be to maximize

th e public benefits that will result from the various awards of authority in this case. In this regard, we will consider which applicants will be most likely to offer and maintain the best service for the shipping public. We will consider the effects of th e applicants’ service proposals on the overall market structure and level of competition in the U.S.

- China market, and any other market shown to be relevant, in order to promote an air transportation environment that will sustain the greatest public benefi ts. In addition, we will consider other factors historically used

for carrier selection where relevant. Based on the material in the record, we will consider whether it is in the public interest to award backup authority in this case.

8 By the “remaining” all

- cargo frequencies we mean the as yet unallocated fr equencies that are available now and

those that become available March 2010 that are not allocated to the newly designated carrier as a result of this proceeding. In cumbent carriers should request new or amended certificate authority, as needed, to operat e the frequencies.

9 In the case where frequencies are undersubscribed, we may take separate action with respect to frequency awards to incumbent carriers and may do so by final Department action.

10 See note 3, above.

11 We note that the limitations on sc heduled all

- cargo carrier designations and frequencies will be removed effective March 25, 2011

. 12 We have decided to issue both exemption authority and certificate authority in this proceeding since the designation and frequencies are available within the next two months. This would allow the selected carrier to begin taking advantage of the March 2010 rights under exemption authority until the effective date of the certificate authority.

13 See 14 CFR § 399.1 8 and 14 CFR § 399.120.4 The agreement

, in general

, provides for all

- cargo services from any point or points in the United

States , either nonstop or via any intermediate points

, to any point or points in China and beyond to any points. However, in this proceeding, the use of the available frequenc ies is limited to

China Zone 1 and China Zone 2. 14

PROCEDURES AND EVIDENCE

Procedures and Evidence

We have decided to use written, non

- oral, show

- cause procedures under Rule 210 of our regulations (14 CFR 302.210) in deciding this case. We believe tha t such procedures are appropriate to establish an evidentiary record and make a selection with the least possible delay and without unnecessary costs to the applicants. W e will also not requir e a traffic forecast from the applicants

.

Appended to this or der is an evidence request for the benefit of the parties to this case

. We emphasize that the evidence request includes specific instructions regarding the type and format

of the information to be submitted. We view adherence to these directives as criti cal to our consideration of the proposals in carrier selection cases. We put applicants in this case on notice that we expect full compliance with the evidence request appended to this order. Any carrier not in full compliance in any material respect wit h our request will be subject to elimination from

consideration for an award in this case. In addition to the material requested, applicants and any other parties may submit any additional information they believe will be useful to us in reaching

a decisi on.

Consistent with our standard practice, the frequencies allocated in this proceeding will be for an indefinite term, provided the carrier continues to hold the underlying economic authority to serve the market. The awarded frequencies will also be s ubject to a start

- up condition and our standard

90

- day dormancy condition. For any frequency not used for a period of 90 days (once inaugurated and for any reason other than seasonal use), the allocation as to that frequency will expire automatically and t he unused frequency will revert to the Department for reallocation. 15

Procedural Timetable

The Agreement provides valuable new rights for U.S. carriers to serve China effective March 25, 20 10 . We believe that it is in the public interest to select car riers on a timetable that will allow the selected carriers to enjo y the maximum benefit of these rights as soon as they become available. To this end, we are establishing the following procedural schedule for

submissions:

Petition s for Reconsideration: February 10 , 2010

Answers to Petitions: February 1 2 , 2010

14 See note 2, supra

. 15 We remind applicants that the frequency to be awarded is for weekly operations. A scheduled carrier may not bank frequencies from one week to another. Failure to use the subject frequency on a weekly basis will result in the

forfeiture of the unused f requency for that particular week.5 Amendments and/or supplements to already

filed applications and incumbent carrier applications for additional frequencies : February 22 , 2010

A nswers: March 3 , 2010 Replies : March 10 , 2010

All dates are delivery dates and all submissions must be filed in the docket assigned to th is proceeding. An original and five copies of all submissions are t o be received at the Department of Transportation, Dockets, no later than the dates indicated. 16 Because of security screening procedures of all incoming mail to the Department, parties are encouraged to electronically

submit documents to Dockets via the F ederal eRulemaking Porta l in order to guarantee receipt of the pleadings in the necessary time limits. 17 http://www.regulations .gov Electronic submissions can be completed by following the instructions at the website:

.

Additionally, service by facsimile or electronic mail is authorized. Parties should include their fax numbers and email addresses on their submissions and should indicate the method(s) of

service used on their certificates of service.

ACCORDING LY,

1. We institute the 20 10 U.S.

- China All

- Cargo Designation a nd Frequency Allocation Proceeding in Docket DOT

- OST

- 20 10

- 0017 , to be decided by non

- oral, show

- cause procedures under Rule 210 of our regulations (14 CFR 302.210);

2 . The proceeding will c onsider the following issues:

(a) Which carrier should be selected for the available designation and how many frequencies

should it be allocated to provide scheduled all

- cargo service to points in China Zone 1 or

China Zone 2 ;

(b) How should the remaining availa ble all

- cargo frequencies be allocated ; and 18

(c) What terms, conditions, and limitations, if any, should be placed on the frequencies awarded in this proceeding.

3

. P etitions for reconsideration of this order shall be filed no later than 3 days from the da te of service of this order; answers to petitions shall be due no later than 2 days thereafter;

4 . Applications and evidentiary material should be filed in accordance with the procedural schedule set forth in this order;

16 The original filing should be on 81⁄2" x 11" white paper using dark ink (not green) and be unbound without tabs, which will expedite use of our docket imaging system.

17 You should also provide courtesy e

- mail copies of your submissions to the U.S. Air Carrier Licensing Division at: esta.rosenberg@dot.gov and thuy.cooper@dot.gov

. 18 See note 3, supra

.6 5. We grant the various motions , as referenced in this order; and

6 . We will serve this order on all U.S. certificated air carriers operating large aircraft , the National Air Carrier Association, the Air Transport Association, the U.S. Department of State (Office of Aviation Negotiati ons), the Federal Aviation Administration (AFS

- 200), and the Ambassador of the People ’ s Republic of China in Washington, DC.

By:

Susan L. Kurland Assistant Secretary for Aviation

and International Affairs

(SEAL)

An electronic version of this documen t is available on the World Wide Web at: http://www.regulations.govA PPENDIX

EVIDENCE REQUEST

I. Procedures and Ground Rules

In the interest of a complete and adequate record, the parties should provide th e following information. In responding to this evidence request, all parties are advised to heed the admonitions and notice regarding compliance contained in the attached order.

II. Request for Information and Evidence

Submit, at a minimum, the followi ng: 1 2

1. Proposed schedules and startup dates for each route segment, with complete routings for origin and destination of all flights (including any linear routing proposals). Indicate the equipment types for each route segment (or linear routing), and in clude all payload capacities

for each aircraft in U.S. pounds

. 3 Indicate whether the proposed U.S.

- China services will be offered on a roundtrip or one

- way basis. For all of the proposed services, indicate any variation of frequencies/routings by traffi c season, if applicable. If not applicable, so indicate. If carriers will utilize change of gauge in equipment in their operations, indicate where and specify all information, as required below, for all aircraft. If change of gauge is not part of the

ca rrier’s proposed schedule, so indicate;

2. Indicate the percentage of express/small package and general air freight expected to be carried. If mail is expected to be carried, this should also be shown separately ;

3. Specify capacity for all aircraft proposed for operations in the U.S.

- China all

- cargo market in this proceeding and clearly indicate how much of that capacity will be dedicated for (a) U.S.

- China traffic for each flight , (b) third country

- China traffic for each flight, and (c) third
country

- third c ountry traffic ;

4. Indicate whether the aircraft to be used in the proposed schedules are (a) on hand or (b) on order. If on hand, indicate where, and the extent to which, those aircraft are currently being used by the applicant. If on order by purchase or lease, indicate when they will be delivered

and how the aircraft will be financed. Indicate whether the aircraft to be used comply with

1 The original filing should b e on 81⁄2" x 11" white paper using dark ink (not green) and be unbound without tabs, which will expedite use of our docket imaging system. In the alternative, parties are encouraged to use the electronic submission capability available through the Federal e Rulemaking Portal ( http://www.regulations.gov ) and follow the online instructions for filing submissions. Additionally, service by facsimile or electronic mail is authorized. Parties

should include their fax nu mbers and email addresses on their submissions and should indicate the method(s) of

service used on their certificates of service.

2 Incumbent all

- cargo carriers seeking additional frequencies are required to answer item number 11 only.

3 The carriers mus t specify the actual equipment type, including payload capacity in U.S. pounds

, for each proposed route segment . Please note that, if an unspecified mix of equipment is proposed for the subject services, rather than specific equipment per route, we may el ect to evaluate the proposal based on the smallest aircraft presented, and make our decision accordingly.2 FAR

- 36. If not, indicate specific plans for achieving compliance. Also, indicate whether the acquisition of needed aircraft has an impact on the specified schedules above ;

5. Estimated number of gallons of fuel to be consumed by aircraft type in the first year of operation as a result of the proposed service, and indicate the availability and method of obtaining the ne cessary fuel;

6. A brief description of the types and frequency of service s the applicant currently provides, if any, between the United States and China ;

7. A statement describing the benefits of the carrier’s proposed service to the public interest;

8. Indic ate whether the carrier will accept a partial grant of its frequency allocation application, how such allocation would be used, and the startup date for such services if different from above. Also, state whether there is a minimum number of frequencies th at the carrier will
accept ;

9. Specify whether the applicant’s service will be operated in conjunction with any cooperative arrangement ( e.g. , wet lease, code share) with any other U.S. air carrier and/or any foreign carrier. If such services will be operat ed, provide a detailed description regarding such operations, as well as a copy of the cooperative agreement, if not already filed with the Department ;

10. Indicate whether, if the applicant is not selected for the primary award, the applicant would
accept a backup award. I f the carrier is selected for backup authority, will it accept a condition that (i) permits it to implement the authority within the first year should the primary carrier withdraw from the market, and (ii) the authority expires at the end o f one year should the authority not be activated;

11. Specify how many frequencies the carrier is seeking and how the frequencies will be used

. For all of the proposed services, indicate any variation of frequencies/routings by traffic season, if applicable . If not applicable, so indicate. 4

Applicants are also free to submit any additional relevant information that they believe will help us in making our decision.

4 We may address any such requests for frequencies from incumbent carriers separately and by final Department

action.