Order 201 4

- 1

- 13

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 17 th day of January , 20 1 4

Served: January 17

, 20 1 4

Application of

JAT AIRWAYS A.D. BELGRADE Docket DOT

- OST

- 20 1 3

- 0177

for an exemption under 49 U.S.C. §40109

ORDER DISMISSING APPLICATION

Summary

By this order we dismiss the request of Jat Airways a.d. Belgrade ( JAT ), a foreign air carrier of Serbia , for an exemption under 49 U.S.C. § 40109 to permit it to conduct certain U.S. services

.

Application

By application filed September 19 , 201 3

, JAT requests an exemption under 49 U.S.C. § 40109 to the extent necessary to permit it to hold out service to the United States by placing its designator code on flights operated by JAT’s current or future commercial partners, which hold the appropriate authority to operate service to the United States, or through authorized lease arrangements. JAT states that it has immediate plans to offer code

- share service to the United States on flights operated by Etihad Airways P.J.S.C. (Etihad)

. 1 2 JAT states that it is a Serbian carrier and that, although the United States and Serbia do not currently have a bilateral air service agreement in place, the principles of comity and reciprocity warrant approval of JAT’s requested authority

.

1 See Application of Etihad in Docket DOT

- OST

- 2013

- 0178, for a statement of authorization under 14 C.F.R. Part 212 to display the “JU” designator code of JAT on flights operated by Etihad to the United States. Etihad states that it will initially display the “JU” code on Etihad flights that connect with JAT’s services to Belgrade between Abu Dhabi, on the one hand, and New York (JFK), Chicago, and Washington, DC, on the other hand.

2 Subsequent to JAT’s application for an exemption, Air Berlin PLC & Co. Luftverkehrs KG (Air Berlin) filed an application in

Docket DOT

- OST

- 2013

- 0183, for a statement of authorization under 14 C.F.R. Part 212 to display the “JU” designator code of

JAT on certain Air Berlin transatlantic flights between Germany and the United States. Air Berlin states that it will initially display the “JU” code between Dusseldorf and New York (JFK); and between Berlin, on the one hand, and New York (JFK) and Chicago, o n the other hand.In its application, JAT states that it is a joint stock company owned by the Serbian Government, but notes that it is in negotiations with Etihad, a foreign carrier of the United Arab Emirates that has proposed to purchase a 49% stake in JAT. JAT further states that its 10

- member Board of Directors consists of all

Serbian citizen s, with one member, the President, holding dual Serbian/Australian citizenship. JAT asserts that if the purchase deal with Etihad is finalized, JAT will remain substantially owned and effectively controlled by Serbian citizens.

Responsive Pleadings

Air lines for America (A4A), t he Air Line Pilots Association (ALPA), and Delta Air Lines, Inc. (Delta) each filed answers in opposition to the application of JAT. 3 JAT and Etihad each filed a reply to the objecting parties. 4 Delta filed a surreply, to which JAT and Etihad both filed responses. 5 The positions of the parties are summarized below.

A4A notes that the United States and Serbia do not have an aviation agreement, and argues that grant of the

extrabilateral authori ty being sought by JAT is not in the public interest. A4A asserts that JAT’s service proposal to provide code

- share service on Etihad flights over a Belgrade

- Abu Dhabi

- U.S. routing involves approximately 4,700 miles of unnecessary circuity, and would prov ide no public benefit. A4A further claims that, in addition to the proposed purchase by Etihad, JAT also stands to receive substantial state aid

from the Government of Serbia , which would distort competition in the aviation system and depriv e consumers of the benefits of fair competition

. A4A also contends that a critical decisional consideration in

this case should be that Etihad’s outright management of JAT /Air Serbia combined with its ownership interest demonstrates, or at a minimum strongly suggests, that Etihad will effectively control JAT/Air

Serbia

.

ALPA states that there is no air transport agreement in place between the United States and Serbia, and

that , if there were, it would almost certainly include a clause requiring that substantial ownersh ip and

effective control of JAT be vested in Serbia or Serbian nationals. ALPA also notes the pending sale of 49% of JAT to Etihad, and cites press reports indicating that

, as part of this investment, Etihad would be extensively involved in JAT’s management. 6 ALPA argues that effective control of JAT would then lie with Etihad, not Serbia or Serbian nationals.

Among other concerns, Delta’s objection takes issue with the absence of a bilateral air services agreement

between th e United States and Serbia , and argues that JAT and Etihad have mischaracterized Etihad’s ownership and effective control of JAT, which Delta claims are significantly more extensive than suggested

on the record and result in de facto effective control of J AT by Etihad

. 7 Delta also argues that the JAT/Etihad state subsidies and a proposed CBP pre

- clearance facility in Abu Dhabi will have harmful

effects on U.S. carriers , re sult ing in competitive deficiencies and m arketplace distortions.

3 Delta filed a consolidated answer to the application of JAT and the application of Etihad, in Docket DOT

- OST

- 2013

- 0178, for

a statement of authorization to code share with JAT.

4 Etihad’s pleading was filed as a consolidated reply, to the answers filed in response to JAT’s application in the instant Doc ket, and to Delta’s answer filed in response to Etihad’s own application in Docket DOT

- OST

- 2012

- 0178.

5 Delta, JAT, and Etihad all accompanied their pleadings with motions for leave to file, which we will grant.

6 Answer of ALPA , at 2

- 3.

7 Consolidated Answer of Delta , at 9

- 10.JAT and Etihad assert that approva l of exemption authority to JAT is in the public interest, and claim that the objections of A4A, ALPA, and Delta are without merit and irrelevant . JAT further asserts t hat its request is not limited to code

- share service over Abu Dhabi, but rather, is for broad exemption authority to

code

- share with any of its commercial partners, including Air Berlin

, which has a pending ap plication before the Department to code

- share with JAT.

JAT acknowledges the lack of an air services agreement bet ween the United States and Serbia, but asserts that the principles of comity and reciprocity require approval of JAT’s application. JAT states that two U.S. carriers currently serve Serbia on a code

- share basis, and that neither of those carriers objected to
JAT’ s application. JAT and Etihad urge the Department to treat Delta’s objections as irrelevant, especially

since Delta serves neither Serbia nor Abu Dhabi.

As for JAT’s ownership and control, JAT and Etihad state that the proposed investment by Etih ad is subject to review by the Serbian civil aviation authorities

, and the carriers assert that the determination of the Serbian government is entitled to considerable deference . JAT notes

, however, that should the Department

not find it to be substantial ly owned and effectively controlled by Serbian citizens, the Department has the ability to waive its ownership and control policy . JAT maintains that ownership and control of JAT will remain with Serbian citizens upon completion of the transaction with Et ihad , but requests a waiver to the extent that the Department deems it necessary. JAT and Etihad assert that there is ample precedent for such

a waiver , particularly in light of the open

- skies agreement in place between the United States and the

U.A.E.

Decision

We have decide d to dismiss JAT’s request for exemption authority

. In determining whether to grant

e xemption authority to a foreign carrier under 49 U.S.C. § 40109, we must find that the authority would be

consistent with the public interest. Based upon the specific circumstances presented in this case , we cannot make that finding.

The United States and Serbia have no bilateral air service agreement obligating the Department to license JAT to provide service to the United States. The Departme nt, therefore, must determine in its discretion whether granting JAT’s request is in the public interest. In seeking to make a public interest determination in the circumstances of this case, we are faced with certain critical elements

, center ing on the issue of JAT’s ownership and control , that are unresolved on the record

. 8 9

T he objecting parties raise specific allegations

-- allegations that appear to be supported by public ly

available statements made by both Etihad and JAT

– indicating that, n otwithstanding Serbian retention of majority ownership in JAT and representation in its organizational structure, Etihad will likely nevertheless wield extensive control over JAT’s day

- to

- day operations

. 10 In the face of these specific, concrete

8 While we recognize that a number of other issues were raised in the pleadings, our analysis at this junct ure has been focused on the ownership and control issue, a well

- established decisional factor in our determination as to whether to award economic authority to a foreign air carrier applicant.

9 We note that JAT asserts that we owe great deference to the o wnership and control decision of its homeland government. While there are indeed cases in which we give particular deference to a foreign government’s decision, these cases involve situations in which we have reached formal agreement with foreign partner countries regarding reciprocal recognition of homeland fitness and citizenship determinations. We have no such agreement with the Government of Serbia.

10 See footnotes 6 and 7 supra, and accompanying text.allegation s that cast serious doubt on its statements regarding its ownership and control, JAT merely responded with generalities and reiterations of earlier assertions that do not adequately refute these allegations

. Without such evidence

, we have no persuasive basis to make an affirmative public interest finding in favor of JAT’s application.

JAT and Etihad assert that

, notwithstanding the ownership and control concerns that have been raised, we could nevertheless proceed to award JAT it s requested authority by grant ing a waiver of our ownership and control policy. T o grant such a waiver, however, we must be able to find that the waiver would not be inimical to U.S. aviation policy or interests. The inadequacy of the record does not all ow us to make findings necessary to determine whether or not the standard for granting a waiver has been met.

T aking into account all of the circumstances presented in this case , we have therefore decided to dismiss the application.

ACCORDINGLY,

1. We dismiss the request of Jat Airways a.d. Belgrade for an exemption under 49 U.S.C. § 40109 ;

2

. We grant all motions for leave to file otherwise unauthorized documents in the captioned docket; and

3. We will serve a copy of this order on Jat Airways a.d. Belgrade ; Etihad Airways P.J.S.C. ; the Air Line Pilots Association; Airlines for America; Delta Air Lines, Inc.; the Embassy of Serbia in Washington, D.C. ; the Department of State, and the Federal Aviation Administration.

By:

SUSAN L. KURLAND

Ass istant Secretary for Aviation

and International Affairs

(SEAL)

Appendix

An electronic version of this document is available on the World Wide Web at: http://www.regulations.gov