BEFORE THE

DEPARTMENT OF TRANSPORTATION

WASHINGTON, DC

--------------------------------------------------------------

In the matter of :

:

APPLICATION OF :

JAT AIRWAYS A.D. BELGRADE :

: Docket DOT-OST-2013-0177

FOR AN EXEMPTION PURSUANT TO :

49 U.S.C. § 40109 :

:

--------------------------------------------------------------

ANSWER OF AIRLINES FOR AMERICA

Communications with respect to this document should be sent to:

David A. Berg

James L. Casey

AIRLINES FOR AMERICA

1301 Pennsylvania Avenue, NW

Washington, DC 20001

202-626-4234 Phone

202-626-4139 Fax

dberg@airlines.org

Attorneys for Airlines for America

Dated: October 4, 2013
BEFORE THE

DEPARTMENT OF TRANSPORTATION

WASHINGTON, DC

--------------------------------------------------------------

In the matter of :

:

APPLICATION OF :

JAT AIRWAYS A.D. BELGRADE :

: Docket DOT-OST-2013-0177

FOR AN EXEMPTION PURSUANT TO :

49 U.S.C. § 40109 :

:

-------------------------------------------------------------- ANSWER OF AIRLINES FOR AMERICA

Airlines for America submits this answer to the application of JAT Airways A.D. Belgrade

(“JAT”) for an exemption pursuant to 49 U.S.C. § 40109 (the “Application”) to provide scheduled

foreign air transportation of persons, property and mail between Serbia and the U.S. on a code- share basis with Etihad Airways P.J.S.C. (“Etihad”). JAT and Etihad propose to display the JAT

“JU*” airline designator code on flights that Etihad operates to the United States, initially from

Abu Dhabi to New York (JFK), Chicago (ORD) and Washington DC (IAD), connecting with

JAT’s services to Belgrade, Serbia. Application at 1, ¶ 1.1

We oppose the Application. Because the service proposal can fairly be described as

bizarre, at best, and JAT reportedly is receiving substantial state aid, the public interest does not

support granting it. Furthermore, the Application and information in the public domain indicate

that JAT, rebranded as Air Serbia, is (or soon will be) under the effective control of a non- Serbian citizen. For these reasons, the Application should be denied.

1 Etihad has submitted a parallel application for a statement of authorization pursuant to 14 C.F.R. Part

212 to engage in the proposed codesharing services with JAT. Docket DOT-OST-0178, September 19,

2013.
2

Discussion

The Application acknowledges that no economic authority exists between the Republic

of Serbia and the United States to engage in the proposed codeshare operation. Application at

¶ 3. JAT further acknowledges that the “Republic of Serbia is currently rated as ‘Category 2’

under the Federal Aviation Administration’s International Safety Assessment (IASA) program.” Application at 2, ¶ 2. Furthermore, JAT does not claim a lack of air service between Serbia and

the United States or that the proposed service would enhance competition in the Serbia-U.S.

market. Indeed, both JAT and Etihad note existing service in the market. JAT application at 2, n.

2; Etihad application at 2, n. 3. Not mentioned in JAT’s application but strikingly remarkable and significant here is the

fact that the application proposes grant of code-share authority for itineraries that would require

approximately 4700 additional, unnecessary statute miles on a backhaul routing.2 That would

mean at least ten more hours in the air for a passenger using the proposed service and

unknown amount of time on the ground at Abu Dhabi. Thus, the proposed service is highly

inefficient and, as a practical matter, provides no public benefit.

The Associated Press reported on August 2nd that JAT on October 1st would cease

operations and be rebranded as Air Serbia.

http://www.usatoday.com/story/todayinthesky/2013/08/02/air-serbia-to-launch-with-help-of- partner-etihad-airways/2611497/.3 That article also stated that Etihad will have a 49 percent

stake in the new airline and the Government of Serbia will have a 51 percent stake in it. JAT

also reportedly has received, or is about to receive, substantial state aid from the Serbian

2 The Belgrade – Abu Dhabi segment is 2359 statute miles. That mileage must then be doubled to

approximately 4700 statute miles for the entire Belgrade – U.S. service, taking into account the Abu

Dhabi – U.S. segment. 3 See also Etihad Airways’ August 1, 2013 press release: “Etihad Airways and Government of Serbia

unveil strategic partnership to secure future of Serbian national airline.”

http://www.etihadmediacentre.com/file.php?f_ID=4297.
3

government. The AP reported that

Officials said Etihad and Serbia will immediately invest $40 million each into the

new company. A further $60 million each will be provided in the future. The new

company will be managed by Etihad in the next five years. Id.

In addition to Serbia’s cash infusion, it has also been reported that the Serbian government is

writing off JAT debt to give Air Serbia a fresh start.4 DOT recognizes that such financial aid by

governments to their national airlines distorts competition and deprives the aviation system and

consumers of the benefits of fair competition. U.S. International Aviation Policy Statement,

November 1, 1994, at 9.

Significantly, the JAT application does not explain the effect of the change in ownership

and management agreement on the requested operating authority. The effect, however, is a

critical decisional consideration. Etihad’s outright management of Air Serbia combined with its

ownership interest demonstrates, or at a minimum strongly suggests, that Etihad will effectively

control JAT/Air Serbia. The CAPA Centre for Aviation (“CAPA”), following a presentation in August by Etihad

CEO James Hogan, noted the following about the effect of Etihad’s management of Air Serbia:

“Under the partnership Etihad Airways will take over Air Serbia’s administration, revenue

management and training (which will move to Abu Dhabi).” 5 CAPA also noted after finalizing

the Etihad investment, Air Serbia announced that three of its 12 planned new routes would be to

Abu Dhabi, Beirut and Cairo.6 The Air Serbia management arrangement closely follows the

model Etihad established with its five-year management of Air Seychelles. With respect to that

agreement, CAPA reports that Air Seychelles has personnel in Etihad’s offices.7

4

“Air Serbia’s upcoming expansion under Etihad to see creation of Eastern European hub,” September 9,

2013, found at http://centreforaviation.com/analysis/air-serbias-upcoming-expansion-under-etihad-to-see- creation-of-eastern-european-hub-127314

5

Id.

6

Id. 7

“Etihad reports another 6 months’ record double-digit growth; 20% of revenues from partnerships,” July

9, 2013, found at http://centreforaviation.com/analysis/etihad-reports-another-6-months-record-double- digit-growth-20-of-revenues-from-partnerships-117863
4

The Department employs a “totality of circumstances” test to determine control. Order

2006-12-23 (December 27, 2006). Based on the facts and circumstances discussed above, the

Department must resolve the question whether Serbian nationals control (or will control) Air

Serbia and, if the answer is no – which we think is the correct answer, decide whether it is in the

public interest to grant a waiver from normal ownership and control requirements. If the U.S.

had an air transport agreement with Serbia, it would include the standard provision in the model

air transport agreement. That provision would require that “substantial ownership and effective

control” of Air Serbia to be vested in Serbia and/or nationals of Serbia. Air Transport Agreement

Model Text, Article 3, January 12, 2012, found at

http://www.state.gov/e/eb/rls/othr/ata/114866.htm. JAT/Air Serbia should not be permitted to

escape this standard requirement simply because the U.S. and Serbia do not yet have an air

transport agreement in place.

Conclusion

JAT’s Application is unusual, lacking in facts and requires extraordinary scrutiny. It

seeks extra-bilateral authority that current circumstances do not justify. There is existing service

in the Serbia-United States market and the proposed codeshare service is plainly not in the

public interest because of its extraordinary circuitry and the substantial state aid JAT/Air Serbia

has received (or is receiving). Finally, it is apparent from the announced change in the

ownership and structure of JAT and public statements by Etihad’s CEO that effective control lies

with Etihad. For all of these reasons, the Application should be denied. Alternatively, the
5

Department should delay action until it conducts a thorough investigation of the ownership and

control of JAT/Air Serbia.

Respectfully submitted,

AIRLINES FOR AMERICA

____________________________________ David A. Berg

Senior Vice President & General Counsel

James L. Casey

Vice President & Deputy General Counsel

1301 Pennsylvania Avenue, NW

Washington, DC 20004

Ph. 202-626-4234

Fax 202-626-4139

dberg@airlines.org
6

CERTIFICATE OF SERVICE

I hereby certify that I have this date served the foregoing application on the persons identified

below by causing a copy to be sent by electronic mail.

anita.mosner@hklaw.com

robert.wirick@aa.com

francis.heil@aa.com

sascha.vanderbellen@delta.com

anbird@fedex.com

sllunsford@fedex.com

dan.weiss@united.com

howard.kass@usairways.com

rsilverberg@sgbdc.com

jjohnson@sgbdc.com

tom.fosko@airtransport.com

jcanny@amerijet.com

jrichardson@johnlrichardson.com

rpommer@atlasair.com

john.palo@evergreenairlines.com

charters@evergreenairlines.com

matwood@cozen.com

mlbenge@zsrlaw.com

kevin.montgomery@polaraircargo.com

peter.beckett@polaraircargo.com

john.allen@faa.gov

uskrs@state.gov

_____________________________________ David A. Berg

October 4, 2013