### f=W;10TiM;M DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

Request of Silk Way West Airlines Docket OST 2014-0111 to amend issued exemption authority and pending application for a foreign air carrier permit, and motion to expedite processing(Baku-Hong Kong-Chicago-New YorkLuxembourg-Baku)

SURREPLY OF KALITTA AIR, LLC

TO REPLY OF SILK WAY WEST AIRLINES AND MOTION FOR LEAVE TO FILE

Communications with respect to this document should be addressed to:

Mark W. Atwood Cozen O'Connor The Army & Navy Club Bldg, 1627 1 Street, N.W. Washington, DC 20006 (202) 463-2513 matwood(acozen.com 

### Counsel for Kalitta Air, LLC

November 12, 2014

### BEFORE THE DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

Request of )

) 

### Silk Way West Airlines ) ) Docket OST 2014-0111 to amend issued exemption authority and ) pending application for a foreign air carrier ) permit, and motion to expedite processing ) (Baku-Hong Kong-Chicago-New York- ) Luxembourg-Baku) )

) 

### SURREPLY OF KALITTA AIR, LLC TO REPLY OF SILK WAY WEST AIRLINES AND MOTION FOR LEAVE TO FILE On November 5, 2014, Silk Way West Airlines ("Silk Way") replied to the Answers submitted by Kalitta Air, National Airlines and the National Air Carrier Association, in which those entities expressed opposition to Silk Way's request for authority to operate its Baku-New York/Chicago flights by way of Hong Kong and Luxembourg, with traffic rights. Because there is no effective bilateral air transport services agreement between the United States and Azerbaijan, the state of comity and reciprocity between those nations is the key factor to be considered. Kalitta Air now responds to the assertions contained in Silk Way's reply, as they pertain to the arguments Kalitta has raised.'

' Kalitta moves that the Department accept this filing as an otherwise unauthorized document pursuant to Rule 302.6(c) of the Department's Rules of Procedure. The applicant has made significant statements of fact and law that must be addressed on the record if the Department is to make a thorough examination of the issues before it. Kalitta submits that no party would be prejudiced by acceptance of this Surreply.The essence of Kalitta's answer was that Silk Way, its affiliates in the Silk Way

Group, and the Government of Azerbaijan have created a system in place at the Baku Airport under which a U.S. air carrier can only compete for charters if it has a contract, directly or indirectly, with Silk Way. If not, the "cargo handling charge" and fuel prices are inordinately high and blatantly discriminatory. The result is that Azerbaijan does not offer comity and reciprocity in any commercially meaningful sense. Silk Way's defense against Kalitta's contentions is that the extreme difference in handling fees and fuel prices is nothing more than the ordinary differential experienced by "signatory" versus "non-signatory" carriers at airports throughout the United States. These differences are not, according to Silk Way, "unreasonably" discriminatory, because under the Federal Aviation Administration "Policy Regarding Airport Rates and Charges," 2 it is permissible to assess different rates on the basis of "reasonable distinctions among aeronautical users...." 3 Silk Way's argument, however, totally ignores the vast discrepancy between the rates charged for those flights in which Silk Way has a stake, and those in which it does not. To reiterate the facts stated in Kalitta's answer: when Kalitta operates a charter at Baku under a contract to DHL, which is under contract with Silk Way, it pays no "cargo handling charge." When it operates flights outside this contract, it must pay to Baku Cargo Terminal -- part of the Silk Way Group -- EUR 0.50 (US$0.64) per kilogram, which, for a full 747 load, works out to $64,000. Just for "handling." At other airports in the world, this charge would range between $5,000 and $15,000. 

### This is a difference of $49,000 - $59,000

. ' 78 Fed. Reg. 175, September 10, 2013, at 5530 et seq. Id, at 55335, § 3.1.1.

2While Silk Way relies on the FAA policy to justify differential treatment, what is

left unsaid is that the whole policy statement is based on the premise (which is repeated throughout) that fees must be reasonably based on costs . The Policy states: Fees imposed on international operations must also comply with the international obligations of the United States, which include the requirements that the fees be just, reasonable, not unjustly discriminatory, equitably apportioned among categories of users, no less favorable to foreign airlines than to U.S. airlines, and not in excess of the full cost to the competent charging authorities of providing the facilities and services efficiently and economically at the airport or within the airport system. 4 It is frankly inconceivable that Baku Cargo Terminal could attribute the spectacularly high "handling fee" charged of non-Silk Way contractors to the actual costs of providing services. Nor could it be said to be equitably apportioned among categories of users, or reasonable, or non-discriminatory in favor of the national airline. Since Silk Way has invited comparisons between the charges at Baku and charges at U.S. airports, the Department should take them up on this invitation. Here are the facts: According to the official ICAO publication "Tariffs for Airports and Air Navigation Services," 5 the difference in landing charges for major U.S. international airports, based on an 870,000-pound B747BCF, are as follows: Airport Si n q atory Non-Signatory Difference
ORD $2,879 $3,601 20%
DFW 3,801 4,376 13%
` Id., at 55332, D.6. See a/so 55332 "Principles Applicable to Airport Rates and Charges, par. D.2; 55333, "Fair and Reasonab/e Fees, " par. 2 and 2.1; and 55335, Prohibition on Unjust Discrimination, par. 3.3. This principle is incorporated into aviation bilaterals as well.

5 ICAO Doc. 7100 (2010). Not all airports make a clear distinction between signatory and nonsignatory users, and thus are not included in this summary. However, a review of the full spectrum of charges (including parking, ramp, terminal, loading and remote area charges) shows that in most cases, no distinction amongst users is made, and where it is, the differential is similar to the proportions shown here.

3DTW 2,923 3,497 20%

LAX 3,349 4,184 20%
PHL 1,992 2,288 13% IAD 2,958 4,611 36% The ICAO publication does not cite the rates at JFK on a per-pound basis, but Kalitta, which is a signatory with a high volume of operations at JFK, is aware that the currentlanding fee for a fully loaded 747 is $3175 for a signatory, versus $4510 for a nonsignatory, a difference of $1335, or 29%, per flight. It should be noted that the comparison above is for landing charges, not cargo handling charges; the reason is that handling charges are not set by the airport itself (at least in the United States), but are subject to contract with the private entities that operate ground handling services. Thus, the FAA policy is not applicable to them, and there is no official publication to provide a basis for comparison. The parallel, however, is still valid, in that Silk Way has used this as the basis for justifying the cost differential at Baku; further, as Kalitta has said, the cost differential between the carriers under contract to Silk Way and those that are not is grossly out of line with the difference in landing charges at U.S. airports, and with handling fees at other airports. Only one conclusion can be drawn from the facts adduced by Kalitta, and from Silk Way's assertions in response: the "handling fee" is a thinly disguised royalty adopted to deter foreign airlines from operating to Baku unless they are in partnership with the national cargo airline. Similarly, the difference in fuel prices for revenue cargo flights operated under contract with Silk Way versus those that are not is grossly out of line with the differential

4for signatory versus non-signatory carriers. Kalitta's very considerable experience

indicates that the differential typically is approximately 2-5 cents per gallon. At Baku, the difference is 

### 84 cents . For a load of fuel required by a widebody aircraft, this creates a price penalty that renders a flight totally non-competitive. And, as stated in Kalitta's Answer, the fuel may only be purchase from one of two members of the Silk Way Group: the airline itself, or the Baku Cargo Terminal. Silk Way asserts that Kalitta and other U.S. carriers have benefitted from Fifth Freedom rights granted by Azerbaijan — what it presumes to call "de facto open skies." This, however, is a considerable overstatement. During the past 12 months, Kalitta has operated 130 Fifth Freedom flights between Baku and Afghanistan carrying cargo from the U.S. Department of Defense. 

### AII but one of these were operated in conjunction with Silk Way, and were exempt from the extortionate "handling charge" and fuel prices. 6 Silk Way itself, therefore, was a substantial beneficiary of these Fifth Freedom flights on behalf of the U.S. Government. The promise of Fifth Freedom rights for operations outside this system, however, is an empty one, as the high costs at Baku are an effective barrier to competition. Thus, while Silk Way may seek to be rewarded for its government's "de facto open skies" policy, the facts show that this policy is anything but. Once again, on the subject of comity and reciprocity, Silk Way has averred that "a formal letter" from the State CAA attesting to its policy of comity and reciprocity "is currently being transmitted to the Department." The carrier made the same statement

I The one non-Silk Way Fifth Freedom flight Kalitta has operated was flown on behalf of National Airlines, and Kalitta is aware that National paid a handling fee of 

### 90 cents per kilogram. Kalitta operated one Fourth Freedom flight between the U.S. and Baku on its own, for which the 64 cent charge was applied. When the carrier has inquired of authorities in Baku with respect to other prospective flights, the same rate was quoted to them. This has prevented Kalitta from operating such flights.

5when it filed its application on October 8. The letter, however, still has not appeared in

the docket as of this date. Kalitta wishes to make two minor points in closing: (1) The carrier is baffled by why Silk Way would wish to bring individual personalities into this argument, referring to Mr. Ned Wallace and his "longstanding commercial contacts in Hong Kong..." (Consolidated Reply at 6). Mr. Wallace is not even an employee of Kalitta, and in any event, this statement is inappropriate and irrelevant. (2) Kalitta finds gratuitous and insulting the innuendo that it is "another failing US carrier...." 

### (Id. at 8.) Kalitta in fact has operated profitably for the past 14 years, and is continuing to do so. For all these reasons, Kalitta Air requests that the Department deny Silk Way's request for expanded exemption and permit authority. Respectfully submitted,

(,• - Mark W. Atwood 

### Cozen O'Connor The Army & 

### Navy Club Bldg. 1627 1 Street, N.W. Washington, DC 20006 (202) 463-2513 

### matwoodCa7cozen.com Counsel for 

### Kalitta Air, LLC

Dated: November 12, 2014

I

## CERTIFICATE OF SERVICE

I hereby certify that I have this 12 th 

## day of November, 2014, caused this Surreply of Kalitta Air, LLC to be served upon each person listed below via e-mail ,

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