BEFORE THE DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C. Request of Silk Way West Airlines 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) ) ) ) ) ) ) ) ) ) Docket OST 2014-0111

SURREPLY OF KALITTA AIR, LLC TO RESPONSE OF SILK WAY WEST AIRLINES AND MOTION FOR LEAVE TO FILE Communications with respect to this document should be addressed to:

December 22, 2014 Mark W. Atwood Cozen O'Connor The Army 

### & Navy Club Bldg . 1627 I Street, N.W. Washington, DC 20006 (202) 463-2513 matwood@cozen.com Counsel for

Kalitta Air, LLCRequest of BEFORE THE DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASH INGTON, D.C. Silk Way West Airlines 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) Docket OST 2014-0111

SURREPLY OF KALITTA AIR, LLC TO RESPONSE OF SILK WAY WEST AIRLINES AND MOTION FOR LEAVE TO FILE 1 On December 1 , 2014, Silk Way West Airlines ("Silk Way") filed a response to the surreply filed November 12 by Kalitta . In the interest of avoiding further burdening the record (and Department staff) , Kalitta will endeavor to be brief in its rejoinder to Silk Way's assertions . 1. The real point of contention in this lengthy exchange of pleadings still remains clear, despite Silk Way's rhetoric: the "cargo handling fee" charged to U .S. carriers for ad hoc operations over Baku, outside the established contracts in which Silk Way is a participant, is grossly out of proportion to the very reasonable rate charged under those contracts. This makes independent ad hoc charters completely non-competitive. Silk Way's attempts to minimize the significance of this difference only serve to amplify it.

1 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.2. Silk Way chides Kalitta for comparing the Baku cargo handling fee with landing fees at va rious U.S. airports , saying that Kalitta is trying to mislead the Department with an inappropriate comparison . However, it was Silk Way that made this comparison in its November 5 filing . It said that the extreme discrepancy in handling fees at Baku are nothing more than the ordinary difference in landing fees experienced by "signator y" versus "non-signatory" carriers in the United States. 2 Kal itta's response showed that this argument is specious .3 In fact, however, the comparison is not irrelevant. While "signatory" carriers naturally enjoy lower landing fees than do transient carriers , the difference is not dramatic, whereas the discrepancy in cargo handling fees at Baku is more than six-fold . While Silk Way emphasizes that the EUR 0.50 (US$0 .64) pe r kg . handling rate is "a published fee, but is subject to negotiation based upon airport use ," this is of no relevance to a U .S. carrier that wishes to operate occasional charters at Baku , outside of an arrangement with Silk Way. The examples Silk Way gives of carriers that enjoy preferred rates are all scheduled carriers that operate more than daily service at the airport- hardly a meaningful comparison. 4 Silk Way also claims that though Kalitta was charged the published 64-cent rate for its partial cargo load on a flight operated in April , had it operated with a full 100 ,000 kg . load , this rate "would have been discounted 50% off of the published rates, had [Kalitta] simply requested it. " Kalitta has no reason to accept this claim apart from Silk Way's say-so ; the lower rates cited by the carrier all pertain to frequency of operation , not the size of the load. In fact , BCT quoted Kalitta

" November 5, 2014 Consolidated Reply of Silk Way West Airlines , at 7-8 . 3 November 12, 2014 Surreply of Kalitta Air, LLC , at 3-4 . 4 Silk Way notes in particular the $0 .08 rate given to Cargolux. However, Kalitta understands that there is a business relationship between Silk Way and Cargolux that makes Cargolux's experience a poor example. 2only the published rate, did not indicate that any discount was available , and never even asked how large the planned load was . And in any event, a volume discount does nothing to make partial planeload charters competitive. Kal itta fully understands that airports offer better rates on a variety of charges for carriers that are regular users. That "volume discount," however, is not what is represented by the royalty charged by the Baku Cargo Terminal. 3. Silk Way takes great exception to the fact that Kalitta complained that it was charged a 64-cent rate for its own ad hoc flights , but pays nothing when it flies on behalf of DHL/Silk Way. In fact , Silk Way notes, a 10 cent per kilo charge is included in the cost that is paid by the U.S. Transportation Command for these flights . Silk Way is correct - though Kalitta does not itself pay the charge. But this simply, once again, points up the gross difference between the handling charge paid by Silk Way and carriers under contract with it, as compared with that assessed of those who try to compete directly with Silk Way. The 10-cent rate referred to by Silk Way is very much in line with what is charged at airports throughout the world . In Kalitta's experience (which is quite broad) , these rates run from $0 .05 to $0 . 15 per kilogram. The carrier has never encountered, other than at Baku, a rate exceeding $0 .20 per kg . 4. With respect to fuel prices , Kalitta has consistently been quoted $3.74 per gallon for flights which it has sought to operate outside the DHL contract. It was able to obtain the "special" $2.90 rate for the April flight because it persuaded DHL to purchase the fuel for it; it could not have obtained this rate on its own . The special prices allowed to carriers who do business with Silk Way or that have a very high scheduled utilization

3of the airport are of no use to an ad hoc operator - unless they can manage to obtain a special favor from one of these carriers . 5. However Silk Way may try to make it appear so , Baku is simply not a competitive environment for U.S . air carriers wishing to provide their own services. The

"simple fact that, by its own statement, Kalitta operated as many as 130 (ONE HUNDRED AND THIRTY) [sic] fifth freedom flights in and out of Baku in the past 12 months" proves nothing about the competitiveness of the environment. As Kalitta has said repeatedly, these flights were operated under the APL!Silk Way/DHL arrangement, and thus have no bearing on how other flights are treated. Though there is certainly business to be had in and out of Baku , Kalitta cannot compete for it because the high handling fees and fuel charges (it cannot always depend on DHL for special favors on fuel) make its flights too expensive. Kalitta's interest in engaging in this exchange of pleadings is, hopefully, to create a more fair and competitive environment at Baku than what currently exists . Protecting its Hong Kong service from outside competition is not Kalitta's motivation. In fact , Kalitta has no service to Hong Kong at present - all scheduled service at HKG was moved to Shanghai as of April of this year. But Hong Kong nonetheless remains an important but limited-access cargo point for U.S. carriers. Silk Way has presented

4no convincing reasons why the Department should reverse its earlier decision to deny fifth freedom rights to the carrier when it is the beneficiary of anticompetitive policies and practices.

Dated: December 22, 2014 

# tl **~**

5 Mark W. Atwood Cozen O'Connor The Army & Navy Club Bldg. 1627 I Street, N.W. Washington , DC 20006 (202) 463-2513 matwood@cozen.com Counsel for

Kalitta Air, LLCCERTIFICATE OF SERVICE I hereby certify that I have this 23rd day of December, 2014 , caused this Surreply of Kalitta Air, LLC to be served upon each person listed below via e-mail:

sascha.vanderbellen@delta.com sametta .c.barnett@delta .com chris.walker@delta .com dshort@fedex.com sllunsford@fedex.com nss parks @fedex.com gbleopard @ fedex.com msinick@ssd.com enisson@nac.aero mwiegele@nac.aero kevin.montgomery@po laraircargo .com peter.beckett@pol<;:traircargo .com '. pdoell@ naca .cc robert.wirick@aa.com francis.heil @aa .com howard kass@usairways.com rsilverberg @sgbdc.com jjohnson@sgbdc.com jcanny@amerijet.com jrichardso n @ johnrichardson.com mriordan @ j ohnrichardson.com john@mietuslaw.com rpommer@ atlasair.com nwallace@wallaceair.com agoerlich@ggh-airlaw .com dhainbach @ ggh -airlaw .com judy @ lac .lvnden.com rzerkel@ lac.lvnden .com gwhite @ lac.lynden .com jdavi s@ lac.Lynden .com info @airline info. co m anita .mosner@ hklaw.com 1ennifer.nowak@hklaw.com ds malls @ ups.com stephen. lachter@ cozen.com EngleTS@state.gov gpwicks@wicks-group.com ekagrimes@wicks-group.com pmurphy@lopmurphy.com