BEFORE THE DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.

) Request ) ) of Silk Way West Airlines to amend authority ) Docket OST 20 1 4

- 0111 (Baku

- Hong Kong

- Chicago

- New York

- Luxemburg

- Baku) ) )
RESPONSE OF SILK WAY WEST AIRLINES TO SURREPLY OF KALITTA AIR AND MOTION FOR LEAVE TO FILE

Communications with respect to this document should be sent to:
KAMRAN GASIMOV GLENN P. WICKS Director/CEO EKATERINA A. GRIMES
SILK WAY WEST AIRLINES THE WICKS GROUP, PLLC Heydar Aliyev Inte rnational Airport 733 10 th Street NW , Suite 3002 Baku, AZ

- 1044, Republic of Azerbaijan Washington, DC 20001 (202) 457

- 7790 gpwicks@wicks

- group.com ekagrimes@wicks

- group.com
For : SILK WAY WEST AIRLINES

Dated: December 1 , 20 1 4- 2

- BEFORE THE DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.

) Request ) ) of Silk Way West Airlines to amend authority ) Dock et OST 2014

- 0111 (Baku

- Hong Kong

- Chicago

- New York

- Luxemburg

- Baku) ) )
RESPONSE OF SILK WAY WEST AIRLINES TO SURREPLY OF KALITTA AIR AND MOTION FOR LEAVE TO FILE

Following the submissions filed in the above referenced docket and in
connection with the Surreply of Kalitta Air LLC to Reply of Silk Way West Airlines and Motion for Leave to File submitted on November 12, 2014, Silk Way West Airlines (“Silk Way West) would like to note as follows:

In its Surreply Kalitta Air LLC (“Kalitta”) essentially restated its earlier arguments . In so doing, it did not provide additional new analysis for its opposition to Silk Way West’s pending Request to Amend Authority

. Rather, Kal it t a ’s Surreply, has offered pricing data related to landing fees that are based on landings and take offs at US airports

. This appears to be a tortured effort to compare legal precedent in the US t hat supports the proposition that disparate charges at airports is an acceptable practice with actual cargo handling fees that are based o n handling and equipment services rendered at airports in the Caspian region . In short, Kalitta’s Surreply deliberately distorts the actual circumstance s in
Baku and attempts to lead the Department into a bilateral dispute for the narrow purpose of protec ting its Hong Kong business. Given the facts restated in the Surreply as well as the
aforementioned inconsistent price analysis , Silk Way West is compelled to reply so as to
correct the record before the Department.- 3

- Specifically, Kalitta repeats its alle gation that the “inordinately high and blatantly discriminatory” cargo handling and fuel prices at Baku International Airport result in the fact that “Azerbaijan does not offer comity and reciprocity in any commercially meaningful sense.” I n its Surreply Kalitta state s that when it operates a charter in Baku under a contractual arrangement with DHL, “which is under contract with Silk Way,” it is charged “ no cargo handling fee ” , but when it operates outside such an arrangement it is charged 0.50 EUR (0.64 U SD ) per kilo of cargo. It further compares these cargo handling

rates to landing fees and the differentials between signatory and non

- signatory carrier landing fees at a number of US airports. In doing so, Kalitta has essentially compared two completely different types of charges in two completely different settings, and consequently, has fundamentally misrepresented its commercial relationships in Baku before the Department. As such, Silk Way West wi shes to correct the record as follows : 1. Kalitta fi rst repeats its allegation that there is n o real competition in Baku by suggesting that cargo carriers must work with the S ilk W ay Group of companies to get beneficial treatment

. This is untrue. In fact, the contract to which Kalitta is a party is one in which Silk Way participates as a part of the APL team before U

. S

. Transportation Command (USTC). Kalitta itself is contracted to APL through DHL in order to allow for advanced payment for its services through DHL. In that instance, National Air Cargo (N AC) is the competing bidder for services to USTC. NAC uses its own aircraft for services and is quoted for cargo handling charges for Baku Cargo Terminal (BCT) . Those charges are negotiated directly with BCT.

As recently as last week, NAC won those con tractual bids with USTC because
it offered a n overall price that was lower than that offered by APL. This fact in itself is evidence that there is effective competition at Baku airport. However, consistent with the principle that similarly situated carri ers be treated in the same way, NAC was quot ed the

exact same cargo handling charges as was A PL, in which Silk Way was a participant.- 4

-

Kalitta specifically misled the Department by stat ing that no handling charges were imposed
when it flies under the DHL a rrangement . In fact, they were. Kalitta itself was not a party
to the actual bid and instead was an all in charter price. In short, Kalitta was twisting the facts by claiming that there were no handling charges imposed on Silk Way operations.
T here wer e handling charges in t h e contract, but they were born by APL and ultimately by
the customer , USTC . Kalitta knows full well that it would not have been expec ted as a simple wet lessor to b ear those handling charges. Indeed, when Kalitta charters its airc raft to Coyne, for example, in Dubai, it does not pay airport handling charges either. Rather Coyne does, as does APL in th e arrangement in Baku

. It is normal industry practice that when chartering an airplane the charterer takes care of cargo handling c harges itself. By stating that when operating with Silk Way it receives no cargo handling fees Kalitta is deliberately misleading DOT. Kallita knows very well that in similar arrangements operators never get charged for cargo handling. Those charges are flowed through to the
ultimate customer. Kalitta has deliberately omitted all this information in an effort to make a flashy numerical comparison statement. Unfortunatel y for Kalitta , that flashy price comparison is simply untrue.
2. Further, Kalitta makes allegations to the Department related to the actual cargo handling f

ees
. Speaking of its individual charters, Kalitta cites the alleged cargo handling

rate of .50 EU (.64USD) per kilogram and compar es it to the erroneously, as has just been shown above, alleged “no fee ” for its flights as part of the APL program. It further argues that this high fee amounts to a “royalty” and becomes prohibitive on a Boeing 747 load of 100,000 kegs

. In point of fact, Kalitta’s argument is an unfair characterization. Th is fee is a publi shed fee , but is subject to negotiation based upon airport use

. Indeed, it i s well know n that throughout the region actual airport cargo handling fee s are negotiable depending on the frequency of operation s . At this time, there are two o perators, one operat ing over 170 flights per month (Silk Way West) , and the other operat ing 140 flights per month (Cargolux) , that are the highest frequency operators at the airport . They both receive the- 5

-

same, advantageous , pricing arraignments for cargo handling services , with the fee of 0. 0 8
US D per kilo. One other major carrier that operates 45 flights per month receives the rate of
0. 15 US D per kilo for handling charges. Silk Way West itself, therefore, does not have a
rate that is lower than simila rly situated carriers as it relates to cargo handling charges

. Indeed , Silk Way West ’s rate is the same as the next highest operator at the airport, as noted
above. In Kalitta’s case, when it operates as part of the APL team, APL and NAC are quot ed the exact same cargo handling rate of approximately 0. 10 US D per kilo. Naturally, Kalitta itself does not receive any cargo handling charges. Kallita simply charters out its
aircraft. Given the nature of the competition at the ai r port, and extensive USTC op erations, Silk Way cannot legitimately differentiate between users of like status at the airpo r t and has undertaken to ensure fair and equal pricing based on utilization , as is USTC’s requirement

. Kalitta should know full well how this bidding process wor ks, and USTC is certainly also aware of all the airport related charges , including cargo handling fees , related to its extensive use of the Baku cargo facilities. Simply stated, Kalitta has twisted, for its own narrow commercial purposes in the Hong Kong market, how cargo handling fees are charged at Baku.

Kalitta attempts to compare its experience as a one off charter operator with the above described high frequency arrangements. On information and belief, Kalitta operated one flight to Baku with 2 7, 265 kgs of cargo

. It was offere d the published rate of
0.50 EUR per kg of cargo, for a total cargo handling charge $1 3 , 632.50 EU R

. This is
nowhere near the $64,000.00 that it appears to be intimat ing it was charged when it presents
its theoretical calculatio n for a fully loaded Boeing 747 . This is completely misleading. Had Kalitta operated with 100 tons , based upon utilization and consistent with BCT’s goal to attract cargo to the airport in large volumes, it would have been discounted 50% off of the publi shed rates , had it simply requested it

.- 6

-

3. Similarly, Kalitta misleads the Department on f uel prices in Baku. It cit e s the published price of $3.74 US D per gallon. However, it specifically omit s that it was in fact charged $2.90 per gallon for its one

- off o peration in Baku. Thus, in real life, w hen compared with other major users, as will be shown below, the price differential is not 84 cents per gallon, as suggested by Kalitta. Kalitta once again failed to cite its actual prices and the fact that simply c alling the airport and requesting dispensation from the published

rates for its one

- off charter resulted in a price that is identical to the price offered to DHL in recognition of the 130 charter flights operated by Kalitta under the DHL subcontract

. Henc e, Kalitta has again twisted the facts. Going back to the larger operational setting on fuel prices, the fuel rates offered at the airport range from the $2.42 US D for the highest utilization airline, to $2.49 US D for the next highest, to $2.57 US D for t he next highest utilization carrier , and to $2.72 USD

- $2.87US D for lower utilizations . In fact , the difference between 130 cargo charters in a year and 140 operation s per month is only 33 cents per gallon. This is not an unreasonable
variation based on u tilization. Kalitta cannot in all seriousness argue that there is an astounding 84 cents per gallon difference when they themselves were never charged th at
rate

. 4. Kalitta again cites that the Silk Way group of companies is part of the management of the Bak u Airport. It uses this point to as much as attempt to insinuate wrong doing by virtue of the fact the Silk W ay group of companies manage a number of businesses at the airport. In doing so, it says nothing of the fact that Baku is one of the most competi tive airports in the region both for cargo services and for transit flights. Substantial capacity at the airport has been painstakingly built in order to attract companies such as Cargolux and Malaysian Airlines, not to mention competitors of Silk Way and Silk Way
West , such as NAC, Volga

- Dnepr (AN 124/I L 76), Antonov Airlines (AN 124) , Fly Dubai,
Aviacon Zito t rans (I L 76) and many others. Were it not for the high quality services, competitive pricing, and substantial added value (such as warehousing and refrigeration- 7

-

facilities) , Baku would not have be en able to compete as it now does in the open market.
And Kalitta know s this.

5. The point is that Kalitta knows that Silk Way West will effectively compete in Hong Kong. Kalitta is right to refer to it as a n important market. Kalitta state s that Mr. Wallace is not an employee of Kalitta and that it is inappropriate to raise individual personalities into the discussion. However, it is c ertainly relevant when the exclusive GSA of Kalitta is heavily investe d in the Hong Kong market , which Kalitta is now attempting to preclude Silk Way West from com peting in after having taken full advantage of de facto open skies regime in its operations in Baku

. To suggest that he has nothing to do with it
obfuscates the k ey point

— namely that Kalitta does not suffer from a defect of comity and reciprocity in Azerbaijan, its concern is rather to protect its and its exclusive GSA’s long standing ties to the Hong Kong market from competition

. As such, Kalitta’s narrow and
anti competitive commercial interest s should not be treated as a decisive factor in a broader determination of the principles of comity and reci procity. Rather , the actual facts present in Baku should be considered. Unfortunately, Kalitta, and the GSA who reg ularly arranges its operations , have arguably played fast and loose with the facts to create an impression that
the facts are not in fact a reality.
6. T o conclude, the analysis of the differential between signatory and non

signatory pricing does not seem to be a very productive other than to validate that
differential treatment is not per se a problem. It needs to be considered on a case by case basis. Here, Baku is a very competitive airport for both charter cargo and technical stops in
its regional contex t . Baku offers de fact open skies and actual competitive pricing in the region. Hence, comity and reciprocity exist, in spite of Kalitta distorted representation of
the facts. Rather, the simple fact that, by its own statement, Kalitta operated as many as 130 (ONE HUNDRED AND THIRTY) fifth freedom flights in and out of Baku in the past 12
months

– and that is Kalitta only , not to count NAC, Atlas and others

– is far more- 8

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indicative of the simple fact that Azerbaijan has been consistently providing broad types of authority, including fifth freedom authority, to multiple U

. S

. carriers for multiple years. Moreover, Atlas has, among other authority, has the right to fly Baku

- Hong Kong

- USA routing.
S ilk Way West reiterates that i t would be very hard to say that comity and reciprocity, including in the grant of 3 rd country authority, has not been consistently demonstrated by the Azeri aviation authorities to numerous U

. S

. carriers over the period of
at least five recent years. Indeed, U

. S

. carriers , and car go carriers in particular, have been actively operating , including fifth freedom flights , in and out of Baku for many years, while Silk Way West is in fact the first Azeri cargo carrier that is effectively trying to start an operation and has applied for s uch authority . It would not be an overstatement to say that, so far, it has not been given similar treatment as its U

. S

. counterparts

.

Silk Way West urges that DOT should avoid catering to what appears to be no
more than an effort by just two operators to be shielded from the very market forces that the open bilateral market of the U.S and Azerbaijan have been fostering over the past five or more years, and to avoid broader competition which will clearly benefit the shipping public and is supported by t he existence of comity and reciprocity

. The mere fact that Silk Way holding s is an airport service provider, and that prices for services at the airport are pinned to demand, as well as the quality of the facilities and the need to maintain them, does not
constitute a defect in comity and reciprocity.

What Kalitta (and National) are attempting to do is to suggest that there are problems without accounting for the airport specific environment and the volume of airport services used by each operator. Indee d, it was highly convenient for Kalitta (and N ational ) to take advantage of the de facto open skies (and a liberal crew visa scheme for National)
available to them in Baku at least since 2009. But now, when Silk Way West wishes to
receive the same treatme nt in the United States, the y are the ones to object.- 9

- Finally, with respect to the remark by Kalitta that the formal letter from the Azeri aviation authorities confirming their adherence to the principles of comity and reciprocity “has not appeared on the docket to this date” Silk Way West would like to state that, in the absence of a bilateral agreement, the SCAA letter, just as the letter submitted in connection with its initial application, was transmitted to the Department through diplomatic channels, outside Silk Way West’s control. Silk Way West, therefore, was not in a position
to submit it to Docket DOT

- OST

- 2006

- 24269 directly. To the best of Silk Way West’s knowledge , the letter was presented by the Embassy of Azerbaijan quite some time ago,
thro ugh its c hannels with the D epartment of State, and should be in the Department’s possession. However, Silk Way West has a courtesy copy of the said letter available to it, and would be ready to submit it to the Docket any time should the Department instru ct it to
do so.- 10

- * * * * * * * WHEREFORE, Silk Way West respectfully requests that the Department not condone the delay tactic by Kalitta and National to prevent Silk Way West from entering the
U

. S

. market, and grant its request to amend the authority granted to it earlier so as to allow it to implement scheduled air transportation of property and mail on the route Baku

- Hong Kong

- Chicago

- New York

- Luxemburg

- Baku (with no U

. S

. domestic cargo transportation between the points of Chicago and New York), or such other or further relief as the Department determines to be appropriate and consistent with the public interest. Silk Way West also respectfully motions the Department for leave to file and expedited consideration
of its pending R equest

.
Respectfully submitted,

GLENN P. WICKS Counsel for Silk Way West Airlines

_______________________________ EKATERINA A. GRIMES Consultant for Silk Way West AirlinesCERTIFICATE OF SERVICE I hereby certify that I have on this day served a copy of the foregoing document upon each of the following electronic mail addresses:
sascha.vanderbellen@delta.com TGillies@southernair.com sametta.c.barnett@delta.com info@airlineinfo.com chris.walker@delta.com anita.mosner@hklaw.com dshort@fedex.com jennifer.nowak@hklaw.com sllunsford@fedex.com dsmalls@ups.com nssparks@fedex.com slachter@cozen.com gbleopard@fedex.com pmurphy@lopmurphy.com msinick@ssd.com kleake@ggh

- airlaw.com enisson@nac.aero EngleTS@state.gov mwiegele@nac.aero kevin.montgomery@polaraircargo.com peter.beckett@polaraircargo.com dan.weiss@coair.com dan.weiss@united.com pdoell @naca.cc robert.wirick@aa.com francis.heil@aa.com howard_kass@usairways.com benjamin.slocum@usairways.com rsilverberg@sgbdc.com jjohnson@sgbdc.com jrichardson@johnrichardson.com mriordan@johnrichardson.com jcanny@amerijet.com john@mietuslaw.com rpommer@atlas air.com matwood@cozen.com nwallace@wallaceair.com agoerlich@ggh

- airlaw.com dhainbach@ggh

- airlaw.com judy@lac.lynden.com rzerkel@lac.lynden.com gwhite@lac.lynden.com jdavis@lac.lynden.com

Ekaterina A. Grimes Dated: December 1 , 201 4