BEFORETHEDEPARTMENTOFTRANSPORTATIONOFFICEOFTHESECRETARYWASHINGTON,D.C.RequestofSilkWayWestAirlinestoamendissuedexemptionauthorityandpendingapplicationforaforeignaircarrierpermit,andmotiontoexpediteprocessing(Baku-HongKong-Chicago-NewYorkLuxembourg-Baku))))))))))ANSWEROFKALITTAAIR.LLCDocketOST2014-0111Communicationswithrespecttothisdocumentshouldbeaddressedto:October29,2014MarkW.AtwoodCozenO'ConnorTheArmy&NavyClubBldg.1627IStreet,N.W.Washington,DC20006(202)463-2513matwood@cozen.comCounselforKalittaAir,LLCBEFORETHEDEPARTMENTOFTRANSPORTATIONOFFICEOFTHESECRETARYWASHINGTON,D.C.RequestofSilkWayWestAirlinestoamendissuedexemptionauthorityandpendingapplicationforaforeignaircarrierpermit,andmotiontoexpediteprocessing(Baku-HongKong-Chicago-NewYorkLuxembourg-Baku))))))))))ANSWEROFKALITTAAIR,LLCDocketOST2014-0111KalittaAir,LLC,herebyrespondstotheRequest,filedOctober8,2014,bySilkWayWestAirlines("SilkWay")toamenditsexemptionauthorityawardedbyOrder2014-8-15("theOrder")andtoamenditsapplicationforaforeignaircarrierpermit.TheamendmentrequestedbySilkWaywouldalteritsoperatingauthorityfromapurelyThirdandFourthFreedom(Baku-NewYork)routetoaddtwokeyintermediatepoints(HongKongandLuxembourg),withfullFifthFreedomcargorights.KalittaAirobjectstothisrequest,forthereasonsenumeratedbelow:1.AstheDepartmentnotedintheOrder,aviationrelationsbetweentheUnitedStatesandAzerbaijanaregovernedbycomityandreciprocity.Toputitsimply,theDepartmentisnotobligatedtogiveSilkWayanything;thedecisionisentirelywithintheDepartment'sdiscretion.1Followingitsnormalpracticeincaseswheretherearenounderlyingbilateralrights,theDepartmentgrantedSilkWaylimitedThirdandFourth•See,e.g.,ApplicationofJATAirwaysA.D.Belgrade,Order2014-1-13.Freedomauthority,anddeclinedto"grantthebroaderscheduledauthority[SilkWay)requested."22.SilkWayhasshownnobasisfortheDepartmenttoreconsideritsdecisiontolimitthecarrier'sU.S.authority.Onthecontrary,KalittaAirsubmitsthattheoperatingenvironmentforU.S.aircarriersatBakuinfactdemonstratesprotectionismthatrefutesanyclaimofcomityandreciprocity.ThecostschargedonthegroundatBakumakeitveryuneconomicalforacarriertooperatethereunlessthecarrierhasacontractualrelationshipwithSilkWay-inwhichcase,thecostsaredramaticallylower.3.KalittaAirhasoperatedanumberofflightsfromBakutopointsinAfghanistan,transportingmilitaryequipment.MostofthesehavebeenunderasubcontractwithDHL,whichhadbeencontractedbySilkWay.IthasalsooperatedasmallnumberofflightshavingnoconnectionwithSilkWay.Forexample,foraflighttobeoperatedintoBakuinApril,independentofSilkWay,KalittawastoldbytheManageroftheBakuCargoTerminal,which hasamonopolyoncargohandlingattheairport,thata"Rampcargohandlingfeeforoffloading/loadingcargoonapronischargedintheamountof0.50Eurperkg."Thisflightwassubsequentlyoperated,andthisratewaschargedtothecarrier.4.ThisrateofEUR0.50(currently$0.64)perkilogramisvastlyhigherthananysuchchargethatKalittaAirhasencounteredanywhereintheworld,andcanonlybeconsidereda"royalty"intendedtokeepoutforeigncompetition.Forafull8747loadof100,000kgs.,thechargewouldcometo$64,000.Worldwide,averagecostswouldrangefrom$5,000to$15,000-inotherwords,flightstoorfromBakuwouldstartoutwithaneconomicpenaltyof$49,000to$59,000.Significantly,however,whenKalitta2Order2014-8-15,atfn.4.2has operated flights under

a subcontract

from Silk Way

, it does not have

to pay this fee

. Given the extremely cost-conscious

and competitive operating environment

in the global cargo market,

a charter with such

a huge built-in cost

is inherently unable

to compete with Silk Way

or the carriers with which

it contracts. 5

. Ramp cargo handling fees are not the only discriminatory

cost element

at Baku

. Fuel

is also priced according

to whether

or not

a carrier

is operating

in conjunction

with Silk Way

. For one thing

, it is not possible

for carriers

to purchase

jet fuel directly from the national
fuel company, which has

a monopoly

on the product. Kalitta understands

that company
sells jet fuel only

to Baku Cargo Terminal

(an affiliate of Silk Way),

or directly

to Silk Way itself

. Thus, visiting carriers must deal with one
of those two Silk Way Group entities,

or other fuel suppliers
who purchase
from them. The prices,
not surprisingly,
differ depending

on who

is purchasing

. On flights operated under the DHL/Silk Way contract, Kalitta has been paying $2.90 per gallon, which

is in line with other prices

in the Middle East. For flights operated independent

of this contract, Kalitta has paid about

$3

. 74 per gallon, which

is far above prices

in the region, and makes

it difficult

to compete
with Silk Way

. Interestingly,

the airport encourages technical stops

(a valuable source

of landing fees), and makes
the fuel prices

for such flights relatively attractive.

It is only on revenue cargo flights operated outside

a Silk Way contract
that the very high price

is charged. 6. Silk Way has set itself
up as the gatekeeper

of all air transportation

(at least

in the cargo sphere)

in and out of Azerbaijan

. The Silk Way Group owns and controls

not only the Baku Cargo Terminal,

but also the airport's ground handling, catering, maintenance

and repair, duty free shop, business aviation
and helicopter service,

not to 3mention

the Sheraton Baku,

an insurance company

and other concerns

. 3 Kalitta does not propose
that Silk Way should

be penalized

for being such

a successful conglomerate,

but the fact remains
that any airline wishing

to do business

in Baku has to go through
Silk Way, and this has implications

for the state

of comity and reciprocity. Silk Way has exercised

this very considerable
power

to ensure that anyone who wants to fly into Baku does

so on their terms

. Azerbaijan

is not an open and competitive market

for

U

. S

. air carriers- unless,

of course, they contract with Silk Way

. 7

. The particular market that Silk Way

is seeking

in the referenced application happens

to be

a vital market

for

U

. S

. cargo carriers-

the Hong Kong-United States market.

4 U

. S

. carriers such
as Kalitta make

a significant

part
of their annual revenue

by servicing Hong Kong. This, however, itself

is not an open and free market.
The October 2002 Hong Kong-United
States Memorandum

of Understanding contains severe restrictions

on the number

of points

at which carriers may exercise
Fifth Freedom traffic rights,

as well
as the number

of flights allowed. These "Hong Kong Fifth Freedom slots

" are very valuable commodities

for

U

. S

. carriers

. It is not

in the interest of the public

or the

U

. S

. aviation industry

for the United States

to allow

a foreign carrier into such

a critical and restricted market when

it has no bilateral basis
for the request, and

in fact actively restricts competition

from other carriers through

its dominance

of the airport and all of its infrastructure

and services. ' See

, Silk Way Group website

, www

. silkwaygroup

. com

. 1 Indeed

, the carrier

' s urgent need for expedited consideration appears

to be intended

to enable tt to take advantage

of the peak cargo season
out of HKG

, which

is about

to commence

. 4Forallthesereasons,KalittaAirrequeststhattheDepartmentdenySilkWay'srequestforexpandedexemptionandpermitauthority.Dated:October29,20145MarkW.AtwoodCozenO'ConnorTheArmy&NavyClubBldg.1627IStreet,N.W.Washington,DC20006(202)463-2513matwood@cozen.comCounselforKalittaAir,LLCCERTIFICATE

OF SERVICE I hereby certify that

I have this 29

1 h day
of October, 2014, caused
this Answer

of Kalitta Air, LLC
to be served upon each person listed below
via e-mail

: sascha

. vanderbellen@delta

. com sametta.c

. bamett@delta.com chris

. wa lker@delta

. com dshort@fedex

. com sllunsford@fedex.com nssparks@fedex

com g bleopa rd@ fedex.com msinick@ssd.com enisson@nac

. aero mwiegele@nac

. aero kevin

. montg omery@pola

ra ircargo

. 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@

sg bdc

. com jjohnson@sgbdc

. com jrichardson@ 10hnrichardson

. com mriordan@ johnrichardson

. com jcanny@amerijet

. 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 jdavis@

lac

. Lynden

. com TGillies@southema

i r

. com info@ airlineinfo

. com anita

. mosner@hklaw

. com jennifer

. nowak@hklaw

. com dsmalls@ups

. com stephen

. lachter@cozen.com EngleTS@state

. gov g pwicks@wicks-group.com ekagrimes@wicks-group

. com