BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

) Application of ) ) JAT AIRWAYS A.D. BELGRADE ) Docket DOT-OST-2013-0177 ) for an Exemption pursuant to ) 49 U.S.C. § 40109 ) ) ) Application of ) ) ETIHAD AIRWAYS P.J.S.C. ) Docket DOT-OST-2013-0178 ) for a Statement of Authorization ) pursuant to 14 C.F.R. Part 212 ) )

CONSOLIDATED ANSWER OF DELTA AIR LINES, INC.

Communications with respect to th is document should be addressed to:

Alexander Van der Bellen Managing Director, Government Affairs & Associate General Counsel Christopher Walker Regional Director, Government Affairs DELTA AIR LINES, INC. 1212 New York Avenue, N.W. Washington, D.C. 20005 (202) 842-4184 sascha.vanderbellen@delta.com chris.walker@delta.com

October 4, 2013BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

) Application of ) ) JAT AIRWAYS A.D. BELGRADE ) Docket DOT-OST-2013-0177 ) for an Exemption pursuant to ) 49 U.S.C. § 40109 ) ) ) Application of ) ) ETIHAD AIRWAYS P.J.S.C. ) Docket DOT-OST-2013-0178 ) for a Statement of Authorization ) pursuant to 14 C.F.R. Part 212 ) )

CONSOLIDATED ANSWER OF DELTA AIR LINES, INC.

Delta Air Lines, Inc. (“Delta”) hereby files this Consolid ated Answer to the Application of Jat Airways a.d. Belgrade (“JAT”) for an exemption from 49 U.S.C. § 41301 to provide scheduled foreign air trans portation of persons, property, and mail between Serbia and the United States on a c odeshare-only basis and the Application of Etihad Airways P.J.S.C. (“Etihad”) for a Stat ement of Authorization permitting Etihad to display the designator code of JAT on fli ghts Etihad operates between Abu Dhabi, on the one hand, and various points in the United States, on the other hand, that connectDelta Air Lines Consolidated Answer Page 2
with JAT-operated services between Belgrade and Abu Dhabi. 1 Delta opposes, and urges the Department to re ject, both applications. JAT and Etihad’s proposed codeshare se rvices are highly circuitous, commercially implausible, and are likely to cause consumer confusion. Moreover, JAT and Etihad have not been candid wit h the Department in their characterization of the facts concerning Etihad’s ownership interest in and effective control of JAT. JAT and Etihad bear the burden of addressing these issues in a forthright manner, particularly given that the proposed services would be the product of market-distorting, anticompetitive state subsidies from whic h both Etihad and JAT benefit. The proposed codeshares are not in the public interest and, accordingly, the Department should deny both JAT’s exemption request and Et ihad’s application for a statem ent of authorization.
I. The proposed codeshare routes are irrational and do not serve the public interest While Delta believes that codeshare a rrangements are typically in the public interest where they increase opportunities fo r travel and expand air service networks for the benefit of consumers, t he codeshare services proposed by JAT and Etihad are not

1 To the extent necessary, Delta hereby moves for leave to file an answer to the Application of Etihad for a Statement of Authorization, dated September 19, 2013, pursuant to 14 C.F.R. § 302.9. The Etihad and JAT applications are inextricably interrelated because the Department must approve both applications before JAT and Etihad may implement their proposed U.S. codeshare services. Thus, Delta’s answer inevit ably raises issues affecting the Department’s consideration of the Etihad application as well as the JAT application, thereby establishing good cause for Delta to submit a single, consolidated answer to both applications.Delta Air Lines Consolidated Answer Page 3
in the public interest because they have no market or consumer service based rationale and would only create confusion and complexity for consumers. 2 JAT and Etihad are proposing codeshare se rvices on routings from Belgrade (BEL) to New York (JFK), Washington (IAD ), and Chicago (ORD) via Abu Dhabi (AUH). These routes are so extraordinarily circuitous (nearly 5,000 miles of additional circuity in each direction) that one must question why any consumer would regard their addition to the marketplace to constitute a rational servic e option or to offer an y consumer benefit. Currently, there is robust competit ion for travel between Belgrade and destinations in the United States via Eur opean hubs, where convenient, non-circuitous codeshare and interline connections are avail able. JAT already codeshares with six European airlines that connect on to the U.S., and has inte rline agreements with dozens of other airlines with transatlant ic service. At least eight different transatlantic carriers serve Belgrade. For example, connecti ng services between Belgrade and Chicago via Amsterdam, Munich, Vienna, or Frankfurt, involve journeys of approximately 5,000 miles. By contrast, a routing from Belgrade to Chicago via Abu Dhabi is nearly twice as long: approximately 9,640 miles. Such an ex tremely circuitous itinerary would add nearly 5,000 miles to a consumer’s journey from Belgrade to the United States.

2 In order for the Department to approve the JAT and Etihad applications, it must find that the services proposed are in the public interest See 49 U.S.C. § 40109(c); 14 C.F.R. § 212.11. Moreover, as JAT concedes in its application, the Department is not subject to any obligation imposed by a bilateral air service agreement to appr ove the JAT application. JAT Application at 2.Delta Air Lines Consolidated Answer Page 4
Accordingly, it is highly unlikely that a rati onal consumer would seek out itineraries via Abu Dhabi unless fares we re artificially low, i.e. , unless JAT and Etihad plan to engage in capacity dumping at below-market fares. We note that the JAT/Et ihad proposal does not comply with IATA fare rules on maximum permitted miles (MPM). MPM on the JFK-Belgrade route is 5,404 miles, which the JAT/Etihad routing via Abu Dhab i exceeds by a whopping 2,469 miles. Thus, not only would the proposed codes hare routes not satisfy any new or currently unmet consumer demand; they woul d cause confusion and complexity in the marketplace ( e.g. , by cluttering schedule and fare displays and obscuring the consumer-facing availability of superio r itineraries and serv ice options). Accordingly, the Department should re ject JAT’s and Etihad’s applications because their proposed codeshare arrangement s are not in the public interest.
II. The proposed codeshare arrangements are ripe for market abuse in light of Etihad’s and JAT’s receipt of state subsidies The proposed codeshare involves two stat e-owned airlines and one, Etihad, that is heavily state-subsidized. The Department has, previously, expressed concern about state subsidies in its consider ation of the “public interest.” 3 Moreover, the Department has specifically stated that among its core policy objectives is to “[e]nsure that

3 See, e.g. , Applications of Iberia, Lineas Aereas de Espana, S.A. and Carnival Air Lines, Order 94-9-23 at 4 (“we share American’s concerns on the issue of subsidies. Indeed, Secretary Pena has already written to Marcelino Aquirre, EU Commissioner for Transport and Energy, specifically to express his serious conc ern regarding the European Commission’s policy on state aid.”).Delta Air Lines Consolidated Answer Page 5
competition is fair and the playing field is level by eliminating marketplace distortions, such as government subsidies ...”. 4 Here, both JAT and Etihad have benefitted from the direct infusion of government capital, 5 and Etihad in particular has benefitted from unfair tax advantages, subsidies for fuel and airport fees, and sizeable government investments in infrastructure. 6 These subsidies have a market-distortive effect and are inconsistent with U.S. inter national aviation policy. In recent years, certain Gulf states have increasingly used their flag carriers “to expand their services and widen their networks in support of national policies to develop incoming tourism or local business activity and trade.” 7 This is the case in Abu Dhabi, which has been using its vast oil wealth to rapidly expand Etihad’s network and fleet as

4 Statement of United States International Air Transportation Policy, 60 Fed. Reg. 21841, 21844 (Dep’t Transportation May 3, 1995).

5 See, e.g. , “Etihad to Buy Stake in Serbia’s JAT as CEO Hogan Reworks Carrier,” Misha Savic, Bloomberg.com (Aug. 1, 2013) (noting that “Serbia will match” Etihad’s $100 million investment in JAT and that it will “assume liabilities of its flag carrier ‘so Air Serbia is a new company, a clean sheet of paper”).

6 See, e.g. , Hearing of the Terrorism, Nonproliferation and Trade Subcommittee of the House Foreign Affairs Committee Subject: "The Abu Dhabi Pre-Clearance Facility: Implications for U.S. Businesses and National Security", Statement by Representative Brad Sherman (D-CA) (July 10, 2013); “Air France-KLM chief urges Europe to restrict Gulf carriers,” Claire Valdini, ArabianBusiness.com (Apr. 1, 2013); “Jobs on a wing and a prayer,” Paul Howes, Sunday Telegraph (Sydney) (Apr. 1, 2012); “Abu Dhabi Air ports Company Receives Executive Council Approval to Build the Midfield Terminal Complex,” Press Release, Abu Dhabi Airports Company (Feb. 1, 2012).

7 Rigas Doganis, Flying Off Course: Airline Economics and Marketing, p. 322 (Routledge Taylor & Francis Group, 4th ed. 2010).Delta Air Lines Consolidated Answer Page 6
part of a strategy to develop Abu Dhabi as a hub and economic center. 8 These policies – which include the introduction of exce ss capacity on routes and place network expansion above all else, including prof itability – are highly disruptive and traderestrictive, depressing fa res and cargo yields and dest abilizing global markets. 9 In support of Abu Dhabi’s broader avia tion strategy, Etihad has acquired a 40 percent stake in Air Seychelles; a 29.2 percent stake in Air Berlin; a 9 percent stake in Virgin Australia; and around a 3 percent stake in Aer Lingus. 10 Etihad is also in the final stages of a $379 acquisition of a 24 percent stake in Jet Airways of India as part of its “acquisition binge.” 11 The JAT acquisition, while the most aggressive in terms of the size of Etihad’s equity stake and the control that Etihad will exercise over JAT, is part of this pattern of rapid network expansion. Beyond Etihad’s acquisition of JAT, its ac tivities are all closely connected to Abu Dhabi’s broader industrial poli cy for the aviation sector. Fo r example, earlier this year, Etihad acquired three companies – Abu Dhab i Airport Services, Abu Dhabi In-Flight Catering, and Abu Dhabi Cargo Company – from the Abu Dhabi Airports Company

8 See “UAE’s Etihad to buy 49 percent stake in Serbian airline,” Ivana Sekularac, Reuters (Aug. 1, 2013) (“Backed by oil wealth, Etihad has aggressively expanded its global reach through codeshares and minority stakes.”).

9 Doganis at 322

. 10 “The Aussies Behind the Best Airline You’ve Never Flown,” Kenneth Rapoza, Forbes (March 12, 2013).

11 “Etihad Close To Taking Minority Stake in India’s Jet Airways,” Kenneth Rapoza, Forbes (Sept. 19, 2013).Delta Air Lines Consolidated Answer Page 7
(“ADAC”), a state-ow ned and operated entity. 12 In 2012, ADAC announced that it would begin construction of a new Midfield Termi nal Complex at Abu Dhabi International Airport for the prim ary benefit of Etihad. 13 Such coordination between Etihad and ADAC is emblematic of the Abu Dhabi government’s aviation i ndustrial policy, which is dependent in large part on ensuring Etihad’s gl obal competitiveness. As Ulrich SchulteStrathaus, then-president of the Association of European Ai rlines said of Etihad and other Gulf carriers in 2011, “[they] are owned by their respective governments and operated as an instrument of nat ional strategy ... and they are integrated vertically across commerce, tourism and foreign policy.” 14 Etihad’s receipt of subsidies make s the proposed codeshare arrangements with JAT ripe for market distortion and abuse. Thes e routes, as discussed above, are highly circuitous, not responsive to any market dem and, and thus unlikely to be profitable in their own right. In order to attract any consumer to ut ilize these proposed codeshare services, JAT and Etihad would have to price at below-market fares. The Department should scrutinize the proposed JAT/Eti had codeshare to better understand how the carriers intend to offer competitive service wit hout artificially dumping capacity. Insofar as the proposed codeshare is enabl ed through the airlines’ rece ipt of state subsidies or

12 “Etihad to acquire Abu Dhabi airport services firms,” Trade Arabia (May 19, 2013).

13 “Abu Dhabi Airports Company Receives Execut ive Council Approval to Build the Midfield Terminal Complex,” Press Release, Abu Dhabi Airports Company (Feb. 1, 2012).

14 See “Gulf Carriers Push For Long-Haul Corporate Business,” Amon Cohen, BusinessTravelNews (Feb. 14, 2011).Delta Air Lines Consolidated Answer Page 8
to further commercial or foreign government policy objectives that do not relate to the U.S. public interest, the Department shoul d deny the JAT and Etihad applications.
III. JAT and Etihad have mischaracterized Etihad’s ownership and effective control of JAT, which are significan tly more extensive than suggested The Department’s policy requires that a fo reign air carrier be substantially owned and effectively controlled by citizens of its homeland in order to qualify to receive a foreign air permit or exemption aut hority to serve t he United States. 15 JAT states in its application that it is “owned and controlled by Serbian citizens.” 16 Then, in a footnote, JAT states that it is “in negotiations” for Etihad to acquire a 49 percent stake in JAT, but that in any event “JAT will remain subst antially owned and effectively controlled by Serbian citizens.” 17 However, according to recent press reports that (to the best of Delta’s information) have not been contradicted by Etihad or JAT, Etih ad’s investment in JAT and the steps Etihad is taking to exert cont rol over JAT, are much more definite; in fact, it seems clear that JAT/ Etihad’s proposed codeshare serv ices to the United States via Abu Dhabi are predicated on the consumma tion of Etihad’s plans to own and control JAT.

15 See, e.g. , Notice of Action Taken (Corrected Copy), issued March 13, 2013, Docket DOT OST-2013-0021 (granting exemption to Boliviana de Aviacion (BoA)).

16 JAT Application at 4.

17 JAT Application at 4, n. 7.Delta Air Lines Consolidated Answer Page 9
According to recent press reports, Etihad has agreed to acquire a 49 percent stake in JAT, JAT Catering, and JAT’s handling division SU-PORT. Etihad’s relationship with JAT extends far beyond its equi ty investment, however; newly branded “Air Serbia” Airbus A319 aircraft will be oper ated by Etihad crew; Etihad will negotiate with Airbus over the terms of previously or dered A319s; Etihad will invest in upgrades at Belgrade Airport Terminal 1; and, through the operation of four agreements between Etihad and the Republic of Serbia, Etihad will provide immediate equity infusions into the Serbian airline. 18 Moreover, although the Republic of Serbia will maintain a majority ownership interest, Etihad will acquire de facto control over JAT. Indeed, JAT’s CEO reportedly will work under a fi ve-year management contract with Etihad

. 19 In short, JAT will be a wholly controlled (even if not wholly owned) subsidiary of Etihad. Etihad itself has acknowled ged the true nature of its plans for control of JAT. In a briefing to JAT staff, Etihad CEO James Hogan explained that “Etihad Airways has been appointed to a five-year management contrac t, effective 1 August”; in other words, Etihad views itself as the management of JAT. 20 Etihad envisions “shared resources” between the airlines; the “insourcing” or ground handling, catering, and line

18 “South East Europe: Etihad Takes Over JAT,” International Meetings Review (Sept. 2, 2013), available at http://www.internationalmeetingsreview.c om/south-east-europe/south-east-europeetihad-takes-over-jat-96727

. 19 “Etihad to Acquire 49% Of New Serbian Airline,” Jens Flottau, Aviation Week (Aug. 1, 2013).

20 Air Serbia Staff Briefing (Aug. 1, 2013), available at http://new.livestream.com/etihad/AirSerbiaStaffBriefing (minute 4:48).Delta Air Lines Consolidated Answer Page 10

maintenance; the “consolidation of some ke y tasks in Abu Dhabi”, such as scheduling and revenue management; an “ident ical in-flight product” on Air Serbia and Etihad narrow-body fleets; joint training of pilots and crews; and joint procurement of services and supplies. 21 Etihad’s management and commercial co-opting of JAT demonstrate a level of effective control by Etihad that is not reflected in JAT’s misleading characterization of the Et ihad acquisition. Thus, despite JAT’s assertion in its applic ation, Etihad’s invest ment in the airline raises important questions about whether JAT is (or will remain) “effectively controlled by Serbian citizens.” Delta urges the Depar tment to require clar ification from JAT and Etihad with respect to Etihad’s owner ship and control over JAT. IV. The lack of a U.S.-Serbia aviation bilateral agreement requires JAT to demonstrate clear public benefit In the absence of an aviation bilate ral agreement, the Department should carefully examine JAT’s proposal to ensur e public benefit. Ra ther than proposing an analogous codeshare agreement to those currently serving the U.S.-Serbia market, where United Airlines and US Airways operat e routings with part ners that have less than 1% circuity, 22 JAT is proposing routes with 100% circuity, which would be highly

21 Air Serbia: New Era, New Direction, presentation by James Hogan to Air Serbia staff (Aug. 1, 2013), available at http://exyuaviation.blogspot.com/2013/08/jat-airways-takeover.html

. 22 JAT Application at 2.Delta Air Lines Consolidated Answer Page 11
susceptible to capacity dumpi ng and state-subsidy market distortions. As discussed above, such service is not in the public interest. V. The Department should discourage th e abuse of TSA pre-clearance in Abu Dhabi In April, 2013, ABAC signed an agreem ent with U.S. Customs and Border Protection to open a pre-clearance screening facility at Abu Dhabi International Airport. 23 The preclearance infrastructure, like t he Abu Dhabi Internatio nal Airport itself, would be financed by the Government of Abu Dhabi for the benefit of Etihad. 24 U.S. airlines, including Delta and ot her members of Airlines fo r America, have vigorously objected to this agreement as bei ng inimical to the interests of U.S. airlines and contrary to U.S. international aviation policy. 25 The proposed JAT/Etihad codeshare raises additional concerns that the Government of Abu Dhabi and Etihad intend to use preclearance at Abu Dhabi to distor t competition for international air travel by driving air traffic to Abu Dhabi un der circumstances in which such preclearance offsets the obvious disadvantages of the proposed codeshare rout es’ circuity. Such an abuse of preclearance is inconsistent with the interest s of the U.S. aviati on industry and U.S. international aviation policy objectives.
* * *

23 “Where the Short Customs Lines Are,” Scott McCartney, The Wall Street Journal (July 31, 2013).

24 Id. (noting that Abu Dhabi “has agreed to cover most of the costs.”).

25 “Lawmakers Hear Strong Arguments Regarding Abu Dhabi Preclearance,” Michael Bruno, Aviation Week (July 10, 2013).Delta Air Lines Consolidated Answer Page 12
For the foregoing reasons, Delta objects to the above-captioned applications of JAT and Etihad and urges the Depar tment to deny them both.

Respectfully submitted,

______ _______________________ Alexander Van der Bellen Managing Director, Government Affairs & Associate General Counsel DELTA AIR LINES, INC.CERTIFICATE OF SERVICE A copy of the foregoing Answer has been served this 4 th day of October, 2013, upon the following persons via email: anita.mosner@hklaw.com Jennifer.Nowak@hklaw.com robert.wirick@aa.com francis.heil@aa.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 Russell.Bailey@alpa.org dberg@airlines.org kglatz@airlines.org paul.gretch@dot.gov todd.homan@dot.gov Peter.Irvine@dot.gov info@airlineinfo.com