BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

U.S. -Japan Alliance Case 

) 

) 

) 

Docket DOT -OST -2010-0059 

June 29, 2010 

PUBLIC ANSWER OF 

AIR LINE PILOTS ASSOCIATION, INTERNATIONAL 

Communications with respect to this 

document should be served on: 

Russell Bailey 

David Semanchik 

Air Line Pilots Association, International 

1625 Massachusetts Avenue NW, Suite 800 

Washington, DC 20036 

202-797-4086 

Russell.Bailey@alpa.org 

David.Semanchik@alpa.org 
Public Version 

Confidential Portion Redacted 

BEFORE THE DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

U.S.-Japan Alliance Case 

) 

) 

) 

Docket DOT -OST -2010-0059 

PUBLIC ANSWER OF AIR LINE PILOTS 

ASSOCIATION, INTERNATIONAL 

Continental Airlines, Inc., United Air Lines, Inc., and All Nippon Airways Co., 

Ltd. (collectively, "the Joint Applicants") have applied for a grant of antitrust immunity 

("A TI") so that they may implement a number of alliance agreements between the three 

carriers, including" a highly integrated, metal-neutral joint venture agreement for the 

carriage of transpacific traffic (the 'Pacific JV Agreement')." (Application at 2.)' The Air 

Line Pilots Association ("ALP A"), the designated collective bargaining representative of 

the nearly 5,000 Continental pilots and the 7,700 United pilots, would support the grant 

of the requested immunity, if that grant includes a condition that Continental and 

United (either separately or together should they merge2

) operate a share of the alliance 

flights over the transpacific and transpolar routes covered by the Pacific JV Agreement 

1 On March 11, 2010, by Order 2010-3-10, the DOT consolidated the separate 

applications of All Nippon/Continental/United (Docket DOT -OST -2009-035) and 

AmericanlJapan Airlines (Docket DOT-OST-2010-0034) into this docket. 

2 On May 3, 2010, Continental and United announced an agreement to merge the two 

airlines. The proposed merger is undergoing review by the Department of Justice. 
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that closely correlates to the share of revenue generated by those flights that they 

receive under that agreement. 

DISCUSSION 

At the heart of the alliance agreements for which the Joint Applicants seek ATI is 

the Pacific JV Agreement. The Joint Applicants assert that implementation of this 

agreement will provide an array of public interest benefits by facilitating an open skies 

agreement with Japan, and allowing the applicants to become more efficient and 

effective competitors in the international marketplace. More specifically, the Joint 

Applicants claim that, among other things, they would be able to benefit consumers by 

providing lower and more varied fares, adding and improving route and service 

options, and upgrading their frequent flier and corporate travel agency incentive 

programs. 

Some or all of these asserted benefits may indeed result from implementation of 

the alliance agreements. However, as the Joint Applicants point out, their joint venture 

will foster "metal neutrality," which they define as "a commercial environment in 

which joint venture partners share common economic incentives to promote the interest 

of their alliance over their individual corporate interests." (Application at 12). "By 

pooling resources to improve the overall service offering and sharing the resulting gains 

and losses, the Joint Applicants will harmonize their joint network and become 

indifferent as to which partner collects the revenue and operates the aircraft on a given 

2 
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itinerary ... because metal neutrality eliminates the incentive for a carrier to channel 

passengers on its own aircraft." (Id.). 

This aspect of the Pacific JV Agreement is a major concern for the pilots of 

Continental and United. If their employers are indifferent as to which joint venture 

partner operates an aircraft over the routes covered by the Pacific JV Agreement, they 

might well be indifferent as to which employees operate those services. Taken to its 

practical end point, this indifference could result in a U.s. carrier party to a revenue 

sharing arrangement deciding to participate in that arrangement by providing nonflying services such as marketing and doing little or none of the flying. That, in fact, 

appears to be precisely what United has done in its recently inaugurated joint venture 

arrangement with Aer Lingus, where only Aer Lingus operates aircraft over the jOint 

venture's routes and United derives a significant percentage of the venture's revenue by 

virtue of the non-revenue services it provides. United and Aer Lingus Extend TransAtlantic Partnership. The Wall Street Journal Online, January 23,2009 (Attachment A). 

"Metal neutral" revenue sharing arrangements are different in a fundamental 

respect from the traditional code share arrangements that have served as the 

cornerstone of most alliances to date. In the usual code share arrangement, when a 

carrier places its code on another carrier's flight then sells a ticket on that flight, it only 

receives modest fees for selling the ticket, such as interline service charges and off-line 

distribution fees. The vast majority of the revenue derived from the passenger, 

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however, goes to the operating airline. Thus, the economic incentive is for an airline to 

operate and book passengers on (or at least connect to) its own aircraft where it can. 

With revenue sharing or pooling of the kind proposed here, however, this incentive is 

eliminated as a participating airline could receive a substantial portion of revenue 

whether it operates the aircraft on a particular route or not. 

The metal neutral joint venture has become the preferred model for international 

airline alliances. In fact, the Department appears to be encouraging, if not actually 

requiring, metal neutrality as a condition of receiving antitrust immunity.3 Yet these 

arrangements could result in a significant shift of jobs from U.s. airlines to their foreign 

alliance partners. 

The Joint Applicants have not substantively addressed the potential for such a 

shift. While they state that they" do not anticipate that implementation of the Pacific JV 

Agreement will have any adverse impact on Continental's and United's employees, or 

those of ANA", they "have not evaluated potential compensation or protection for such 

employees." (Application, Appendix B at 16). Despite the Joint Applicants' assertions 

3 Order 2008-4-17 at 15 (Show Cause Order in SkyTeam II proceeding); Order 2009-7-10 

at 12, 15 (Final Order in Star Alliance proceeding); Order 2010-2-8 at 32-34 (Show Cause 

Order in oneworld proceeding) (tentatively finding that the oneworld partners had not 

sufficiently" aligned their economic interests and made their best efforts to achieve 

metal neutrality" and tentatively requiring that they make changes to their joint venture 

arrangement to eliminate this concern). 

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that the Pacific JV Agreement "should mean more and better jobs for employees," id., 

there is no assurance that jobs will not be shifted among the alliance partners. 

In these circumstances, and certainly until there is more experience with how 

metal neutral arrangements work in practice,' the Department should take steps to 

4 The final revenue sharing arrangement between the Joint Applicants has not yet been 

developed and can only be developed if the Department grants the requested antitrust 

immunity. However, in their public interrogatory responses, the Joint Applicants note 

that they "intend to consider more formal cost sharing arrangements after their initial 

objectives have been met and they have developed solid 10rL2'-1:errn ""orking 

PP"llUIX B at 

Accordingly, DOT should require the Joint 

Applicants to request prior approval, on the record, in a public docketed proceeding, of 

any amendments that would move their joint venture towards a cost sharing model, 

and all interested persons should be provided a reasonable opportunity to comment on 

that request. 

5 
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ensure that the U.s. carrier participants in metal neutral arrangements perform, at 

minimum, a reasonable share of the flying covered by the arrangement. 

The Department has ample authority to do this. The Joint Application is made 

pursuant to 49 U.s.c. §§ 41308 and 41309. Under Section 41309(b) the Department shall 

approve an agreement if the agreement "is not adverse to the public interest" and meets 

other standards in that section. Under Section 41308 the Department, as part of an 

order under Section 41309, may exempt a person affected by the order from the 

antitrust laws to the extent necessary to allow the person to proceed with the 

transaction approved by the order if such exemption "is required by the public 

interest." 

Sections 41308 and 41309 appear in Subpart II ("Economic Regulation") of 

Subtitle VII ("Aviation Programs") of Title 49 of the U.s. Code. In carrying out its 

duties under Subpart II, DOT is to consider a range of matters as being in the public 

interest. 49 U.s.c. § 40101. Among these is "encouraging fair wages and working 

conditions." 49 U.S.c. § 40101(a)(5). For many years the Department and its regulatory 

predecessor, the Civil Aeronautics Board, used this provision as a basis for placing 

labor-related conditions on approval of airline business transactions. See, g,g" ALP A v. 

DOT. 838 F.2d 563, 565 (D.C. Cir. 1988). The purpose of these conditions was to ensure 

that the public benefits of a particular business transaction were not achieved at the 

expense of the airline workers: 

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"[An airline business transaction] presumably involves benefits to the 

stockholders of the companies that are a party to it. On balance, it must also 

benefit the public as a whole; otherwise we would disapprove it. Very often 

these benefits to the stockholders and to the public will be at the expense of some 

of the employees of the companies involved. We think it is only equitable that in 

such circumstances the hardships borne by adversely affected employees should 

be mitigated by provisions for their benefit. 

United-Western, Acquisition of Air Carrier Property, 11 C.A.B. 701, 708 (1950), af£' d, 

sub nom .. Western Airlines v. CAB, 194 F.2d 211, 213-15 (9th Cir. 1952). 

ALP A is not proposing that the Department establish a labor protective program 

in connection with all airline business transactions that might adversely affect U.s. 

airline employees. However, metal neutral revenue or cost sharing arrangements pose 

unique and not clearly understood threats to the wages and working conditions of U.S. 

airline employees. By eliminating the economic incentive for U.s. airlines to fly the 

routes covered by the revenue- or cost-sharing arrangement, these types of joint 

ventures raise the real possibility that U.S. flying can be seamlessly shifted to foreign 

airlines to the detriment of U.s. airline workers. 

In the past DOT has directed airline workers to resort to collective bargaining to 

attempt to achieve contractual protections against the consequences of airline business 

transactions. See, ~., Order 86-10-2. But collective bargaining is not a sufficient 

alternative. Apart from the fact that a novel business transaction may be developed at a 

time when a collective bargaining agreement is closed and the carrier has no obligation 

7 
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to bargain, the collective bargaining agreements that have been set aside or modified in 

bankruptcy proceedings are legion.5 

Here, DOT can only exempt the transaction from the antitrust laws if required to 

do so by the public interest. In ALP A' s view the Department is required to give 

meaning to an important public interest factor -- the encouragement of fair wages and 

working conditions -- in order to ensure that whatever consumer or other benefits that 

may be derived from metal neutral alliances are not realized at the expense of U.s. 

airline workers. 

Attempting to ensure that Continental's and United's employees participate in 

any job growth generated by the Pacific JV Agreement would also be consistent with 

the principles contained in the just-signed amendments to the U.s. - European Union 

Air Transport Agreement ("the ATA"). The new Article 17 bis of the ATA states, among 

other things, that: 

The Parties recognize the importance of the social dimension of the 

Agreement and the benefits that arise when open markets are 

accompanied by high labour standards. The opportunities created by the 

Agreement are not intended to undermine labour standards or the labourrelated rights and principles contained in the Parties respective laws. 

5 For a description of bankruptcy-induced collective bargaining agreement set-asides or 

modifications, see, ~ In re Northwest Airlines Corp .. 483 F.3d 160, 168-75 (2d Cir. 

2007); In re UAL Corp .. 443 F.3d 565, 568 (7th Cir. 2006); In re Continental Airlines 

Corp .. 901 F.2d 1259,1260-61 (5th Cir. 1990); Teamsters Airline Div. v. Frontier Airlines. 

Inc .. 2009 WL 2168851 at *8, *9 (S.D.N.Y. July 20, 2009); In re Delta Air Lines. Inc., 359 

B.R. 468, 476, 488-89 (Bankr. S.D.N.Y. 2006); In re Mesaba Aviation. Inc .. 341 B.R. 693, 

726-27,742-43 (Bankr. D. Minn 2006). 

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The U.s.-Japan Civil Air Transport Agreement does not contain such a provision. 

However, the objective of ensuring that airline business opportunities created by 

liberalized agreements not be used to undermine labor rights and standards should 

apply with equal force here. Grants of antitrust immunity are predicated on the 

existence of an open skies agreement between the U.s. and the home country of the 

foreign airline party or parties to the business arrangement for which immunity is 

sought. See, ~ Order 2010-2-8 at 3.6 In other words, absent the open access 

environment created by such agreements, broad revenue/profit/cost pooling or sharing 

agreements cannot go forward. In the labor article in the U.S-EU ATA, the U.S. has 

signaled that the effects of airline business activities that are permitted by virtue of 

liberal agreements on airline labor are an appropriate matter of government concern 

and, if necessary, action. 

6 The link between antitrust immunity and an appropriate liberal agreement is 

inextricable. During the negotiations that led to the December 11, 2009 initialed draft 

Memorandum of Understanding to liberalize the U.S.-Japan Civil Air Transport 

Agreement, the Japanese delegation informed the U.S. that "signature on and entry into 

force of that MOU would need to be preceded by a grant of antitrust immunity from the 

United States for anticipated joint application(s) for such immunity by Japanese 

airlines(s) and their partner U.s. airlines." Letter from Keiji Takeguchi, Deputy 

Director-General, Japan Civil Aviation Bureau, to John Byerly, Deputy Assistant 

Secretary of State for Transportation Affairs, U.S. Department of State (December 11, 

2009). So, in the U.s.-Japan context, a liberal agreement is a prerequisite for AT! and 

vice versa. 

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Accordingly, should DOT approve the Joint Applicants' request for antitrust 

immunity the Department should place the following condition on that approval: 

The Joint Applicants will ensure that each U.s. air carrier party's share of the 

pooled or shared revenues or profits (whichever share is larger) contributed by 

the nonstop carriage of passengers under the Pacific IV Agreement on 

"Transpacific Routes" as defined in the agreement (Le., between a point in the 

United States and a point outside the United States on trans-Pacific and transpolar routes), not exceed 130 percent of that party's share of the available seat 

. miles operated by all the air carrier parties over the Transpacific Routes that 

contribute to the pooled revenues or profits from such operations over any 12 

consecutive months. 

Finally, as discussed in footnote 4, the possible conversion of the Pacific IV 

Agreement to a cost-sharing arrangement raises a host of public interest concerns, none 

of which DOT has addressed in its prior AIl cases or can meaningfully address here in 

advance of such an arrangement being presented to the Department. If DOT does grant 

approval of the Joint Applicants' request for antitrust immunity for their proposed 

revenue-sharing arrangement, the Department should require that the participants in 

that arrangement seek separate approval, on the record in a docketed proceeding, with 

an opportunity for interested persons to comment, for any new or revised agreement 

that includes cost sharing. 

10 
CONCLUSION 

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Confidential Portion Redacted 

For the foregoing reasons, the Department should make any approval of the Joint 

Applicants' request for antitrust immunity subject to the conditions described above. 

Dated: June 29, 2010 

Respectfully submitted, 

David 

R=i~~7 Semanchik 

Air Line Pilots Association, International 

1625 Massachusetts Avenue N.W., Suite 800 

Washington, D.C. 20036 

Russell. Bailey@alpa.org 

David.Semanchik@alpa.org 

Counsel for Air Line Pilots Association, Int'l 

11 
ATTACHMENT A 
. United and Aer Lingus Extend Trans-Atlantic Partnership - WSJ.com Page 1 of2 

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JANUARY 23, 2009. 3:26 AM. ET 

United and Aer Lingus Extend Trans-Atlantic Partnership 

ByQUENTIN FOTTRELLand DANIEL MICHAELS 

DUBLIN - UAL Corp. 's United Airlines and Irish flag carrier Aer Lingus Group PLC Thursday announced an unusual 

linkup for trans-Atlantic flights between the U.S. and European destinations outside Ireland. 

The airJiries, which already cooperate on flights between the U.S. and Ireland, plan to begin with flights between 

Madrid and Washington, starting in March 2010. Both carriers will market the fiights and have their flight numbers on 

the route. But Aer Lingns will operate the planes and will be primarily responsible for costs, while United will take tbe 

lead on marketing tickets and generating revenue for the operation. 

'l'he arrangement is possible because of the recent deregulation of airline marketing between tbe U.S. and the 

European Union, and marks one of the first times that two carriers have allied to target a countty outside their home 

markets. Traditionally, airlines were limited to flying internationally only from their home countty. 

The U.S.-EU "open skies" treaty, which took effect in March, allows EU camers to fly to any airport in tbe U.S. from 

any airport in the EU and vice versa. 

Aer Lingus Chief Executive Dermot Mannion said that, should the partoership be successful, United and Aer Lingus 

will form a separate joint venture based in Europe within two years, with Aer Lingus holding a 51% stake. 

''These deals are Aer Lingus's version of consolidation," Mr. Mannion told a news conference in Dublin, referring to the 

. planned joint venture wifu United and its previous code-sharing arrangement with Jet Blue Airways Corp. in the U.S. 

A few carriers have tried to take advantage of the open-&des treaty on a limited basis: BritishAirways PLC has 

established a subsidiaryiliat now flies from Paris and Amsterdam to New York, and Air France-KLM SA briefly 

operated flights from London to Los Angeles. But hath of fuese operations faced beadwinds because tbe carriers 

needed to sell tickets in markets where they lacked significant brand recoguition or customer allegiance. 

Mr lingus and United aim to overcome iliat problem by using United's marketing heft in the U.S. United is America's 

third-largest airline by passenger traffic after Delta Air Lines Inc. andAMR Corp.'s American Airlines. 

Aer Lingus will use an existing $350 million order with Airbus to supply three A330-200S for fue partoership - which 

includes the route from Washington to Madrid - as well as two aircraft for two future routes, Mr. Mannion said. 

Analysts said the timing of fue deal could have been an effort by Aer Lingus to help thwart a €748 million (~973-7 

http://onJine.wsj .comfartic1e/SB 12326273793 3 505 919 .html?mod=yahoo _ hs&ru=yahoo 1123/2009 

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· United and Aer Lingus Extend Trans-Atlantic Partnership - WSJ.com Page 2 of2 

million) takeover attempt from Irish rival Ryanair Holdings PLC. The Irish government Thursday effectively ended the 

bid when, as Aer Lingus's second-biggest shareholder after Ryanair with a 25.1% stake, it rejected Ryanair's bid for 

undervaluing Aer Lingus and threatenmg competition in the Irish aviation market. 

Ryanair said it thought the government had made the wrong decision, but that it would abide by the decision and focus 

on growing its existing operations. 

Writeto Quentin Fottrell at quentin.fottrell@dowjones.comandDanielMichaelsatdaniel.michaels@wsj.com 

Printed in The Wall Street Journal, page B3 

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CERTIFICATE OF SERVICE 

I hereby certify that on this day 29th day of June, 2010, the foregoing 

Public Answer of Air Line Pilots Association, International was served by email 

on the following persons: 

sametta.c.barnett@delta.com 

kquinn@pillsburywinthrop.com 

bruce.rabinovitz@wilmerhale.com 

jeffrey.manley@United.com 

dkirstein@yklaw.com 

jyoung@yklaw.com 

donna.kooperstein@Usdoj.gov 

byerlyjr@state.gov 

pmurphy@lopmurphy.com 

anita.mosner@hklaw.com 

rpommer@atlasair.com 

gmurphy@crowell.com 

robert.wirick@aa.com 

mattwood@sherblackwell.com 

slachter@lachter-clements.com 

horanaviation@gmail.com 

john.allen@faa.gov 

ldwasko@erols.com 

tom.fosko@airtransport.cc 

sascha.vanderbellen@delta.com 

scott.mcclain@delta.com 

rbkeiner@crowell.com 

mrosia@crowelLcom 

david.heffernan@wilmerhale.com 

recohn@hhlaw.com 

carl.nelson@aa.com 

wkaras@steptoe.com 

cjsimpson@zsrlaw.com 

dmendersbee@zsrlaw.com 

dwight.moore@Ustranscom.mil 

cgosain@steptoe.com 

jhill@dlalaw.com 

bill@mietuslaw.com 

rsilverberg@sgbdc.com 

dhainbach@ggh-airlaw.com 

mcmillin@Woa.com 

bob.kneisley@Wnco.com 

robert.land@jetblue.com 

msinick@ssd.com 

cdonley@ssd.com 

anbird@fedex.com 

dvaughan@kelleydrye.com 

kevin.montgomery@polaraircargo.com 

jrichardson@johnlrichardson.com 

efaberman@Wileyrein.com 

mroller@rollerbauer.com 

sophy.chen@hklaw.com 

nssparks@fedex.com 

absteinberg@jonesday.com 

agoerlich@ggh-airlaw.com 

mgoldman@sgbdc.com 

lhalloway@crowell.com 

howard.kass@usairways.com 

benjamin.slocum@usairways.com 

jeff.ogar@aa.com 

prrizzi@hhlaw.com 

eskraft@jamhoff.com 

ejames@jamhoff.com 

mlbenge@zsrlaw.com 

jim.ballough@faa.gov 

charters@evergreenairlines.com