Order 2010-10-6

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation on the 7th day of October, 2010

Served: October 7, 2010

Docket DOT-OST-2010-0241

ORDER TO SHOW CAUSE

Summary

By this Order, we have tentatively deci ded to further modify our procedures for distributing the available U.S. carrier opportunities for U.S. -Brazil all-cargo charters by allowing U.S. carriers holding scheduled U.S. -Brazil authority to have limited access to

the ad hoc charter pool throughout the 2010/2011 char ter year, without the need for a

waiver.

Background

Our procedures for distributing U.S.-Brazil al l-cargo charters have become increasingly liberalized and simplified over the past dozen years, as most recently reflected in the revised allocation procedures issued by final order in 2009. 1 The revised procedures reflect, in part, the si gnificant expansion of opportunities available to U.S. carriers in the U.S.-Brazil cargo market, including the remova l of the limit on the number of carriers that may be designated to provide scheduled all-cargo services and th e increased size of

the ad hoc charter pool. Most recently, we issued a Notice announcing the availability of 1,250 all-cargo charter flights in the July 2010-June 2011 charter year, and provided advance allotments to two incumbent carriers under the simplified procedures. 2 These

1 See Order 2009-1-5, issued January 14, 2009.

2 Incumbent carriers are allotted, in advance of the charter year, a portion of the available charters on a useor-lose basis, based on their level of operations in the U.S.-Brazil market during the previous two years.

See Notice of Brazil Cargo Charter Authorizations 2010/2011 (Brazil Notice), issued June 11, 2010. In the Matter of Brazil Cargo Charter

Authorizations2 procedures allow eligible carriers to obtain up to 20 charter flights per month from the pool. We retained the restrict ion on the eligibility of carrier s holding scheduled authority

to have access to the ad hoc charter pool during the first 10 months of the charter year. Under the current procedures, scheduled carri ers may have access to the pool in the final two months of the charter year, beginni ng May 1, but require a waiver from the Department in order to receive an allocati on before then. Beginning May 1, there are no

restrictions on the number of charters for which a carrier may apply for each month remaining in the charter year.

Recently, Atlas Air, Inc. (Atlas), a U.S. carri er holding scheduled U.S. Brazil authority, requested a waiver in order to perform two charter flights to Brazil in July, citing special

circumstances. 3 We granted the request.

Atlas subsequently submitted a request fo r a short-term industry-wide waiver, under which carriers holding schedul ed authority would have immediate access to the ad hoc charter pool, under the same procedures as charter carriers, through December 31, 2010. 4
In support of the waiver re quest, Atlas cited increased ad hoc demand for cargo capacity

due to the cessation of services by a U.S. carrier and the diffi culty, in light of Brazilian regulatory procedures, for scheduled carriers to respond to that demand with regularly scheduled flights. Atlas argues that allo wing scheduled carriers early access to the charter pool would not materially impact the ability of charter operators to serve Brazil considering the charter flights remaining unused at the end of the previous charter year,

the increased size of the ad hoc charter pool for the current y ear, and that allowing such access would place scheduled carriers on an e qual footing with charter operators and promote competition vis-à-vis Brazilian carriers. 5

Southern Air Inc. (Southern) opposes Atlas’s indu stry-wide waiver re quest, arguing that through the existing charter dist ribution regime, the Department has struck an appropriate

balance between scheduled and charter service in recognition of bila teral constraints and should not alter it. Instead, S outhern asserts that case-by- case waivers, such as that granted to Atlas for two flights, are sufficient to address the ad hoc needs of scheduled

carriers and that scheduled carriers should not get the benefit of operating in both

worlds. 6

In response, Atlas states that the Depart ment should grant the requested waiver to increase competition and expand shipping options , and to allow carriers to be responsive to continuing shipper demand for service to off- line points in Brazil. Atlas notes that the environment has changed significantly since the charter regime was established, and points to the fact that a total of 1,250 charters are available in the current year and that last year ended with a large number of unused charter flights. 7

3 See Atlas letter dated July 13, 2010, in Docket DOT-OST-2010-0214.

4 Atlas says that December 31, 2010 is a suggested te rmination date and that it would welcome a waiver of shorter or longer duration should the Department so decide.

5 See Atlas letter dated July 22, 2010, Docket DOT-OST-2010-021 4. The letter was served on all carriers providing scheduled and charter all-cargo service in the U.S.-Brazil market.

6 See Southern’s letter dated July 28, 2010, Docket DOT-OST-2010-0214.

7 See Atlas letter dated July 30, 2010, in Docket DOT-OST-2010-0214.3 United Parcel Service Co. (UPS) supports Atlas’ s waiver request. UPS also suggests, as an alternative, should the Department not wa nt to lift all restric tions on scheduled allcargo carriers that the Department permit sc heduled carriers to apply for ten charter flights per month during the firs t six months of the charter y ear. Restrictions would be

lifted after the first six months. 8 Federal Express Corporation (FedEx Express) agrees with Atlas and UPS, includi ng but not limited to UPS’s alternate proposal. FedEx Express argues that we should not limit sh ipper choices and arti ficially constrain competition when doing so could lead to valu able rights going unused in the charter

year. 9

In a consolidated response, Southern reit erates its preference for preserving the status quo and urges us to use show-cause procedures to make any changes to the current regime,

and to do so for the next charter year rather than the current one. 10 The charter operator Florida West International Airways, Inc. (F WIA) supports Southern’s objections to the industry-wide waiver, noting that it is too ear ly in the charter year to make decisions

about the extent and duration of any material change in the market. Responding to UPS’s alternate suggestion, FWIA sugge sts that if scheduled carrier s are allowed early access to the charter pool, they should be limited to fewer permitted monthly charters than

Southern’s current allocation of essentially eight flight s per month under the existing procedures. 11

Tentative Decision

We have tentatively determined that it is in the public interest to allow scheduled carriers

immediate but limited access to the ad hoc charter pool in the U.S. -Brazil market without the need for a case-by-case Department waiver.

Specifically, we have tentatively determined to allow carriers holding scheduled authority to request up to 10 charter allocations per month, beginning immediatel y, for this charter year, without the need for a waiver from the charter allocation procedures.

We tentatively find that the increased size of the ad hoc charter pool of 1,250 flights available for the current charter year, and the reduced number of charter carriers whose sole access to the Brazil cargo market is de pendent upon the pool, alleviates the need to restrict access by sche duled carriers to the ad hoc pool during the first 10 months of the charter year. We further note that out of the 1000 cargo charters available in the ad hoc pool for the 2009/2010 charter year, more than 400 went unused. In light of these circumstances, it is reasonable to anticipate that we will again experience a surplus for

8 See UPS letter dated August 2, 2010, in Docket DOT-OST-2010-0214.

9 See FedEx Express letter dated August 3, 2010, respectively, in Docket DOT-OST-2010-0214.

10 See Southern’s letter dated August 6, 2010, in Docket DOT-SOT-2010-0214.

11 See FWIA’s letter dated, August 9, 2010, in Docket DOT-OST-2010-0214. We note that Southern has

returned its advance allotment in accordance with the established proc edural rules and must now request distributions of flights on an ad hoc basis. See Order 2009-1-5.4 the current charter year. Against this backgr ound, we have tentatively determined that it is in the public interest to remove some of the restrictions imposed on scheduled carriers rather than risk allowing valuable char ter rights to go unused, and the benefits of facilitating full utilization of these valuable rights outweigh charter carrier concerns that they will be disadvantaged if scheduled car riers can obtain charte r flights without the burden of additional process. We remain mindful, however, of the importance of the ad

hoc charter pool for carriers not holding schedu led authority, and ther efore we wish to facilitate their ability to obtain allocations from the pool and respond quickly to new market opportunities. 12 We have tentatively determined to increase the number of charter flights that may be requested by a non-schedul ed authority charter operator from 20 to 30 on a monthly basis, without the need for a waiver.

These changes will ease burdens on U.S. carri ers seeking to provide all-cargo charter

services to Brazil and will also maintain effi cient administration of the available charter pool. We further anticipate that these change s will be consistent with our objective of maintaining a charter environment that addr esses the needs of in cumbent cargo charter carriers (those carriers holding advance allotments), new entrant and ad hoc cargo charter operators, as well as carriers operating scheduled all-cargo service. We considered Florida West’s suggestion of restricting schedul ed carriers to fewer than eight flights per month without requiring addi tional process, but determined, on balance and under the circumstances before us, that allowing schedul ed carriers to obtain up to 10 flights each month, as proposed, would be preferable in terms of easing administrative burdens and facilitating use of increase d charter opportunities.

In light of the number of flights available in the ad hoc charter pool and the past year’s experience, we tentatively find that rela xing certain restrictions on access to the ad hoc charter pool, as described here, should not re sult in premature depl etion of the pool. We will monitor closely the utilization of the av ailable charter flights to ensure that an adequate supply exists for th e balance of the current char ter year. Should we find the ad

hoc charter pool is being deplet ed unexpectedly rapidly, we may determine to reinstate the restrictions we tentatively remove here. Related to our desire to monitor the situation, we have tentatively decided that the cha nges on pool access shall apply for the current charter year only. We will reassess market conditions and utilization of the 2010/2011 ad

hoc charter pool in determining whether to re lax restrictions on a llocations from the charter pool in future years, consis tent with the public interest.

Finally, for completeness and clarity, we will in clude in this Order all of the procedural rules that will be applicable to carriers seek ing a distribution of U.S. -Brazil charter flights if we finalize our proposed action in this Order. 13

12 Recent experience has demonstrated that operators wholly dependent upon the ad hoc charter pool frequently use the 20 monthly flights to which they are entitled. When a carrier needs additional flights it must seek a waiver from the Department to obtain them.

13 Carriers that have already provided the required no tifications under the Brazil Notice need not resubmit

them.5 Reporting requirements

Our ability to administer the ad hoc charter pool efficiently an d effectively depends upon our knowing, at any time, how ma ny flights remain in the ch arter pool for distribution. We must rely upon prompt and accurate repor ting, no later than the tenth day of each month, of flight usage by incumbent carri ers holding an advance allotment and those receiving ad hoc allotments from the pool. The repor ting requirements that have applied to charter operators are the same reporting requirements that will apply to scheduled

carriers.

Carriers must return unused charters pr omptly should plans for using them not materialize. As we have previously stat ed, “[w]here charter ri ghts are limited, it is imperative that full, effective use be ma de of the available charter opportunities. 14 We remind carriers that we will not be prepared to distribute additional charters to a carrier requesting them where the carrier has not yet reported its usage for the prior month and returned any unused charters to the pool.

All reports and notifications that would be re quired under the terms of this order should be submitted to the Office of International Aviation by electronic mail to the following

addresses: Bernice.Gray@dot.gov and Esta.Rosenberg@dot.gov

.

ACCORDINGLY,

1. We establish Docket DOT-OST-2010-0241 fo r submission of view s of interested parties on our tentative decision to modi fy and further streamline the simplified procedures we are currently using for distri buting round-trip all-car go charters available to U.S. carriers for operations in the U.S.-Brazil market;

2. The advance allotment issued by th e June 11, 2011 Brazil Charter Notice for operations in the 2010/2011 charter year, as well as distributions to charter and scheduled

U.S. carriers on an ad hoc basis, would, to the extent cons istent with our final order in this proceeding, be subject to the following procedures:

A. Subject to C., below, for the first thre e months of the char ter year, the period July 1- September 30, only those carriers that have not received or accepted an advance allotment may have access to the ad hoc charter pool; distributions will be made on a first-come, first-served basis and eligible applicants may request and operate up to 30 charters per month;

B. Any carrier that has received and accepte d an advance allotment is not eligible to obtain flights from the ad hoc charter pool during the first three months of the charter year, i.e., until October 1. Beginning October 1, a carrier that has received and accepted an advance allotm ent may request and operate up to 30 charters per month, consistent with the terms of this order;

14 See Order 98-6-4, at footnote 4.6 C. A carrier holding scheduled authority in the U.S.-Brazil market may have

access to the ad hoc charter pool beginning imme diately to request and operate up to 10 charters per month;

D. Beginning May1, there are no restrictions on the number of charters for which a carrier may apply for each month remaining in the charter year;

E. Carriers may continue to request distributions of flights on an ad hoc basis from the charter pool within 30 days of the proposed date of operation. Requests for distributions from the ad hoc charter pool may also be filed for an entire calendar month, beginning on the 15 th day of the prior month;

F. Each application must identify (a) the number of flights requested, (b) proposed flight dates includ ing a four-day service window, (c) the charterer(s), (d) the city-pair, and ma rkets involved by direction. Copies of the charter contract, or some form of written evidence of the charter commitment is required at the time a distribution from the charter pool is requested.

G. Each carrier granted either an advance allotment or a distribution of flights

from the ad hoc charter pool for a given month is required to report to the U.S. Air Carrier Licensing Division, Office of International Av iation, by electronic mail, by the tenth day of the following month, or within 10 days of having used all of its pool charte rs, whichever is earlier, the following; (a) if the reported flights were from the ad hoc charter pool, the da te of the Notice of Consistency under which the flight was ope rated; (b) the number of Brazil allcargo charters operated during the precedi ng month; (c) the city-pairs served by direction; (d) the date each flight; (e ) the charterers(s); and (f) the number

of charters for which Brazilian author ity was obtained for that month which subsequently were canceled or rescheduled. 15 Unless its advance allotment has been exhausted, a carrier that ha s received an advance allotment is required to report its usage from the allo tment, on a monthly basis, consistent with this order, even if it operated no charters in the preceding month; and

H. In addition to the reporting requirements in paragraph G., above, a carrier that

has received an advance allotment must inform the U.S. Air Carrier Licensing Division, Office of International Aviati on, by electronic mail, by January 5 of each charter year after 2009, of the number of charters it has operated or has committed to operate by a firm contract. 16 For charters under contract, the carrier shall indicate the charterer(s), dates, and city-pair markets. Where a

15 Carriers are advised that they must follow the Brazilian government’s procedures for notification of change or cancellation or be subject to forfeiture of those charter flights by the Brazilian government and that they should include a statement verifying that th e Government of Brazil has been notified in writing of any changes and/or cancellations of flights.

16 The annual reporting requirement for the current ch arter year is set forth in paragraph 3, below.7 carrier has not used or committed for use, at least 40 percent of its allocated

charters in the first six months of th e charter year (July 1-December 31), that carrier will forfeit a portion of its allo tment. A forfeiting carrier may retain, for the second half of the charter year, that portion of its advance allotment that is equal to the number of charters used or committed for use in the first half of the charter year. The forfe ited flights will be returned to the ad hoc charter pool;

3. For the current charter year, we require that each carrier holding an advance allotment of U.S.-Brazil all-cargo charters inform th e U.S. Carrier Licens ing Division (X-44), Office of International Aviation, by electronic ma il, no later than 10 days after the service date of this final order, if it has not yet done so, as to how many of the flights in its advance allotment it has plans to operate and how many it is returning to the charter pool; 17

4. Any carrier holding an advance allotment of U.S.-Brazil all-cargo charters that elects to opt out of its advance allotment as se t forth in the May 30, 2008 Brazil Charter Notice must so notify the U.S. Carrier Licensi ng Division (X-44), Office of International Aviation, by electronic mail, no later than 10 days after the service date of this final order;

5. We delegate to the Director of the Of fice of International Aviation authority to administer distribution of flights from the ad hoc charter pool and, where deemed in the public interest, to waive the restrictions set fo rth in this order for all U.S. certificated air carriers;

6. We direct all interested pa rties objecting to the tentative decisions described in this order to file their objections with the De partment, Dockets, in Docket DOT-OST-2010- 0241, U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W-12-140, 1200 New Jers ey Avenue, SE, Washington, DC 20590, no later than 10 calendar days from the date of service of this order. Answers to objections shall be filed no later th an five calendar days thereafter; 18

7. If timely and properly supported objections ar e filed, we will accord full consideration to the matters or issues raised by the objections before we take further action; 19

8. In the event that no objections are filed, we will deem all fu rther procedural steps to be

waived and we will enter an order fi nalizing our tentative decision; and

17 We remind carriers receiving advance allotments of th e importance of returning ch arters promptly at any time should the plans for their use not materialize.

18 All pleadings should be unbound without tabs on 8 1⁄2” x 11” paper using dark (not green) ink to facilitate use of the Department’s docket imaging system.

19 We will not entertain petitions for reconsideration of th e tentative decision set forth in this order as we are providing for objections and answers.8 9. We will serve a copy of this order on U.S. air carriers holding an advance allotment under the June 11, 2010 Brazil Notice; all other U.S. certificated air carriers operating large aircraft; the Ambassador of Brazil in Washington, DC; and the U.S. Department of State (Office of Aviation Negotiations).

By:

SUSAN L. KURLAND Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available

on the World Wide Web at http://www.regulations.gov