BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

 ) 

Application of ) 

 ) 

AVIATION SERVICES, LTD. ) DOCKET DOT-OST-2010-0190* 

(d/b/a FREEDOM AIR (Guam)) ) 

 ) 

for a Certificate of Public Convenience ) 

and Necessity (Interstate ) 

Scheduled Service) ) 

REPLY OF AVIATION SERVICES, LTD. (d/b/a 

FREEDOM AIR (Guam)) TO ANSWER OF AIR LINE PILOTS ASSOCIATION AND 

MOTION TO STRIKE 

Communications with respect to this document should be sent to: 

Gregory P. Cirillo 

Wiley Rein LLP 

7925 Jones Branch Drive 

McLean, Virginia 22102 

Ph: 703-905-2800 

Fx: 703-905-6701 

E: GCirillo@wileyrein.com 

November 2, 2010 

* A substantively identical Reply and Motion to Strike has been filed in the related 

docket DOT-OST-2010-0153. 
1 

BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

 ) 

Application of ) 

 ) 

AVIATION SERVICES, LTD. ) DOCKET DOT-OST-2010-0190 

(d/b/a FREEDOM AIR (Guam)) ) 

 ) 

for a Certificate of Public Convenience ) 

and Necessity (Interstate ) 

Scheduled Service) ) 

 ) 

REPLY OF AVIATION SERVICES, LTD. (d/b/a 

FREEDOM AIR (Guam)) TO ANSWER OF AIR LINE PILOTS ASSOCIATION AND 

MOTION TO STRIKE 

 On October 22, 2010, the Air Line Pilots Association (“ALPA”) filed a Motion 

for Leave and Answer to the application of Aviation Services, Ltd. (d/b/a/ Freedom Air 

(Guam)) (“Freedom Air”) in the above-captioned matter. Freedom Air filed its 

application for Certificate of Public Convenience and Necessity on July 28, 2010 (nearly 

three months prior to ALPA’s answer) seeking a determination of its fitness to conduct 

interstate scheduled air transportation.1

 In connection with its foreign and interstate 

applications, on September 13, 2010, Freedom Air received an Information Request (the 

“DOT-IR”) from Vanessa R. Balgobin of the Department’s Air Carrier Fitness Division. 

Freedom Air filed a response to the DOT-IR on October 4, 2010. 

 Freedom Air herein responds to ALPA’s answer, and moves to strike ALPA’s 

answer as untimely. Pursuant to the Department’s procedural regulations, interested 

 

1

 On June 14, 2010, Freedom Air filed a parallel application for a determination of its fitness to conduct 

foreign charter air transportation. See Docket DOT-OST-2010-0153. 
2 

persons have 21 days from the filing date of an application to submit answers in support 

of or in opposition to authority requested. See 14 CFR § 302.204(a). To the extent that 

interested parties may respond to amended applications, Freedom Air argues that it did 

not amend its application on October 4, 2010, but rather provided the Department with an 

answer to its information request. As such, ALPA’s October 22, 2010 answer was 

submitted well past the 21 day window that it had to respond to Freedom Air’s July 28, 

2010 application and should not be accepted by the Department in this proceeding. 

 Freedom Air believes that the issues have been adequately briefed and supported 

by its application and responses to Department inquiry, but feels compelled to reinforce 

its positions in response to ALPA’s answer. In short, based on the following points, and 

applying the governing law, we see no basis to conclude that the proposed two-aircraft 

charter operations somehow alters the citizenship of Freedom Air. 

1. All Objective Ownership, Management and Voting Control Standards are Met. 

 Freedom Air is 100% owned by U.S. citizens and nothing in the pending 

applications will change that. Senior management and the entire board of directors is 

comprised of U.S. citizens. There are no actual or potential equity or debt instruments in 

play that will or could affect any change in ownership or voting control. Thus the only 

remaining analysis, for citizenship purposes, is that of “actual control.” The absence of 

any ownership, voting power and management concerns is, itself, a relevant consideration 

and part of the “totality of the circumstances” to be viewed in the Department’s “actual 

control” analysis.2

 

 

2

 Fly Micronesia, Ltd. is an entity formed in Hong Kong making it ineligible to be a U.S. citizen. However, 

it is 80% owned by a single individual who is a U.S. citizen. Fly Micronesia prefers to maintain flexibility 
3 

2. Freedom Air is a Successful, Free-Standing Airline and will Remain so After this 

Process is Concluded. 

 The specific operations in question (charter operations with two 737 aircraft) will 

represent only a portion of Freedom Air’s overall operations, and merely an addition to 

those operations. Freedom Air has operated aircraft in scheduled service under Part 121 

and those airline operations will continue regardless of the disposition of the pending 

application. The 737 charter operations have been structured such that the existing 

operations of Freedom Air will remain in place and viable without regard to the 737 

operations. Any analysis of how the proposed charter operations might influence the 

citizenship of Freedom Air must assess the entire, resulting operation. 

3. The Financial and Operational Role of Fly Micronesia, Ltd. does not Constitute 

Actual Control. 

 The operational and financial role of Fly Micronesia does not rise to the level of 

“actual control” of Freedom Air and it, in fact, represents a rare opportunity for a U.S. air 

carrier to employ the passive capital of a nominally “foreign” investor to increase the 

U.S. carrier’s operating capabilities in a geographic area in need of additional 

transportation and poised for substantial growth, perhaps explaining the unusual 

competitive resistance on this docket. 

 a. The operational relationship between Freedom Air and Fly Micronesia 

(which is solely with respect to the 737 charters) is entirely consistent with DOT 

interpretations on citizenship, and comparable to the relationship between a network 

 

to raise capital from non-U.S. sources to expand operations. If the Department determines that the 

citizenship of the shareholders of Fly Micronesia is relevant to its determination, Freedom Air is willing to 

accept reasonable conditions relating thereto and will provide supplemental information as needed. 
4 

airline and its regional partners, or a public charter direct air carrier and the public charter 

operator, and is essentially an ACMI (aircraft, crew, maintenance and insurance) 

relationship as assessed in the citizenship examination of DHL Airways, Inc. (Astar).3 

The allocation of marketing, sales and scheduling responsibilities does not cede 

operational or strategic control of flight operations. The Department faced this issue in 

the Astar decision and found that the ability of a non-U.S.-citizen to control as much as 

90% of the airline’s workload, revenue base and schedule does not rise to the level of 

actual control. Astar at 23-24. Similarly, in its citizenship review of Virgin America, the 

Department was not convinced that the overarching role of Virgin Group (a non-U.S. 

entity) compelled a finding of actual control.4

 The Agreement governing the relationship between Freedom Air and Fly 

Micronesia was prepared and negotiated with a complete understanding of the citizenship 

requirements. Section 2.4 of the Agreement reads: “Notwithstanding anything herein 

implicitly or explicitly to the contrary, [Freedom Air] shall have and shall retain sole and 

exclusive control and authority over all flight operations, maintenance, repair and 

security relating to the Project [the 737 operations], to the fullest extent required by 

applicable law, as interpreted by [Freedom Air] in its sole discretion.”5

 By its own terms, 

this clause supersedes anything implicitly or explicitly to the contrary, and gives Freedom 

Air sole discretion to make that determination. The laundry list of Fly Micronesia 

 

3

 Recommended Decision of Administrative Law Judge, DHL Airways, Inc. (Astar), December 19, 2003, 

Docket No. OST-2002-13089-594 (“Astar”). 

4

 Final Order, Application of Virgin America for certificate of public convenience and necessity, May 18, 

2007, Docket No. OST-2005-23307-15160 (“Virgin America”). 

5

 A copy of the Agreement between Freedom Air and Fly Micronesia was provided to the Department as

Exhibit C of Freedom Air’s Response to the DOT-IR, dated October 4, 2010. 
5 

responsibilities cited by ALPA do not individually or collectively alter the actual control 

of Freedom Air; but to the extent that any of those points could be misconstrued as doing 

so, it is expressly superseded by Section 2.4 of the Agreement. 

 The role of Fly Micronesia in the 737 charters is well within the parameters 

established by the Department in Astar and Virgin America, and that is without further 

considering the remaining and pre-existing airline operations of Freedom Air that are 

completely unassociated with Fly Micronesia. 

 b. The financial relationship does not support a finding that Fly Micronesia 

exercises actual control over Freedom Air. Indeed, Fly Micronesia bears substantially all 

of the marginal cost of Freedom Air’s expanded operations and expressed in the 

Agreement. However, the arrangement is an arm’s length transaction beneficial to both 

parties, with each party playing an essential role. Unlike Astar, the carrier and the 

foreign interest here are independent and utterly unrelated entities, and as such the 

business relationship is undoubtedly arm’s length and commercially viable.6

 There is 

nothing in the economic arrangement that could suggest the ability of Fly Micronesia to 

influence the operations of Freedom Air. 

 Even if Fly Micronesia were to withhold all performance, thus preventing all 737 

operations, Freedom Air would continue operations as it does today, without material 

financial exposure to the cessation of 737 operations. The Department was quite clear in 

Astar that the proper analysis of financial influence is to ask whether the right of 

termination or audit by the foreign interest provides some leverage that could control the 

 

6

 In Astar, the ALJ was required to examine and dismiss suggestions that the restated relationship between 

the carrier and the foreign interest established an incurable continuum of control or that the commercial 

terms were so unnatural as to suggest control. Astar at 12-16. No such concern exists here. 
6 

carrier’s activities or operations.7

 The ALJ cited the practical and financial impediments 

to termination, as well as the financial consequences (many being positive) if the foreign 

interest was to terminate.8 By all measures the economic leverage exercisable in Astar

far exceeds the leverage exercisable by Fly Micronesia (and that leverage was acceptable 

in Astar). Fly Micronesia’s termination (or breach resulting in effective termination), in 

the worst case, would leave Freedom Air with an expanded operating certificate and 

economic authority, and no residual material liability. 

 

4. Freedom Air Deserves Prompt Action. 

 Freedom Air’s applications have been before the Department for six months (and 

the facts and circumstances were presented to the Department well before the 

applications were filed),9

 and operationally Freedom Air and Fly Micronesia continue to 

invest funds and resources in the Federal Aviation Administration certification process, 

staff retention and related preparations. Freedom Air is surprised that a two aircraft 

charter proposal would engender so much commercial resistance, and that the 

Department would take so long to reach a conclusion on the few issues within its 

purview.

 

7

 Astar at 17. 

8

 Id. at 20. 

9

 Freedom Air sought informal guidance from the Department in writing in March 2010 (before filing the 

applications) with the express intent of securing an understanding on the citizenship issue prior to filing our 

application; and the Department declined to engage in informal discussions and instead asked that Freedom 

Air file an application. The procedural requirements, while important, have given third parties the ability to 

defer Freedom Air’s business plan by months.