Order 2010-5-8

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 May, 2010

 

Served: May 7, 2010

ORDER TO SHOW CAUSE

Summary

By this show-cause order, we tentatively award Kalitta Air, L.L.C. (Kalitta) economic authority 

to provide all-cargo services in the U.S.-China market and allocate to Kalitta six weekly 

all-cargo frequencies for its proposed services. 

Background

The amended U.S.-PRC aviation agreement (“U.S.-PRC Aviation Agreement”), signed 

July 9, 2007, expands opportunities for air carriers of both countries. The agreement provides for 

annual increases in service opportunities, including all-cargo opportunities, effective March 25 of 

each year through 2010. Under the terms of the U.S.-PRC Aviation Agreement, all frequency and 

designation limitations will no longer be applicable to scheduled all-cargo operations effective 

March 25, 2011. We instituted this proceeding to award the expanded rights available to U.S. air 

carriers effective March 25, 2010.

1

 

Specifically, we note that one additional U.S. air carrier may be designated to operate either 

scheduled combination or all-cargo services between the United States and China. As we 

explained in the instituting order, we determined that we would use the 2010 designation 

 1 There are currently five incumbent carriers designated to provide all-cargo services in the U.S.-China market: 

FedEx Express Corporation (FedEx Express) - 37 weekly frequencies; United Parcel Service Co. (UPS) - 41 weekly 

frequencies; Delta Air Lines, Inc. (Delta) - 17 weekly frequencies; Polar Air Cargo Inc. and Polar Air Cargo 

Worldwide, Inc. (Polar) - 12 weekly frequencies; and Evergreen International Airlines, Inc. (Evergreen) – 8 

frequencies.

In the Matter of 

2010 U.S.-CHINA ALL-CARGO 

DESIGNATION AND FREQUENCY 

ALLOCATION PROCEEDING

Docket DOT-OST-2010-0017
2

opportunity for all-cargo services, as there is a designation opportunity currently available for a 

combination carrier.2

frequencies are newly available to U.S. carriers to serve points in China Zone 1 or China 

Also, 21 weekly combination frequencies and 15 weekly all-cargo

Zone 2.3 4

By Order 2010-2-6, dated February 4, 2010, the Department instituted the 2010 U.S.-China

All-Cargo Designation and Frequency Allocation Proceeding and invited the applicants, Kalitta

Air and Southern Air, Inc. (Southern), to supplement and/or amend their applications. The order 

included an attached evidence request and a procedural schedule.

5

In instituting the proceeding, we said that in awarding the rights available, our principal objective 

will be to maximize the public benefits that will result from the various awards of authority in 

this case. In this regard, we will consider which applicant will be most likely to offer and 

maintain the best service for the shipping public. We will consider the effects of the applicants’ 

service proposals on the overall market structure and level of competition in the U.S.-China 

market, and any other market shown to be relevant, in order to promote an air transportation 

environment that will sustain the greatest public benefits. In addition, we will consider other 

factors historically used for carrier selection where relevant. 

Summary of Applications and Responsive Pleadings

Below, is a chart summarizing the applications, followed by a narrative summary of the pleadings.

 2 See Order 2010-2-6 at 3. 3 As defined by the amended agreement, China Zone 1 consists of Beijing, Shanghai, and Guangzhou. China Zone 2 

consists of Fujian, Guangdong (except Guangzhou), Hebei, Jiangsu, Shandong, Tianjin, and Zhejiang.

4 In addition to the frequencies that became available March 2010, there are seven unallocated frequencies available 

for combination and/or all-cargo services specifically limited to serving points in China Zone 2, and six unallocated 

all-cargo frequencies available for services to points in China Zone 1 or China Zone 2. 5 Both carriers supplemented their initial application and filed an answer. Neither carrier filed a reply.

Air 

Carrier

Frequencies Routings Aircraft Type

Capacity

Kalitta 6 Route 1: Shanghai-Anchorage-Chicago-New YorkAnchorage-Shanghai (3x a week) 

Route 2: Guangzhou-Khabarovsk*-Anchorage-Los 

Angeles-Anchorage-Khabarovsk *-Guangzhou 

(3x a week)

* - fuel stop

Route 1

B747-400BCF

249,876 lbs

Route 2

B747-400F

249,876 lbs

B747-200F

245,547 lbs

Southern 6 Route 1: Shanghai-Anchorage*-Chicago-Shanghai 

(3x a week)

Route 2: Shanghai-Los Angeles-Shanghai 

(3x a week)

* - fuel stop

Routes 1 and 2

B777-200LRF

225,000 lbs
3

Kalitta and Southern each requested six frequencies for their proposed U.S.-China service. Each 

applicant proposes year-round service. Also, each applicant intends to carry general freight and 

a small percentage of express packages and/or mail. Kalitta states that it has no current or 

proposed cooperative arrangements, code-share arrangements or Aircraft, Crew, Maintenance, 

and Insurance (ACMI)/charter arrangements with any carrier. Southern states that it has 

operated long-term wet-lease services for two major Chinese operators, China Cargo Airlines 

and Shanghai Airlines. Kalitta and Southern operate U.S.-China charter service.

Kalitta proposes to operate two different U.S.-China routings three times a week each. 

Specifically, it would serve Shanghai from Chicago/New York and serve Guangzhou from Los 

Angeles. However, because both westbound flights would transit Anchorage at the same time, 

Kalitta proposes to cross-load cargo between the aircraft so that, in essence, it would provide 

service to both Shanghai and Guangzhou from Los Angeles, Chicago, and New York. The 

carrier intends to utilize B747-400 BCF aircraft for the Chicago-New York-Shanghai route and 

will initially operate B747-400F and -200F aircraft for the Los Angeles-Guangzhou route, 

transitioning to all B747-400F aircraft as more of this series aircraft are added to the fleet.

Southern proposes to serve Shanghai from two U.S. points. Southern proposes to operate three 

weekly roundtrips between Los Angeles and Shanghai, and three weekly roundtrips between 

Chicago and Shanghai. The Chicago-Shanghai service includes a technical stop in Anchorage. 

Southern states that it will utilize B777-200 LFR aircraft. The carrier states that, should the need 

arise, it will utilize one or more of its B747 freighter aircraft.

Position of the Parties

Kalitta maintains that its proposal offers the broadest market coverage in the United States and 

China, the most aircraft capacity, and an experienced team of scheduled sales and customer 

support personnel. Kalitta notes that Shanghai is the primary air freight gateway for a broad area 

of Eastern China and that there are opportunities in Guangzhou, as Northwest Airlines Inc.’s 

(Northwest) withdrawal in 2008 left a gap in U.S. flag service for those shippers who tender 

consolidated freight-of-all-kind traffic.6

 Kalitta states that its proposal to cross-load cargo on its 

westbound flights in Anchorage gives it the ability to offer export shippers at three large U.S. 

gateways timely service to both Central and Southern China.

Kalitta questions the availability of the aircraft that Southern proposes for its U.S.-China 

operations, noting Southern’s recently signed blocked space agreement with Thai Airways 

International to utilize Southern’s two B777 aircraft. Kalitta also challenges the viability of 

Southern’s traffic schedule, flight times and the payload capacity of the aircraft.

Southern argues that selection of Southern would add competition in the transpacific scheduled 

all-cargo market whereas an award to Kalitta would not, as Kalitta now serves Hong Kong. The 

carrier states that new competition would lead to more service and pricing options for the 

shipping public on both sides of the Pacific. Specifically, Southern asserts that its scheduled 

service would provide shippers with greater regularity of service in major markets and a degree 

of certainty that cannot be achieved by continued charter service due to the restrictive, 

 6 At the time of the withdrawal, Northwest had not yet merged with Delta Air Lines, Inc. Subsequently, the 

Department issued an order transferring frequencies and all route authority held by Northwest to Delta (see Order 

2009-1-8). 
4

bilaterally-agreed frequency limitations on charters that compete with Chinese carriers’ 

scheduled flights.

Southern maintains that, as an existing cargo carrier with worldwide operations, U.S.-China 

scheduled service is well within its established capabilities and scope of operations. Southern 

states that it has considerable experience operating in the U.S.-China market, as it has operated 

under long term wet-lease contracts for two major Chinese operators. Southern further states 

that it has completed over 1,300 rotations to and from China, especially Shanghai. In response to 

questions regarding its experience in scheduled service sales and aircraft availability, Southern 

states that it has adopted a company strategy of moving into regularly scheduled operations in 

selected markets including the U.S.-China market. In addition, Southern asserts that it intends to 

acquire additional B777 aircraft and that, with a fleet of 17 B747 freighters, it has more than 

sufficient back-up capacity and flexibility to provide U.S.-China and Thailand-based service.

Tentative Decision 

We have tentatively decided to award Kalitta economic authority to provide scheduled all-cargo 

services in the U.S.-China market and to allocate it six weekly frequencies for its proposed 

U.S.-China service. We tentatively find that Kalitta’s proposal to serve two Chinese gateways, 

Shanghai and Guangzhou, and its proposal to cross-load its westbound China traffic, effectively 

providing service to two China gateways from three major U.S. gateways, would provide 

benefits that Southern’s proposal would not offer. 

We tentatively find that Kalitta’s proposed Los Angeles-Guangzhou service would provide 

shippers with an alternate shipping option to those being offered by other U.S. air carriers at 

Guangzhou. We note that under Kalitta’s proposal, traffic originating in Chicago and New York 

may be destined for Shanghai or Guangzhou, and traffic originating in Los Angeles may be 

destined for Guangzhou or Shanghai. We tentatively find that Kalitta’s proposal to cross-load its 

westbound traffic from three major U.S. gateways (Los Angeles, Chicago, and New York) at 

Anchorage would not only enhance the use of the available frequencies but would provide more 

options for U.S. shippers. Against this background, we tentatively find that the selection of 

Kalitta would best serve the public interest.

7

Southern cites the “fresh approach and unique perspective” it would bring as a new transpacific 

scheduled all-cargo competitor. However, based on the totality of the record before us, we

tentatively see the significant attributes of Kalitta’s proposal, notably including the greater 

number of points it would serve both in the United States and China and thus the greater number 

of options it would offer shippers as opposed to Southern, as representing meaningful benefits 

that should clearly enhance Kalitta’s ability to compete in the U.S.-China all-cargo market.

 

 7 We note that in less than a year, effective March 25, 2011, under the terms of the U.S.-PRC Aviation Agreement,

all frequency and designation limitations will no longer be applicable to scheduled all-cargo operations, and 

Southern, along with other U.S. carriers, will have the ability to enter the U.S.-PRC scheduled all-cargo market.
5

Economic Authority

We propose to issue to Kalitta two-year exemption authority effective upon issuance of a final 

order in this proceeding.

8 9

 Consistent with our standard practice, the frequencies allocated in 

this proceeding would be subject to a start-up condition and our standard 90-day dormancy 

condition. We would require that Kalitta begin service within 90 days of the issue date of the 

final order. For any frequency not operated for a period of 90 days (once inaugurated and for 

any reason other than seasonal use) the frequency would be deemed dormant and the allocation 

as to that frequency would expire automatically and the unused frequency would revert to the 

Department for reallocation.10

We tentatively defer action on Kalitta’s request for certificate authority, as the limitations on 

scheduled all-cargo carrier designations and frequencies will be removed effective 

March 25, 2011.11 

Sale/Transfer Condition

We tentatively find that the public interest calls for imposing a restriction on the sale or transfer 

of newly-awarded U.S.-China all-cargo route rights. We thus tentatively impose the following 

condition on the economic authority to be awarded in this proceeding: the selected carrier must 

operate newly-awarded U.S.-China all-cargo routes until March 25, 2011, before that carrier may 

be permitted to sell or transfer the route in question.12

DOT-OST-2008-0127. 

 Our tentative action here is consistent 

with the no sale/no transfer condition that was applied to new route authority and frequencies in 

the 2009 U.S.-China All-Cargo Designation and Frequency Allocation Proceeding in Docket

ACCORDINGLY,

1. We tentatively select Kalitta Air, L.L.C. for award of exemption authority to engage in 

scheduled foreign air transportation of property and mail between a point or points in the 

United States, on the one hand, and a point or points in the People’s Republic of China, 

on the other hand, via intermediate points, and beyond China, subject to the attached 

conditions;

 8 We note that once the limitations on scheduled all-cargo carrier designations and frequencies are removed, 

Kalitta’s exemption authority, tentatively granted here, would be subsumed by its blanket open-skies certificate (see

Order 2007-7-4). 9 We tentatively find that Kalitta is fit to provide the authorized service. The carrier has been found to be a citizen 

of the United States, and fit, willing, and able to provide scheduled foreign air transportation of property and mail as 

a certificated air carrier under section 41102 of Title 49 U.S.C. (see Order 2007-7-4). We further tentatively find 

that issuance of the exemption authority granted will result in a near term increase of annual fuel consumption in 

excess of ten million gallons. As a result, our action constitutes a “major regulatory action” under the Energy Policy 

and Conservation Act of 1975, as defined by Section 313.4(a)(1) of the Department’s regulations. We tentatively 

find, however, that the service provided under the authority granted and resulting public benefits outweigh any 

adverse effects that may be caused by the increased fuel consumption.

10 We remind the selected carrier that the frequencies awarded are for weekly operations. A scheduled carrier may 

not bank frequencies from one week to the next. Failure to use the subject frequency on a weekly basis would result 

in the forfeiture of the unused frequency for that particular week. 11 We would be prepared to act on the certificate portion of Kalitta’s request should it become necessary to grant 

longer-term authority. 12 We note that the no sale/no transfer condition will no longer be necessary when designation and frequency limits 

no longer apply to scheduled U.S.-China all-cargo services.
6

2. We tentatively allocate Kalitta Air, L.L.C. six weekly frequencies to perform its proposed 

Los Angeles-Guangzhou and Chicago/New York-Shanghai services;

3. We tentatively deny the application of Southern Air, Inc. for its proposed U.S.-China 

service;

4. We tentatively defer action on the request of Kalitta Air, L.L.C. for certificate authority 

for its proposed U.S.-China service;

5. We tentatively impose a restriction until March 25, 2011, on the sale or transfer of the 

route rights awarded in ordering paragraphs 1 and 2 by Kalitta Air, L.L.C.;

6. We direct any interested parties having objections to our tentative findings and 

conclusions set forth in this order and in ordering paragraphs 1 through 5, above, to file 

their objections, in the above-captioned docket, with the Department’s Docket section, 

U.S. Department of Transportation, Docket Operations, M-30, West Building Ground 

Floor, Room W12-140, 1200 New Jersey Avenue, SE, Washington, D.C., 20590, no later 

than 10 days from the date of service of this order; answers thereto shall be filed no later 

than seven calendar days thereafter;13

7. If timely and properly supported objections are filed, we will afford full consideration to 

the matters or issues raised by the objections before we take further action;14 if no 

objections are filed, we will deem all further procedural steps to be waived and will 

proceed to enter a final order awarding the authority proposed in this order;

8. To the extent not granted, we deny all motions and requests in the captioned dockets; and

9. We will serve this order on the parties to the captioned docket of the order, the U.S. 

Department of State (Office of Aviation Negotiations), the Federal Aviation 

Administration (AFS-200), and the Ambassador of the People’s Republic of China in 

Washington, D.C.

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

 13 Filers are encouraged to use the electronic submission capability available through the Dockets’ FDMS system 

following the instructions on the web site: www.regulations.gov. You should also provide courtesy e-mail copies of 

your submissions to the U.S. Carrier Licensing Division at: esta.rosenberg@dot.gov and thuy.cooper@dot.gov. In 

the alternative, all filings should be on 8-1/2” X 11” white paper using dark ink (not green) and be unbound without 

tabs, which will expedite use of our docket imaging system.

14 As we are providing for the filing of objections to this tentative decision, we will not entertain petitions for 

reconsideration of this show-cause order.
1

ATTACHMENT

U.S. Carrier Exemption Conditions

In the conduct of the operations authorized, the U.S. carrier applicant(s) shall:

(1) Hold at all times effective operating authority from the government of each country served;

(2) Comply with applicable requirements concerning oversales contained in 14 CFR 250 (for 

scheduled operations, if authorized);

(3) Comply with the requirements for reporting data contained in 14 CFR 241;

(4) Comply with requirements for minimum insurance coverage, and for certifying that coverage 

to the Department, contained in 14 CFR 205;

(5) Except as specifically exempted or otherwise provided for in a Department Order, comply 

with the requirements of 14 CFR 203, concerning waiver of Warsaw Convention liability limits 

and defenses;

(6) Comply with all applicable requirements of the Federal Aviation Administration, the 

Transportation Security Administration, and with all applicable U.S. Government requirements 

concerning security, including, but not limited to, 49 CFR Part 1544. To assure compliance with 

all applicable U.S. Government requirements concerning security, the holder shall, before 

commencing any new service (including charter flights) to or from a foreign airport, contact its 

Principal Security Inspector (PSI) to advise the PSI of its plans and to find out whether the 

Transportation Security Administration has determined that security is adequate to allow such 

airport(s) to be served;

(7) Comply with such other reasonable terms, conditions, and limitations required by the public 

interest as may be prescribed by the Department of Transportation, with all applicable orders and 

regulations of other U.S. agencies and courts, and with all applicable laws of the United States.

The authority granted shall be effective only during the period when the holder is in compliance 

with the conditions imposed above.

 

1/2008