BEFORE THE - AirlineInfo



BEFORE THE

U.S. DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

| | |

|New Route Opportunities (U.S.-China) |Docket OST-2004-18468 |

|2004 Cargo Designation and | |

|2004/2005 All-Cargo Frequencies | |

CONSOLIDATED REPLY OF FEDERAL EXPRESS CORPORATION

Communications with respect to this document should be sent to:

|Nancy S. Sparks |Thomas F. Donaldson, Jr. |

|Managing Director |Vice President |

|FEDERAL EXPRESS CORPORATION |G. Bailey Leopard, Jr. |

|Regulatory Affairs |Senior Attorney |

|1101 Pennsylvania Avenue, N.W. |FEDERAL EXPRESS CORPORATION |

|Suite 600 |Regulatory Affairs |

|Washington, D.C. 20004 |3620 Hacks Cross Road |

|Email: nssparks@ |Building B, 3rd Floor |

| |Memphis, Tennessee 38125 |

| |(901) 434-6664 (phone) |

| |(901) 434-8283 (fax) |

| |Email: gbleopard@ |

| | |

|Service by e-mail to both Washington and Memphis offices |Attorneys for |

|requested |FEDERAL EXPRESS CORPORATION |

July 8, 2004

BEFORE THE

U.S. DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

| | |

|New Route Opportunities (U.S.-China) |Docket OST-2004-18468 |

|2004 Cargo Designation and | |

|2004/2005 All-Cargo Frequencies | |

CONSOLIDATED REPLY OF FEDERAL EXPRESS CORPORATION

Federal Express Corporation (“FedEx Express”) again wants to thank the Department of Transportation and the State Department for negotiating an exceptional, groundbreaking agreement with China. As is evidenced by the interest in the new designation and newly available frequencies, the previous U.S.-China air services regime was a dam that needed to be broken, and the U.S. government is to be commended for the persistent and creative way in which it did so.

However, now that the dam is broken, the Department must avoid being swept up by unrealistic, overly optimistic and, in some instances, vague and ambiguous proposals. These new opportunities are simply too valuable to be cast adrift in a fast-moving river of foreign competition and operational complexity. FedEx Express stands with its head well above water – more so than any other applicant – as a tried, tested and successful participant in the U.S.-China and U.S.-Asia all-cargo markets. Its proposal is clear and complete and, if granted, will enable FedEx Express to further develop its exceptional, established network of express and cargo services to the benefit of U.S. shippers and U.S. interests.

Granting FedEx Express’s proposal will result in a number of demonstrable public interest benefits enabling U.S. businesses and U.S.-flag interests to maximize the economic value to be derived from these scarce resources. It will enable FedEx Express to institute bi-directional, round-the-world service linking the U.S. and Beijing, Shanghai and Shenzhen, via other points in Asia, Europe, the Middle East, and the rest of FedEx Express’s superior, global network. Furthermore, it will open Qingdao as a new U.S.-China market. Finally, it will result in the addition of FedEx Express’s eighth transpacific daily service, offering shippers in the Shanghai/Yangtze River Delta region an additional 600,000 pounds of weekly cargo capacity to the United States.[1] For these reasons, the FedEx Express application deserves to be granted in full, with the remaining frequencies distributed among the other applicants as the Department sees fit.

1. Not entitlements or parity – public interest.

Similar to Northwest’s theory of entitlement articulated in the recent U.S.-Hong Kong all-cargo route case,[2] most of the new designee applicants seem to believe they are entitled to a relatively large number of the available frequencies simply because they are new entrants:

• Arrow makes the following conclusory statement in its Answer: “At least one third of the frequencies to be allocated should be awarded to the new entrant all-cargo airlines [sic] selected by the Department for an award in this case.”[3]

• Evergreen “takes no position on [the incumbent carriers’] requests except that the Department should first grant the frequencies as fully requested by the new entrant designee before awarding additional frequencies to the existing major-carrier designees.”[4]

• Gemini states, “The number of frequencies that Gemini has sought represent a quantity that is essential for Gemini to mount new service in the important Chinese market. Gemini takes no position, therefore, on how the Department may choose to distibute [sic] the remaining frequencies [among the incumbent carriers].”[5]

While Polar’s claim of entitlement is not quite as blatant as those above, it also alludes to a theory of entitlement when it analyzes the incumbent carriers’ applications based on what is “reasonable” relative to the number of available frequencies.[6] Even UPS, an incumbent participant in the market, adopts a version of this entitlement argument when it claims that its application deserves priority over FedEx Express’s simply because FedEx Express has beaten UPS to the marketplace and over the years has built a more substantial operation in China than UPS.[7]

These arguments ignore the Department’s clear precedent, which requires the Department to distribute available frequencies so that the greatest public benefit is achieved. Furthermore, they ignore the fact that a new-entrant carrier, especially operating a general cargo pattern, does not need a double-daily service to establish itself in the marketplace.[8] Even FedEx Express, a full-service, integrated express carrier, began its China service with four frequencies it purchased from Evergreen when Evergreen failed to exploit the Department’s award in 1995. Through a long-standing commitment to the marketplace, FedEx Express has now built its China portfolio to eleven frequencies, which it utilizes to serve Beijing, Shanghai and Shenzhen. Granting FedEx Express’s proposal will allow it to further develop its network and add bi-directional, round-the-world service; new service to Qingdao; and an eighth transpacific daily service.

FedEx Express should not be prevented from making these improvements to its network simply because other carriers are late to the marketplace. The new entrants’ claims of entitlement to an arbitrary number of frequencies should be ignored, as should UPS’s claim that it is entitled to parity. The Department should make its decision on the basis of what most benefits the public and, therefore, should grant FedEx Express’s application for eighteen frequencies.

2. UPS – the Don Quixote of the China route case.

If UPS spent as much time developing its own proposal as it does tilting at windmills with FedEx Express’s, the Department and the other applicants might know what it really intends to do with the frequencies it has requested. While UPS’s Answer does provide some additional information regarding its plans for six August 1 frequencies,[9] it still does not provide certain detailed information about its proposed Shanghai services (such as days of service) nor identify the alleged co-terminalization, intermediate and beyond points it intends to serve in conjunction with its proposed Guangzhou service.[10] Without this information, neither the Department nor the other applicants can fully evaluate and consider UPS’s proposal. Thus, its application fails to meet the most basic requirements of the Department’s notice requesting applications by failing to adequately identify the markets it proposes to serve. Nevertheless, in keeping with the theory of entitlement discussed above, UPS contends that its proposed operations are worthy of a full, unexamined allocation of frequencies.

Turning to the quixotic, UPS takes FedEx Express to task for its failure to apply for frequencies in furtherance of establishing a hub at Guangzhou. As the Department and UPS are well aware, FedEx Express is currently engaged in negotiations with Guangzhou airport officials and other Chinese government officials about the establishment of a world-class hub facility at the new Baiyun International Airport, which does not even open until next month. While Guangzhou can be accurately described as a frontrunner, other airports remain in contention. In order to open the sort of hub facility FedEx Express’s global network demands, many issues (use and operating agreements, leasing agreements, financing, construction, customs clearance, etc.) must be resolved before a final decision is made regarding the location of FedEx Express’s next Asia hub. Once the decision is made, the long process of constructing a major physical plant (representing an extremely significant investment) must be undertaken before a real hub can be established, at which time the full bank of hub-and-spoke flights would be implemented. Consequently, as the Department and UPS are also well aware, FedEx Express anticipates that it will not open its new Asia hub until around 2010.

Therefore, FedEx Express is not seeking new frequencies to Baiyun International in the near-term. FedEx Express has well-established operations nearby at Shenzhen, which serve the Pearl River Delta, identified by UPS itself as one of China’s “three key coastal regions,” and its proposal will continue to expand service there. As set forth in its application, in the near-term FedEx Express requires additional frequencies to, among other things, augment its current operations at Shanghai by connecting it, as well as Beijing and Shenzhen, to bi-directional, round-the-world service. Currently, Shanghai is FedEx Express’s most critical gateway to China’s rapidly growing economy, and it seeks to continue its development in this market as quickly as possible.

With regard to UPS’s alleged “hub” intentions, it is telling to note UPS’s qualification of its intentions by its reference to the “cargo hub” definition of the new U.S.-China agreement.[11] FedEx Express took the lead among industry representatives in pushing for specific cargo hub rights as part of its long-term strategy to establish a global hub in China, and, as usual, UPS is following FedEx Express’s lead. Apparently, UPS intends to take advantage of the cargo hub rights in the new agreement by concentrating enough aircraft movements in one place to meet the bilateral’s definition of a “cargo hub” and claim this liberal package of rights – creating the mere image of a hub without the long-term effort or investment. Dumping third and fourth freedom capacity into a single point, as UPS proposes to do at Shanghai, does not make the point a hub. A hub in the true sense of the word is at the center of several spokes, serving as a transload point and sort facility and connecting the spokes into a broader network. Rather than creating a hub on paper just to obtain liberal hub carrier rights, FedEx Express hopes to reach an agreement with relevant Chinese officials so that it can make a real, meaningful investment in the airport, the surrounding area and its economy, and the Chinese people. Instead of the pseudo-hub that UPS touts, FedEx Express envisions a bricks-and-mortar facility akin to its global hubs at Paris and Subic Bay.

UPS’s other windmill is FedEx Express’s proposed bi-directional, round-the-world service.[12] UPS contends that FedEx Express’s proposal for six weekly westbound round-the-world flights and another six weekly eastbound round-the-world flights requires only six, not twelve, frequencies, thus wasting the second allocation. This is just wrong. The second, eastbound round-the-world service[13] will consist of an outbound flight from the United States, the FX 10, and an inbound flight to the United States, the FX 28, routed as follows:

FX 10: Memphis/Newark-Frankfurt/Paris/Delhi-SHANGHAI-Tokyo[14]

FX 28: Tokyo-SHENZHEN-Anchorage/Memphis (Mondays through Fridays)

Tokyo-BEIJING/SHANGHAI-Anchorage/Memphis (Saturdays only)

For ease of reference, FedEx Express has referred to this operation as an eastbound, round-the-world service. However, it is in reality an outbound flight from the U.S. via Europe and China to Japan, and an inbound flight from Japan via China to the U.S. As such, it requires six full weekly round-trip frequencies in order to be operated.

While the origin of the FX 10 is Memphis and the termination point is Tokyo, the flight will seldom if ever carry through traffic from the U.S. to Japan, since FedEx Express already operates twenty-eight weekly nonstops from the United States to Tokyo. Instead, this flight is designed to carry U.S. and European exports into Shanghai, and once that traffic has been off-loaded, close to the full capacity of the aircraft will be available to fly Chinese exports to Japan – one of the largest trading relationships in global commerce and a market that is significantly occupied by Japanese-flag and other foreign-flag services. Similarly, the inbound flight, the FX 28, will be available for a full planeload of traffic from Japan to China, and once that traffic has been off-loaded, the full capacity of the aircraft can be used for the nonstop leg from China to Anchorage and on to Memphis. By routing the flight in this way, FedEx Express will multiply the economic value of each of these precious frequencies – using each one not only to carry a planeload of cargo into China and another planeload outbound from China to the U.S., but also to carry a full planeload of traffic from China to Japan, and yet another planeload of traffic from Japan to China.

Finally, as the Department and UPS know, direct, through services are more desirable and more marketable than connected services for general air cargo. FedEx Express offers both services, express and general air cargo, and wants to be in a position to market both types effectively. In order for FedEx Express to offer through services from the U.S. to China and vice versa on its bi-directional, round-the-world service, it must structure the flights and flight numbers as it has proposed rather than breaking the flights at beyond points as proposed by UPS. Additionally, the U.S.-China services do not exist in a vacuum; they are part of an overall network of express and air cargo services that FedEx Express operates and markets to all types of shippers. Thus, FedEx Express is seeking adequate frequencies for bi-directional, round-the-world service to optimize the service for all potential customers and to support the overall network. UPS would have the Department hobble its competitor for global freight services, which is not the proper role of the decision-maker.

It is, in fact, UPS that is proposing to squander scarce resources – at least as best can be determined from the vague and ambiguous service proposal contained in its application. UPS says that of the first six frequencies it is requesting, five will be used for B-767 service from the U.S. via Osaka to Shanghai, with one weekly frequency operating nonstop from Anchorage to Shanghai. What UPS is really saying is that U.S.-China shippers will merely be allocated a certain number of pallet positions on its transpacific aircraft operating into Osaka, where their cargo will be transloaded onto the smaller B-767 (a much smaller aircraft than FedEx Express’s MD-11) for onward carriage to Shanghai. Whatever capacity, if any, is left on that B-767 could then be marketed to Japan-China fifth-freedom shippers. So instead of using frequencies to offer two full planeloads into China and two full planeloads outbound from China, as does FedEx Express, UPS would offer the Shanghai market a shamefully meager fraction of the total capacity on the transpacific aircraft and the capacity of a single B-767 in and out of China to be shared between the third and fourth-freedom and fifth-freedom customers. Clearly, it is UPS, not FedEx Express, that is unwilling and unable to structure the deployment of its requested frequencies so as to maximize the economic benefits for U.S.-flag interests.

3. Northwest – we came, we applied, therefore we should conquer … right?

Northwest’s laissez faire Answer is consistent with its attitude toward the all-cargo market in China – we need ten new all-cargo frequencies so we can commit more resources to our combination operations. Consistent with the above-discussed entitlement theory Northwest coined in the Hong Kong route case, Northwest seems to have taken the attitude that, since it showed up, it simply deserves what it has asked for.

Northwest is on track to obtain seven new combination frequencies in the simultaneous proceeding regarding U.S.-China combination frequencies.[15] Thus, Northwest’s belly-cargo capacity in the China market will increase by over fifty percent. In addition to this increase, Northwest is requesting ten additional all-cargo frequencies but committing only nine of them to all-cargo service.[16] So Northwest is asking the Department to increase its all-cargo capacity by 333 percent while simultaneously converting one of its three existing all-cargo frequencies to combination service. Given Northwest’s limited ambitions to serve only two Chinese all-cargo destinations, increasing Northwest’s overall cargo capacity by more than 383 percent would be unreasonable, especially considering the flexibility it has with its sixteen existing frequencies.

4. Notwithstanding Arrow’s Answer, more is not necessarily better.

The theme of Arrow’s Answer seems to be “more is better” – more service points, more flights, more capacity. Arrow’s shotgun approach to the U.S.-China market reveals its lack of experience and understanding of the market, and the Department should not be fooled by Arrow’s unbridled exuberance. This capacity-dumping approach has been tried before in this market and has failed. Arrow falls into the familiar trap of mixing apples and oranges, maintaining that non-stop service reigns supreme. However, unlike in the passenger context, non-stop services and circuity are not issues in all-cargo services as has been demonstrated in countless proceedings of this kind. Reliability and performance are the keys to a successful cargo operation, and FedEx Express’s network and frequency of service provides customers with unsurpassed reliability and performance.

In contrast to Arrow’s and other applicants’ puffery and blustering, FedEx Express credibly pursues a right-sized approach. For example, although some of the applicants take umbrage at FedEx Express’s use of an A310 in developing a new U.S.-Qingdao market, FedEx Express understands that a gradual, methodical approach is required when developing a new market. Once the new market is developed and demand dictates, it can be upgauged. Similarly, FedEx Express has found the MD-11 to be the most efficient, flexible aircraft for its global, networked operations. Now that it has developed and nurtured its unsurpassed global network, it is making plans to upgauge its capacity with the new A380. FedEx Express has ten A380’s on order and takes delivery of its first three in 2008. FedEx Express’s reasonable, measured approach has proven to be extremely successful and has allowed it to become the preeminent integrated express carrier in the world. In contrast, Arrow almost quite literally filed its application with the Department on its way back from bankruptcy court.

Arrow’s lack of experience and understanding is apparent elsewhere in its Answer. Arrow claims that its application is superior because its proposed capacity would not be “blocked by third country market services.”[17] Similarly, Arrow criticizes FedEx Express for “diluting” the effectiveness of the U.S.-China frequencies with round-the-world service. Arrow fails to realize the value of fifth-freedom traffic to augment third and fourth-freedom services and, therefore, would fail to take full advantage of the rights available to it under the U.S.-China agreement. What Arrow views as an obstacle, FedEx Express sees as an opportunity to maximize the effectiveness, efficiency and profitability of its service. Arrow’s all-or-nothing approach ignores the realities of the marketplace and disregards the need for flexibility, which may be indicative of the reason for Arrow’s past failures.

Similarly, Arrow claims that FedEx Express’s and the other incumbents’ applications “fail to address the extraordinary demand for all-cargo freighter service between China and the U.S.”[18] Arrow then attacks FedEx Express for proposing to operate its flights “from its Memphis center with no direct flights to major freight generating cities in the United States.”[19] Arrow disregards the fact that FedEx Express offers both express and general cargo services. Also, Arrow does not understand that, when FedEx Express proposes to connect services to its superhub at Memphis or to any of its other regional hubs throughout the U.S., it is connecting the entire U.S. market, not just particular U.S. points, to China and the rest of the world.[20] Furthermore, FedEx Express currently serves 223 cities in China with its door-to-door services and has plans to add an additional 100 cities. Simply put, Arrow’s shotgun approach is way off-target relative to the connectivity and service of FedEx Express’s network.

5. Gemini – no experience, no track record, no way.

Given Gemini’s lack of experience in scheduled services, particularly in Asia, and its recent performance (or lack thereof) in limited-entry markets, the Department should deny Gemini’s application. When deciding this case, the Department must remember Gemini’s relinquishment of limited U.S.-Brazil rights, especially considering the fact that these rights were the subject of a hard-fought, contested case that taxed the Department’s limited resources. Gemini’s proposed limited market coverage in China also mandates denial of its application.

Transparency of operations should be a goal of this proceeding so the Department can truly understand to whom it is awarding these valuable, public assets. In this regard, the Department should endeavor to determine if Gemini or any other applicants are, as a practical matter, simply acting as surrogates for silent interests. For example, awarding Gemini frequencies is singularly inappropriate if it really represents only a few freight forwarders, effectively providing them its traditional charter services while claiming valuable scheduled air carrier rights. Additionally, such an award would not serve to increase U.S. shipper options. Rather, it would merely channel U.S. freight through a limited number of handlers. This potential problem is exacerbated, insofar as the Department’s policy goals are to award U.S. bilateral rights to U.S. carriers, if most or all of these handlers are foreign-owned interests.

6. Evergreen – long on chutzpah, short on performance.

Were it not so annoying, Evergreen’s gall in applying for the one dedicated all-cargo designation and seven of the limited frequencies available under the new U.S.-China agreement would be almost admirable for its courage. Evergreen’s unsavory track record in limited-entry markets speaks for itself, and, if it were possible, its application should be summarily dismissed on this record alone.

Specifically, Evergreen has been unsuccessful in Asia, selling the four China frequencies it previously received. More recently, after months of delay caused by a contested route proceeding and subsequent service delays, Evergreen relinquished the valuable Hong Kong-Seoul frequencies it was awarded, which it never put into service. Additionally, Evergreen, like Gemini, failed to meet its commitments in the U.S.-Brazil case and relinquished its rights there. Even in the Asian region that it worked the hardest to develop, the Russian Pacific territories, Evergreen has failed and has let its U.S. authority lay dormant once too often. Simply put, the Department cannot trust Evergreen with these highly valuable resources, and its application should be denied.

7. Polar may deserve the designation but not all those frequencies.

Of all the new applicants, Polar alone puts forward a reasonable, supportable case. Although Polar’s concentration of all its China services at one point is somewhat disconcerting, it is consistent with entering a new market, and Polar apparently has a plan to disperse its services through interline and intermodal arrangements. But the financial well-being of Polar’s parent, Atlas, remains at issue. In fact, none of the new-entrant applicants seem to display long-term stability or security – all appear to have been through a reorganization, refinancing or realignment of basic business goals.

FedEx Express takes issue with an allocation of nine frequencies to a new-entrant carrier, especially given the freight patterns that Polar has historically employed to serve other markets.[21] As FedEx Express stated in its Answer, this is neither the time nor place for an experiment. The new agreement calls for a new all-cargo designee, but the Department should be cautious in its allocation of frequencies to the new-entrant and require that it prove itself in the marketplace before awarding it additional rights. This is precisely the sort of measured approach the incumbent carriers have been required to take, blazing the trail for U.S. competition in the Chinese marketplace. FedEx Express began its services with four frequencies; UPS with six. Experimenting with these valuable U.S. resources on untried, untested new entrants is inappropriate and puts U.S. interests at risk. Therefore, if the Department awards the designation to Polar, it should award Polar no more than six frequencies.

Conclusion

FedEx Express’s application presents the best, most viable proposal of all the applicants. If the Department grants FedEx Express’s request, it will be leveraging these new opportunities to: connect the U.S. and China to the rest of the world via bi-directional, round-the-world service; open the U.S.-Qingdao market to FedEx Express’s time-definite, guaranteed door-to-door services; and enable FedEx Express to add an eighth transpacific daily service. Therefore, the Department should grant FedEx Express’s application and award it eighteen frequencies – twelve from the August 1, 2004 tranche and six from the March 25, 2005 tranche.

Respectfully submitted,

FEDERAL EXPRESS CORPORATION

___________________________

G. Bailey Leopard, Jr.

Sr. Attorney

Regulatory Affairs

Certificate of Service

I hereby certify that I have this 8th day of July, 2004 caused this Consolidated Reply of Federal Express Corporation to be served upon each party listed below in the manner indicated.

__________________________

|Frank J. Visconti, President |Glenn P. Wicks |

|Richard L. Richards, Vice President & General Counsel |Lisa A. Harig |

|Arrow Air, Inc. |The Wicks Group, PLLC |

|2000 NW 62nd Avenue |Counsel for Evergreen International Airlines, Inc. |

|Bldg. 711 |1215 17th Street, NW |

|Miami FL 33122 |Sumner Annex, 5th Floor |

|(via U.S. mail) |Washington DC 20036 |

| |(via email: lharig@wicks- and gpwicks@wicks-)|

|Lawrence D. Wasko |Lee A. Bauer |

|Jacquelyn Gluck |Moffett B. Roller |

|Attorneys for Arrow Air, Inc. |Roller & Bauer, PLLC |

|1150 Conn. Ave., NW Suite 900 |Counsel for Gemini Air Cargo, Inc. |

|Washington DC 20036 |1020 Nineteenth Street, NW, Suite 400 |

|(via e-mail: ldwasko@ and jngluck@) |Washington, DC 20036 |

| |(via e-mail: mroller@) |

|Ed Connolly |Andrea Fischer Newman |

|Executive Vice President |Senior Vice President, Government Affairs |

|Evergreen International Airlines, Inc. |Megan Rae Rosia |

|3850 Three Mile Lane |Managing Director, Government Affairs & Associate General |

|McMinnville, Oregon 97128-9496 |Counsel |

|(via e-mail: ed.connolly@) |Northwest Airlines, Inc. |

| |901 15th Street, N.W., Suite 310 |

| |Washington, DC 20005 |

| |(via e-mail: megan.rosia@) |

|Tom Lydon |Ronald A. Lane |

|Director - Government Affairs |Chief Marketing Officer |

|Evergreen International Airlines, Inc. |Polar Air Cargo, Inc. |

|1401 New York Ave NW |100 Oceangate, 15th Floor |

|Washington DC 20005-2147 |Long Beach, CA 90802 |

|(via e-mail : tom.lydon@) |(via e-mail: ron.lane@) |

|Kevin P. Montgomery |David L. Vaughan |

|Polar Air Cargo, Inc. |Michael J. Francesconi |

|1747 Pennsylvania Avenue, N.W. |Kelley Drye & Warren LLP |

|Suite 875 |Counsel for United Parcel Service Co. |

|Washington, DC 20006 |1200 19th Street, N.W., Suite 500 |

|(via e-mail: kevin.montgomery@) |Washington, D.C. 20036 |

| |Phone: (202) 955-9864 |

| |Fax: (202) 955-9792 |

| |(via e-mail: dvaughan@ and |

| |mfrancesconi@) |

|Jeffrey A. Manley |Steven J. Grossman |

|Cathleen P. Peterson |Director of Aviation |

|Counsel for Polar Air Cargo, Inc. |Metro Oakland International Airport |

|Wilmer Cutler Pickering Hale and Dorr LLP |1 Airport Drive |

|2445 M Street, N.W. |Oakland, California 94621 |

|Washington, DC 20037-1420 |(via U.S. mail) |

|(via e-mail: jeffrey.manley@) | |

|Scott C. Casey |Susan M. Baer, General Manager |

|Daniel N. Tenfelde |Newark Liberty International Airport |

|United Parcel Service Co. |Building #10 |

|1400 North Hurstbourne Parkway |The Port Authority of New York and New Jersey |

|Louisville, KY 40223 |Newark, New Jersey 07114 |

|(via e-mail: scasey@ and dtenfelde@) |sbaer@ |

| |(via e-mail) |

|Ted Lytle |Larry D. Cox, A.A.E. |

|Public Affairs Manager |President & CEO |

|United Parcel Service Co. |Memphis-Shelby County Airport Authority |

|316 Pennsylvania Avenue, S.E. |2491 Winchester Road, Suite 113 |

|Washington, D.C. 20003 |Memphis, Tennessee 38116 |

|tlytle@ |(via U.S. mail) |

|(via e-mail) | |

|Morton V. Plumb Jr., Director |Patrick Dooley |

|Anchorage International Airport |Director, Indianapolis International Airport |

|P.O. Box 196960 |Indianapolis Airport Authority |

|Anchorage, Alaska 99519-6960 |Suite 100 |

|(via U.S. mail) |2500 S. High School Road |

| |Indianapolis, IN 46241 |

| |(via U.S. mail) |

|Richard M. Vicar |Rebecca L. Taylor |

|Director |Nicole C. Mason |

|Genaro Pena |LEFTWICH & LUDAWAY, L.L.C. |

|Acting Deputy Director |1401 New York Avenue, N.w. |

|Department of Aviation |Suite 600 |

|CITY OF HOUSTON |Washington, DC 20005 |

|16930 John f. Kennedy Boulevard |(202) 434-9100 |

|Houston, TX 77032 |(202) 783-3420 (fax) |

|(281) 233-3000 |rltaylor@ |

|(281) 233-1859 (fax) |ncmason@ |

|(via U.S. mail) |(via e-mail) |

|Miguel R. San Juan | |

|President, World Trade Division | |

|GREATER HOUSTON PARTNERSHIP | |

|1200 Smith Street, Suite 700 | |

|Houston, TX 77002 | |

|(713) 658-2488 | |

|(713) 844-0200 (fax) | |

|(via U.S. mail) | |

526564

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[1] FedEx Express currently operates a transpacific flight over the routing Penang-Shenzhen-Anchorage-Newark. The new eastbound round-the-world flight proposed in this proceeding will operate Tokyo-Shenzhen-Anchorage-Memphis, replacing that existing flight on the Shenzhen-Anchorage sector. The existing frequencies used to operate that service will be shifted to Shanghai, enabling FedEx Express to institute its eighth daily transpacific flight over the routing Penang-Shanghai-Anchorage-Newark.

[2] See Consolidated Answer of Federal Express Corporation, OST-2004-18468, 8-9 (July 6, 2004) (discussing Northwest’s theory of entitlement under which a carrier need not establish that its proposal yields the greatest public benefit; rather, the carrier need only apply for its pro rata share of the available frequencies, to which it is entitled).

[3] Answer of Arrow Air, Inc. to Applications for Certificates of Public Convenience and Necessity, Designation and All-Cargo Frequency Allocation, OST-2004-18468, 6 (July 6, 2004).

[4] Motion for Leave to File Motion for Institution of an Evidentiary Proceeding and Consolidated Answer of Evergreen International Airlines, Inc., OST-2004-18468, 5 (July 6, 2004).

[5] Consolidated Answer of Gemini Air Cargo, Inc., OST-2004-18468, 3 (July 6, 2004).

[6] See Consolidated Answer of Polar Air Cargo, Inc., OST-2004-18468, 12-13 (July 6, 2004) (Polar evaluates the “reasonableness” of the incumbent applications based solely on the number of frequencies requested relative to the number of frequencies available.)

[7] Consolidated Answer of United Parcel Service Co., OST-2004-18468, 4-5 (July 6, 2004).

[8] See Testimony of Ronald A. Lane Chief Marketing Officer, OST-02-14049, 2 (March 21, 2003) (In the 2002/2003 Hong Kong all-cargo route case, Polar testified that “[w]hen introducing scheduled [general] cargo service in a market, the most basic pattern of operations required is twice weekly.” Polar went on to testify that general cargo carriers could offer a “more competitive service, however, [with] three to four weekly frequencies.”

[9] See supra n. 6 at 3-4 and Exh. 3.

[10] See id. at 3 (“UPS will also enhance the benefits of this award [i.e., 6 frequencies for Guangzhou service] by co-terminalizing this flight and using intermediate or beyond points with the frequency [sic].”)

[11] Id. at 2.

[12] Application of Federal Express Corporation, OST-2004-18648, Exhs. FX-1 and FX-3 (June 28, 2004).

[13] Id., Exh. FX-3.

[14] On Saturdays, this flight omits the stops at Newark and Frankfurt.

[15] See OST-2004-18659 (Fourteen combination frequencies are available for allocation to two carriers, United and Northwest. United has applied for seven and Northwest has applied for seven. It seems clear that, notwithstanding American’s objection to the contrary, United and Northwest will each get their seven combination frequencies.)

[16] See Application of Northwest Airlines, Inc., OST-2004-18684, Exh. NW-1, p. 2, n. 2 (June 28, 2004) (in which Northwest admits that it plans to transfer one of its three existing all-cargo frequencies to combination service.)

[17] Supra n. 2 at 3.

[18] Id. at 4 and 5.

[19] Id. at 5.

[20] Arrow and its advocate, the City of Houston, also ignore the fact that the Memphis airport is not only the number one cargo airport in the U.S.; it is number one in the world.

[21] Supra n. 7.

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