Independence Day

Independence Day

Copyright 2003, Traffic World, Inc.

The long-awaited public hearing over AStar Air Cargo's citizenship began Aug. 26 with the airline proclaiming its independence.

John Dasburg, chairman and CEO of AStar, which was formerly DHL Airways, took the stand as the first witness, saying he took the helm of the company only after he was assured that he would have no higher-ups to answer to as the company's chief executive. Dasburg and the AStar legal team sought to squash arguments by FedEx Corp. and United Parcel Service lawyers that a foreign interest, German postal company Deutsche Post World Net, exerts undue control over Miami-based AStar.

U.S. law requires airlines that fly within the United States to meet corporate citizenship requirements, including that they be under "actual control" of U.S. interests.

"I now wanted to have my own company, buy it, grow it, put my mark on it," said Dasburg, the former CEO of Burger King and Northwest Airlines.

Dasburg and two investment partners in July bought DHL Airways for $60 million and renamed it AStar. In addition to Dasburg, partners Richard C. Blum, a San Francisco investment banker and husband of U.S. Sen. Diane Feinstein, D-Calif., and Michael R. Klein, a partner at Washington, D.C., law firm Wilmer, Cutler & Pickering also took the stand. They appeared before DOT Administrative Law Judge Burton S. Kolko, who took over the case in late August after Ronnie A. Yoder, DOT's chief administrative law judge, removed himself from the case amid allegations from AStar attorneys that he was biased against them.

Kolko, who attended Yoder's final pre-hearing conference in the case, missed nary a beat as he began the hearing that could finish within days or could stretch as long as the third week of September. Kolko faces a Nov. 30 deadline, by which time he must give DOT officials his opinion about whether AStar meets U.S. citizenship requirements.

UPS and FedEx attorneys worked to lay out their arguments that the U.S. government should revoke AStar's certificate, which allows it to fly within the country. UPS Vice President and Counsel Steven R. Okun sought to paint AStar as "inextricably" linked to Deutsche Post, whose subsidiaries account for some 90 percent of AStar's business.

"AStar is merely a puppet on the end of Deutsche Post's string," Okun said during his opening arguments. "It exists merely to serve their network."

On the hearing's first day, UPS and FedEx began their line of arguments that the Dasburg investment group got a sweetheart deal when it bought the company, which some analysts had valued at far higher than $60 million. Last Tuesday, UPS officials said that line of questioning would continue throughout the hearing's first days.

Blum said the purchase, which was financed largely with $50 billion borrowed from Boeing Capital Corp., was anything but a sweetheart deal.

"It was very difficult to get this financing in place," he said.

Meanwhile, Sanford M. Litvack, lead AStar attorney, charged FedEx and UPS with being anticompetitive witch hunters.

"They have really tried to make an ogre out of Deutsche Post, the evil Deutsche Post out there somewhere," Litvack said during his opening arguments.

He framed the July sale of DHL Airways to the Dasburg group as coincidental to the DOT citizenship review, which Congress mandated in emergency appropriations legislation it passed in the spring. The company had been without a CEO since August 2002 when its previous CEO Joseph O'Gorman died of a heart attack.

During his testimony, Dasburg revealed that he earns a base salary of $400,000 per year with incentive compensation guaranteed to match that amount during his first year with the company. He also receives a $1,500 car allowance each month and $300,000 per year for the use of a private plane. When he signed an employment agreement March 18 to begin April 1 with DHL Airways, Dasburg also received a 5 percent ownership stake in the airline. Prior to that, DHL co-founder and Idaho businessman William Robinson owned 75 percent of DHL Airways and Deutsche Post owned the other 25 percent.

Dasburg said he accepted the job after being approached by an executive search firm. He said he inquired about purchasing ABX Air, the airline that until last month was part of Airborne Express, as part of the deal but was told that would not be possible.

The mood in Kolko's courtroom at the DOT headquarters in Washington was more cordial than it was during the final pre-hearing conference on Aug. 13, when Yoder scolded Litvack. Litvack had moved for Yoder to step down from the case, and Yoder repeatedly called the attorney's charges "baseless and false." Like Yoder, Kolko liberally used humor from the bench. He called his courtroom atmosphere "laissez faire" and frequently asked the parties to settle minor differences so that he would not have to decree what he wanted to see done.

New York University professor and airline industry economist Janusz Ordover also testified the first day as an expert witness on behalf of AStar. He told the court that the contract between AStar and DHL Worldwide Express, its main customer, is structured so that the German-owned company does not exert illegal control over the U.S.-based airline.

AStar also was expected to call aviation antitrust expert and Brattle Group consultant Dorothy Robyn and Columbia University law professor and corporate governance expert John C. Coffee to the witness stand. UPS and FedEx did not name the witnesses they intended to call, but officials said they would produce their own economic and legal experts.

In other action, AStar has promoted Ray Lutz to be its senior vice president for business development, communications and information technology. Lutz had previously been vice president for business development and communications. Earlier in his career, Lutz spent 23 years with United Airlines in its cargo operations. He is a neighbor and friend of Dasburg. The company also was expected to promote general counsel Steve Rossum to chief financial officer and general counsel.