DOT'S LANDMARK DECISION

DOT'S LANDMARK DECISION

If there was mystery to how the Department of Trans-portation decided which air carriers would win new rights to fly directly to China, there was perhaps even more mystery to the decision itself. Or perhaps not. Heralding a significant expansion of air connections between the United States and China, the DOT last month awarded the rights for 10 additional weekly frequencies to begin next April. Six went to UPS, the clear victor, one to FedEx, two to United and one to Northwest.

The announcement capped months of speculation and intense lobbying by the carriers to secure the highly coveted new flights authorized under a U.S.-China aviation agreement signed in August 1999. DOT received close to 3,000 letters from shippers, members of Congress, local government agencies and others urging their support for one carrier or another. (Sometimes, that was taken to the extreme. As Bill Armbruster reports on page 32, UPS and FedEx had letters to DOT written on their behalf from companies that have never shipped to China.)But the DOT decision, which is not yet final and will likely be appealed by the losing carriers, was perhaps most significant for what it didn't do. Because of its political and economic clout, few expected UPS to be shut out. But with 10 flights to hand out, DOT instead could have introduced an entirely new passenger carrier into the U.S.-China market, such as American or Delta, which currently have no direct flying rights. That would have been consistent with past practice.

Even though the DOT had 10 flights to parcel out, it could use those to introduce only one new carrier. It could have given them all to one carrier, as UPS had requested, or, as it chose instead, to parcel them out among the new carrier and the three existing players. In addition to the flights granted to UPS, United's two passenger flights increase that carrier's presence to 21 flights, by far the most of any carrier, while Northwest can add one freighter or one passenger flight to its current two freighter and 13 passenger flights.

'The mystery is why they didn't give five frequencies to American or Delta for more market development,' said Ned Laird, managing director of the Air Cargo Manage-ment Group in Seattle, a consulting firm that provides freight market research and freighter market applications consulting.

The answer, of course, is that the fingerprints of political wheeling and dealing, probably all the way into the Oval Office, were all over this decision. 'The numbers look to be a clearly political distribution, understanding that UPS was bound and determined to be awarded the major portion of the authority,' Laird said. He added that no new rights are likely to be awarded for another two to five years.

But Laird noted that inherent in the designation of UPS as the new carrier to serve China was a major milestone -- one that is very encouraging and may point to more sensible decisions in future awards of air rights in the heavily regulated international air sector. 'This is the first time contested route authority has come out clearly in favor of freighter aircraft operations,' said Laird, whose firm represented American Airlines in the petition. 'Usually in foreign route cases, passenger authority is considered first when there are competing passenger and cargo interests.'

Laird said he'd like to believe that outcome reflected an unbiased determination of the value of cargo trade versus passenger services. 'I wish I could say that,' he said. But regardless of the DOT's motive, the precedent of this decision is now established. And for freight interests that are perpetually at the end of the line for favorable treatment from the government, whether they be from the air, surface or maritime sectors, it could be important and lasting.

As the debate over China entering the World Trade Organization showed, expanding trade is an important post Cold War foreign policy tool, and air rights can play a key role in furthering that goal. Air cargo is high-value, often high-tech trade, and much of it is outbound in contrast to the overall U.S. trade deficit.

Transportation Secretary Rodney Slater cited the administration's efforts in expanding trade when the decision awarding flights was announced on Nov. 21.

'Most of us are hopeful that the decision would be a wake-up call to the professional staff at DOT that they should pay more attention to cargo, because that hasn't been the case in my 35 years in the business,' Laird said. 'We always get what's left over.'

Peter Tirschwell is editor of JoC Week. He can be reached at (973) 848-7158, or via e-mail at ptirschwell

oc.com.