Decision No. 178-A-2006

March 24, 2006

File Nos. M4212/A973-3-1
M4835-55-1

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Asiana, on behalf of itself and Kalitta, has applied to the Canadian Transportation Agency (hereinafter the Agency) for the authority set out in the title. The application was received on February 28, 2006.

Asiana and Kalitta have also requested an exemption from the application of subsection 8.2(2) of the Air Transportation Regulations (hereinafter the ATR), which requires the filing of an application for an approval at least 45 days before the first planned flight.

The Agency notes that part of this application is for the renewal of the authority granted by Decision No. 622-A-2005 dated October 17, 2005.

Under Licence No. 030130, Asiana is authorized to operate a scheduled international service between the Republic of Korea and Canada in accordance with the Agreement between the Government of Canada and the Government of the Republic of Korea for Air Services signed on September 20, 1989 (hereinafter the Agreement).

Condition No. 1 of Licence No. 030130 states:

The Licensee is authorized to operate the route(s) set out in the Agreement.

Condition No. 2 of Licence No. 030130 states:

The operation of the scheduled international service authorized herein shall be conducted subject to the provisions of the Agreement and to any applicable arrangements as may be agreed to between Canada and the Republic of Korea.

Under the terms of the Agreement, designated airlines of the Republic of Korea are authorized to operate up to two DC-8 freighters flights or one B-747 freighter flight per week between the Republic of Korea and Canada, and to serve Chicago as an intermediate point with in-transit and stopover rights but without fifth freedom traffic rights.

As the proposed service is not provided for in the Agreement and requires extra-bilateral authority, notice of the application was given to Canadian air carriers operating large aircraft and to the Calgary Airport Authority by Decision No. LET-A-61-2006 dated March 1, 2006. As it required more time to analyze the several issues contained in the application, Air Canada, by letter dated March 6, 2006, requested an extension until Friday, March 10, 2006, to file its comments.

By Decision No. LET-A-63-2006 dated March 8, 2006, the Agency granted Air Canada until 12:00 p.m. (EST), Friday, March 10, 2006 to comment on the application. Asiana then had until 12:00 p.m. (EST), Wednesday, March 15, 2006 to respond.

ISSUE

The issue to be addressed is whether the Agency should vary Licence No. 030130 on a temporary basis to allow Asiana to operate three weekly all-cargo flights using B-747 freighter aircraft between Seoul and Calgary, including fifth freedom traffic rights between Chicago, Dallas and Houston and Calgary using aircraft and flight crew provided by Kalitta.

POSITIONS OF THE PARTIES

An intervention in support of the application was submitted by The Calgary Airport Authority.

In its intervention, Air Canada notes that Asiana's application for three weekly all-cargo flights is a renewal of an existing authority, which has been granted by the Agency in past seasons to Korean carriers.

With respect to the portion of Asiana's application whereby Asiana requests two additional intermediate points in the United States of America (Dallas and Houston) to be served with fifth freedom traffic rights, Air Canada argues that this represents considerably more flexibility than is permitted in the Agreement. Furthermore, Air Canada argues that by granting this portion of the application, the Agency would be permitting Asiana to pick and choose markets to access with fifth freedom rights to the detriment of Air Canada and other carriers.

Air Canada further notes that it is unclear in the application as to the nature of the commercial relationship between Asiana and Kalitta. While Asiana has indicated that this application is for a block-space arrangement, it appears to Air Canada that it is essentially a wet lease or code share operation with a third country carrier, which is not permitted for in the Agreement.

In conclusion, Air Canada submits that, due to the number of existing extra-bilateral authorities granted to Korean carriers, portions of Asiana'a application should be denied. Specifically, Air Canada argues that Asiana should be limited to operating to one intermediate point in the United States of America with fifth freedom rights at any one time. With respect to permitting Asiana to operate the proposed service with aircraft and flight crew provided by Kalitta, Air Canada maintains that this should only be granted if reciprocal rights are granted to Canadian carriers by the authorities of the Republic of Korea.

In its reply to Air Canada, Asiana points out that while it has operated extra-bilateral services between Seoul and Calgary via Chicago since 2004, there has not been sufficient capacity in order to meet the existing market requirements that exist between Asia and Calgary. Asiana submits that by adding Dallas and Houston, both of which are big oil markets, as intermediate points with fifth freedom traffic rights, there will be increased opportunities for shippers from Korea and the United States of America to be linked to the Calgary market, which is also a big oil market.

Asiana further submits that it requires the ability to serve all three of the proposed intermediate points at any given time in order to remain flexible in meeting the demands of the market on a timely basis.

Asiana maintains that it believes that no other Canadian carrier, including Air Canada, is presently operating all-cargo services between Calgary and Chicago, Dallas, or Houston, and therefore, Asiana fails to see how this proposed service would have a detrimental impact on Air Canada and other carriers. Asiana argues that in fact, it does not see how the US-Canada air transportation services agreement hinders Canadian carriers from accessing these markets and that its proposed services would be filling gaps for the benefit of the consumer and that at this time, the public interest supports additional commercial opportunities.

Asiana submits that under the ATR, neither "code share" nor "wet lease" is defined. In fact, section 8.2 of the ATR only requires that Agency approval be sought prior to a carrier providing air service using all or part of an aircraft, with flight crew, provided by another person.

Finally, with respect to Air Canada's concern as to whether or not a mirror application would be given reciprocal rights to a Canadian carrier, Asiana maintains that based on the letter and spirit of the Agreement, reciprocal rights would be granted to Canadian carriers.

In conclusion, Asiana submits that the public interest rationale supports this application and that granting the requested authority would provide shippers with additional opportunities, reduce transportation time, and provide consumers with additional competition in the Korea-Canada cargo market.

ANALYSIS AND FINDINGS

The Agency has carefully considered the application, the intervention of Air Canada and the intervention in support of the application filed by The Calgary Airport Authority.

The Agency may grant temporary authority pursuant to subsection 78(2) of the Canada Transportation Act (hereinafter the CTA), for an air service that is not permitted in an agreement or arrangement relating to civil aviation to which Canada is a party.

The Agency notes that the service proposed by Asiana departs from the terms of the Agreement in two respects.

Firstly, the Agreement provides for the operation of either two DC-8 freighter or one B-747 freighter aircraft per week. At present, Korean Air operates one regular all-cargo flight plus one temporary additional all-cargo flight per week between Seoul and Toronto via Anchorage using B-747 freighter aircraft. In accordance with the terms of the route schedule and Article 9 of the Agreement, temporary additional capacity may be agreed between the designated airlines and submitted to the aeronautical authorities for their approval.

Secondly, the point Calgary, with fifth freedom traffic rights between Chicago, Dallas and Houston and Calgary is not included in the points in Canada to be served by a Korean designated airline. Therefore, both capacity and routing require extra bilateral authority.

In support of its application, Asiana submitted that service from Calgary would be beneficial to both business and the general public without a detrimental impact on Canadian carriers who, at present, are not providing all-cargo services between the Calgary and the Asian market.

In reaching a decision on this type of application, the Agency must balance the economic development interests of the region and the interests of Canadians carriers. Consequently, in light of the foregoing, the Agency finds that Asiana has shown that there is a demand for scheduled international cargo services in the Canada-Korea market that would justify some extra-bilateral approval. The Agency has considered Air Canada's position and notes that, at present, it is not providing cargo services from Calgary to Asia. Furthermore, the Agency finds that based on the submission from Asiana, and the support for Asiana's proposed service received from The Calgary Airport Authority, there is a demand for all-cargo services that are presently not available within the terms of the Agreement. The Agency also notes Asiana's comments that reciprocal rights would be granted to Canadian carriers.

In addition, in order for the Agency to continue to have a better understanding of the market and the level of services that is appropriate, the Agency will direct Asiana to continue to provide traffic statistics. The Agency also notes that the authority requested by Asiana is for the IATA summer season only.

The Agency has reviewed and considered the application and the material filed in support thereof and is satisfied that extra-bilateral authority to operate three all-cargo flights per week between Seoul and Calgary and to exercise fifth freedom traffic rights between Chicago, Dallas and Houston and Calgary, would be beneficial to shippers and regional economic development.

Accordingly, the Agency, pursuant to subsection 78(2) of the CTA, hereby amends Condition Nos. 1 and 2 of Licence No. 030130 to the extent necessary to allow Asiana to operate three all-cargo flights per week between Seoul and Calgary and for Asiana to exercise fifth freedom traffic rights between Chicago, Dallas and Houston and Calgary, from March 26 to October 28, 2006, subject to the following conditions:

Asiana is required to file with the Agency thirty (30) days after the end of each month statistics showing, on a flight by flight basis:

1. For cargo uplifted at Calgary: flight number, date, the weight of cargo carried by true origin and destination, the type and weight of oversized cargo, and flight totals; and
2. For cargo offloaded at Calgary: flight number, date, the weight of cargo carried by origin and true destination, the type and weight of oversized cargo, and flight totals.

With respect to the request for approval under section 60 of the CTA and section 8.2 of the ATR, the Agency is satisfied that the application meets the remaining requirements of section 8.2 of the ATR.

Accordingly, the Agency, pursuant to paragraph 60(1)(b) of the CTA and section 8.2 of the ATR, hereby approves the use by Asiana of aircraft and flight crew provided by Kalitta, and the provision by Kalitta of such aircraft and flight crew to Asiana, to permit Asiana to provide its scheduled international services between the Republic of Korea and Canada using aircraft and flight crew provided by Kalitta, from March 26 to October 28, 2006, subject to the following conditions:

1. Asiana shall continue to hold the required licence authorities.
2. Commercial control of the flights shall be maintained by Asiana. Kalitta shall maintain operational control of the flights and shall receive payment based on the rental of aircraft and crew and not on the basis of the volume of traffic carried or other revenue-sharing formula.
3. The air services approved herein shall only be provided as long as a commercial agreement providing for such services remains in effect.

Asiana and Kalitta are reminded of the continuing requirement to comply with sections 8.2 and 8.5 of the ATR.

Asiana and Kalitta are further reminded to provide the Agency with a copy of any new agreement or any amendments to their commercial agreement, including any new or amended annexes, without delay.

In all other respects, the services authorized herein shall be operated in accordance with the Agreement.

The authority granted herein does not exempt Asiana and Kalitta from the requirements of other legislative acts or regulations, including those of Transport Canada.

This Decision shall form part of Licence No. 030130 and shall remain affixed thereto as long as the said Decision is in force.

Members

• Mary-Jane Bennett
• Guy Delisle