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Cablegate: China Rejects Proposal On New Fedex Flights

VZCZCXRO1179
PP RUEHCN RUEHGH
DE RUEHBJ #0241/01 0290901
ZNR UUUUU ZZH
P 290901Z JAN 10
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 7835
RULSDMK/DEPT OF TRANSPORTATION WASHDC PRIORITY
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHMFIUU/FAA NATIONAL HQ WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 02 BEIJING 000241

SENSITIVE
SIPDIS

STATE EEB/TRA/AN JBYERLY, KURS, VLIMAYE-DAVIS
DEPT OF TRANSPORTATION FOR SKURLAND, PGRETSCH, KGLATZ
DEPT OF COMMERCE FOR AHAAKENSEN
FAA NATIONAL HQ FOR RCICERO

E.O. 12958: N/A
TAGS: EAIR KTIA CH
SUBJECT: CHINA REJECTS PROPOSAL ON NEW FEDEX FLIGHTS

REF: 09 STATE 132452

1. (SBU) SUMMARY: Civil Aviation Administration of China (CAAC)
authorities rejected a U.S. Government request to approve new flight
segments to FedEx's hub facility at Guangzhou Baiyun Airport. CAAC
Director General Li Jiangmin's January 29, 2010 response, faxed to
the Embassy, cited the airspace constraints as the basis for denying
the new co-terminalized flight segments. DG Li's letter also
requested the USG look into the issue of FedEx's non-payment of
usage fees to Guangzhou Baiyun Airport since the company's hub
operations began last year. END SUMMARY.

2. (SBU) Per reftel instructions, EconOff submitted the USG letter
from Department of Transportation Assistant Secretary Susan Kurland
and Deputy Assistant Secretary of State John Byerly to CAAC on
January 5, 2010, along with a draft copy of FedEx's Summer 2010
schedule. The letter had followed a second round of consultations
with CAAC on the issue on December 2-3, 2009. On January 11,
EconOff met with CAAC International Cooperation Department staff and
confirmed the letter had been reviewed, and passed to the Air
Transport Department for consideration, along with the FedEx draft
schedule. In a follow-up meeting on January 25, CAAC told EconOff
that the USG letter had been reviewed by Deputy Administrator Xia
Xinghua, and that CAAC would respond by the end of January. CAAC
noted the response would follow a final evaluation by a committee
made up by CAAC's International Cooperation Dept., Air Transport
Dept., Air Traffic Management Bureau, and the new Air Traffic
Management Policy Office, all of which now report to Deputy
Administrator Xia. EconOff also accompanied FedEx staff for the
formal filing of the company's schedule with CAAC Air Transport
Dept. on Feb. 28.

3. (SBU) In the past, FedEx has informed the Embassy that it had
been in prolonged negotiations with Guangzhou Baiyun Airport over
the conditions and fees for its use of the facility, but that these
had not impacted its operations at the airport. There have also
been issues with Chinese domestic airlines over payment of usage
fees at Guangzhou Baiyun Airport. During a commercial dispute last
year, Embassy learned that privately-owned East Star Airlines had
never paid its landing and usage fees in Guangzhou for over one
year, resulting in a debt of more than RMB 50 million (USD 7.3
million) when the airline went bankrupt in May 2009.

4. (SBU) Text of letter follows. (Informal translation provided by
CAAC.)

Ms. Susan L. Kurland
Assistant Secretary for Aviation and International Affairs
U.S. Department of Transportation

Mr. John R. Byerly
Deputy Assistant Secretary for Transportation Affairs
U.S. Department of State

29 January 2010

Dear Ms. Kurland and Mr. Byerly,

I am writing to thank you for your letter dated 30 December 2009,
and in particular for your team's kind invitation to me to join in
the lunch hosted by the U.S. Embassy. Indeed, the conversation I
had with your delegation members during the lunch was very pleasant.
They must have taken troubles in making the arrangements, and this
is very much appreciated.

With regard to the FedEx's wish as raised in your letter, forgive me
to inform you that CAAC is not able to give you a positive response.
As you are aware, in essence, this is an outstanding issue left
from last year and last round of consultations. I recognize as you
stated that under the Protocol to the Agreement between the
Government of the People's Republic of China and the Government of
the United States of America Relating to Civil Air Transport, FedEx
is entitled to co-terminalize its flights in China. However, on the
other hand, Article 11bis of the same Protocol also stipulates that
"Consistent with this right, neither party shall unilaterally limit
the volume of traffic, frequency or regularity of service, of the
aircraft type or types operated by the airline at the hub except as
may be required for customs, technical, operational or environmental
reasons under uniform conditions consistent with Article 15 of the
Convention." The reality now facing us is the actual fact that slot
shortage, airway congestion and airspace deficiency in China remain
the bottleneck and these are very well known to the international
air transport community, including U.S. carriers, let alone FedEx as
an experienced hub operator. This explains reason and provides the
legitimacy for CAAC, as the national competent regulatory authority,

BEIJING 00000241 002 OF 002


to impose restrictions on flight movements into congested airports
like Beijing, Shanghai Pudong and Guangzhou airports, etc., and in
particular flight movements between them. As explained to the U.S.
delegation during the last round of consultation, this has been the
case of uniform conditions as applied for the last several years
without distinction, whether they are Chinese, U.S. or any other
foreign airlines. Incidentally, such restrictions originating from
and dictated by physical constraints shall continue to remain
whether we like it or not, when we meet to discuss the topic of
liberalization.

As we are trying to meet in May or June this year in Washington D.C.
for the next round of consultation, and taking into consideration
the overall relationship and partnership between China and the U.S.
in the field of civil aviation being so important and comprehensive,
my view is the FedEx issue, among others, might be an issue for
further discussion, depending on the safety assessment by technical
experts on the basis of mutual respect, and in the spirit of
cooperation and understanding.

In addition to the above, there is another incomprehensible problem
in connection with FedEx's operation in China that calls for your
attention. Indeed, CAAC is surprised when it came up. That is, to
CAAC's knowledge, FedEx has so far not paid even a single cent for
its use of Guangzhou Airport cargo facilities for the last 11 months
since it started hub operation at Guangzhou Airport. I do not know
whether FedEx has briefed you on this in its contact with DOT.
While CAAC is making necessary enquiries, I am taking this
opportunity to ask you to look into this problem as well.

Thank you for your understanding and look forward to our continuous
cooperation.

Sincerely,

(signature)

Li Jiangmin
Director General
Department of International Affairs
Civil Aviation Administration of China (CAAC)


HUNTSMAN

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