AMERICAN AIRLINES DISPUTE WITH DOMINICAN AIRPORTS

UNCLAS SECTION 01 OF 02 SANTO DOMINGO 000612

SIPDIS

SENSITIVE

DEPT PASS USDOT
STATE FOR EB/TRA/AV, EB/CBA, WHA/CAR; NSC FOR SHANNON
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION
USDOC FOR 3134/ITA/USFCS/RD/WH

E.O. 12958: N/A
TAGS: EAIR ECON KTIA PREL DR CA
SUBJECT: AMERICAN AIRLINES DISPUTE WITH DOMINICAN AIRPORTS
AUTHORITY OVER GROUND-HANDLING

REF: A. 03 SANTO DOMINGO 681


B. 05 STATE 2526


1. (SBU) SUMMARY: The Ambassador and Embassy officers have
raised with Dominican authorities the American Airlines (AA)
notification that it will end ground-handling services for
all other carriers at Santo Domingo Las Americas Airport
(AILA) and will assume self-handling of its flights on April

1. Dominican airports authority Aerodom asserts that AA has
no legal right to self-handle. Dominican Director General of
Civil Aviation Norge Botello agrees with Aerodom and asserts
that the US-Dominican Bilateral Agreement of 1949 is the only
agreement in force. Aerodom and AA have exchanged views. If
this business dispute is not resolved before April 1, Aerodom
could attempt to lock out AA employees in its efforts to deny
AA's attempt to self-handle. END SUMMARY.


2. (SBU) The Ambassador and Embassy officers have raised
with Dominican authorities the American Airlines (AA)
notification to Aeropuertos Dominicanos Siglo XXI, S.A.
(Aerodom) that it will close its wholly-owned subsidiary on
April 1, ending ground-handling services for all other
carriers at Santo Domingo Las Americas Airport (AILA). AA
will assume self-handling of all AA and American Eagle
flights on that date. Aerodom has contracted the services of
British-owned Menzies Aviation Group to provide ground
handling services of all flights, both cargo and passenger,
on April 1. Menzies is a international provider of
ground-handling services and currently has operations at the
international airport in Puerto Plata and handles UPS and
FEDEX cargo planes at AILA.


3. (U) Aerodom asserts that AA has no legal right to
self-handle claiming that the 1986 and 1999 US-Dominican Air
Transport Agreements have never been ratified by the
Dominican Congress and are not in force. The Dominican
Director General of Civil Aeronautics, Norge Botello, agrees
with Aerodom and asserts that the US-Dominican Bilateral
Agreement of 1949 is the only agreement in force. Embassy
provided guidance to President Fernandez and the Dominican
civil aviation authorities (ref. B) that AA should be able to
self-handle according to the 1986 Air Transport Agreement
(REF B).


4. (U) Although a meeting arranged by the Ambassador to bring
together AA and Aerodom failed to resolve the companies'
dispute over ground-handling services at AILA, Aerodom and AA
have exchanged views. At this time Aerodom continues with its
plans to turn AILA ground-handling operations over to
Menzies, and AA is planning to self-handle on April 1. If
this business dispute is not resolved before then, Aerodom
may attempt to lock out AA employees in its efforts to deny
AA's attempt to self-handle.

AERODOM,S POSITION


5. (U) In 1999 the Dominican Government awarded Aerodom an
exclusive 25-year concession, including exclusivity of ramp
handling services, over AILA and three other international
airports. Aerodom argues that they retain control of all
ground-handling services through their exclusive agreement
with the Dominican Government. After repeated attempts to
reach an agreement with AA over ground-handling services,
Aerodom notified AA it was terminating the agreement and AA
had 120 days to transfer ground-handling activities to
Aerodom.


6. (U) Aerodom asserts that the US-Dominican Bilateral
Agreement of 1949 is the only valid agreement because it is
the only agreement ratified by the Dominican Congress.
According to Aerodom, the 1986 Air Transport Agreement and
1999 Open-Skies Agreement have not been ratified by the
Dominican Congress and language authorizing provisional
ratification is unconstitutional. In a January 27 meeting
with the Ambassador, Jose Luis Abraham, Vice President of the
Board of Aerodom, said that even if the 1999 Open-Skies
Agreement were ratified, Aerodom would not allow AA to
self-handle because of the security exception in the 1988 and
1999 agreements.


7. (SBU) Aerodom is currently negotiating with the World
Bank,s International Finance Corporation (IFC) for a $100
million soft loan and with Export Development Canada (EDC)
for $40 million to cover the cost of contractually required
improvements to AILA. Aerodom's managers have expressed
concern that the business conflict between AA and Aerodom may
disrupt or delay negotiations over these loans. Both the
Canadian and British Ambassadors to the Dominican Republic
have raised this issue with the Ambassador. Vancouver Air
Services provides airport management services to Aerodom on a
long-term contract and has one seat on the Aerodom board.

AMERICAN AIRLINES POSITION


8. (SBU) AA wished to terminate its DSA ground-handling
services contract at AILA in order to focus on its core
business of passenger service and to reduce costs associated
with ground handling. AA officials believe the firm made a
mistake by entering into a costly agreement with Aerodom,
where AA was required to pay over 40 percent of gross, and by
providing service to its competitors at AILA. AA wants to
self-handle in order to reduce costs and maintains it cannot
turn its ground-handling services over to Menzies because it
is required to fulfill its obligations with the USG under the
Supercarrier Initiative. AA says that it cancelled an
initialed term sheet with Aerodom earlier this year because
Aerodom attorneys changed the agreement and inserted language
that required AA to abandon its claim to self-handling after

2008. AA has formally offered to pay Aerodom a 30 percent
royalty/franchise/no objection fee starting April 1. AA has
indicated a willingness to be flexible on the dates for
transition.
HERTELL