CHINA REJECTS PROPOSAL ON NEW FEDEX FLIGHTS

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