VZCZCXRO0216
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #0795/01 0850646
ZNR UUUUU ZZH
P 260646Z MAR 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 3087
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RULSDMK/DEPT OF TRANSPORTATION WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 BEIJING 000795 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/TRA/AN ROBL AND LIMAYE-DAVIS 
STATE FOR EAP/CM FLATT 
DEPT OF TRANSPORTATION FOR KEITH GLATZ 
 
E.O. 12958: N/A 
TAGS: EAIR KTIA CH
SUBJECT: CAAC REJECTS FEDEX SUMMER SCHEDULE, REQUESTS 
 
REFILING 
 
REF: A. STATE 24279 
     ¶B. STATE 26667 
     ¶C. MARCH 2009 ROBL/LIMAYE-DAVIS - KACHUR EMAILS 
 
¶1. (SBU) SUMMARY.  On March 25, Civil Aviation Authority of 
China (CAAC) officials told Econ M/C that the conditional 
operating approval for FedEx,s Guangzhou hub is justified 
under the U.S.-China Air Transport Agreement (ATA) as a 
technical measure given airspace constraints between Zone 1 
airports.  Dept. of International Affairs and Cooperation 
Deputy Director General Han Jun stated that the Dept. of Air 
Transport is responsible for interpretation of the ATA, and 
any accommodation of FedEx,s schedule must be handled 
directly with them.  In a separate phone call, a Dept. of Air 
Transport representative reiterated the justification of the 
operating approval as a technical measure given airspace 
constraints.  She emphasized that given FedEx,s prior 
agreement to the operating approval, there is no possibility 
of provisional approval of FedEx,s summer schedule by CAAC. 
CAAC stated that FedEx will need to refile their schedule 
without the violating flights, and that the Dept. of Air 
Transport will do "everything in its power" to see that 
regular services are not disrupted when the summer schedule 
starts on March 29.  CAAC has not yet formally responded to 
the Nelson/McDermott letter (reftel B), and was informed that 
given this preliminary response the U.S. would be requesting 
consultations.  In all conversations, Emboffs emphasized that 
if FedEx did refile its schedule, it would be without 
prejudice as to their rights under the ATA, as affirmed in 
our demarche and letter.  END SUMMARY. 
 
¶2. (SBU) Econ M/C met with Deputy Director General HAN Jun of 
CAAC,s Department of International Affairs and Cooperation 
on March 25 to present the talking points from the 
Nelson/McDermott letter to Vice Minister YANG Guoqing (reftel 
B).  Mr. Han was accompanied by staff from the International 
Affairs Division and the Foreign Affairs Division, which both 
report to him.  Although the initial demarche (reftel A) had 
been delivered in person and in writing on March 16, the 
Nelson/McDermott letter had been faxed to CAAC on March 23, 
and EconOff had been requesting a meeting since March 19, DDG 
Han stated he had only had a chance to review the letter just 
prior to the meeting.  DDG Han noted that this issue was 
essentially handled by the Department of Air Transport, and 
then proceeded to explain in exhaustive detail the  history 
of the hub Operating Approval and that CAAC had "reached 
prior agreement" with FedEx.  He claimed CAAC was puzzled by 
the latest controversy, and could not understand why FedEx 
brought the U.S. government in at such a late moment when 
they had two months to resolve the issue directly with the 
Dept. of Air Transport. 
 
¶3. (SBU) DDG Han explained that CAAC believes the conditional 
operating approval is consistent with the conditions of the 
Air Traffic Agreement (ATA), which allowed for exceptions for 
"customs, technical, operational, or environmental reasons," 
(ref. July 24, 2007, Protocol to Civil Air Transport 
Agreement, Article 11 bis (2)(a)).  Specifically, CAAC 
believes the there is a technical reason, namely the limited 
airspace between the most crowded Zone 1 airports (Beijing, 
Shanghai, and Guangzhou).  He clarified that landing slots 
remain an issue at some airports, particularly Shanghai, and 
he understood that the proposed flight doesn,t alter the 
number of arrivals or departures in Shanghai.  However, the 
justification was airspace limitations, not landing slots. 
 
¶4. (SBU) DDG Han belabored the point of why FedEx would 
"fully agree" to the hub operating approval, and then without 
any notice or discussion request USG intervention to overturn 
it.  EconOff explained that with the global economic crisis, 
companies were under intense pressure to cope.  Given these 
unprecedented circumstances, it was entirely understandable 
that both Chinese and foreign airlines were making 
operational changes on short notice, in most cases 
retrenching.  FedEx,s change, however, is a demonstration of 
confidence in the Chinese market which would bring business 
to China.  What the industry needed now was flexibility, not 
constraints.  Furthermore, FedEx filed its China schedule 
with the Dept. of Air Transport on February 18.  Thus, there 
was evidence of early communication from FedEx to CAAC 
regarding this inconsistency. 
 
¶5. (SBU) Econ M/C reiterated that regardless of FedEx,s 
actions, for the USG the conditional operating approval is 
essentially inconsistent with the ATA.  Econ M/C noted the 
flight represents a considerable volume of business for 
 
BEIJING 00000795  002 OF 002 
 
 
FedEx, and that the airline now faces the March 29 opening of 
the summer season without an approved schedule.  DDG Han 
explained that this would need to be negotiated directly with 
the Dept. of Air Transport, since the International Affairs 
Division under his control handles ATA negotiations, but the 
Dept. of Air Transport has authority for the agreement,s 
interpretation.  Econ M/C affirmed that if FedEx was forced 
to refile their schedule, this would only be done without 
prejudice to their rights under the agreement, as stated in 
the letter to Vice Administrator Yang Guoqing.  DDG Han,s 
staff then provided the telephone number of Ms. BAI Wenli of 
the Dept. of Air Transport for follow up.  He assured Econoff 
that the Nelson/McDermott letter had been shared with them. 
 
¶6. (SBU) EconOff subsequently contacted Director Bai Wenli of 
the Dept. of Air Transport by phone, but in spite of DDG 
Han,s assurances she did not have a copy of the 
Nelson/McDermott letter and requested it be faxed to her 
office.  Ms. Bai conducted a long re-explanation of CAAC,s 
position that FedEx had essentially accepted the conditional 
operating approval.  Ms. Bai restated the CAAC position that 
the ATA allows for conditional approval based on technical 
reasons, which in this case is the limited airspace between 
Zone 1 airports.  She expressed irritation that FedEx would 
have agreed to these conditions which "were discussed in many 
meetings," and subsequently file a schedule which violated 
this condition.  Given FedEx,s prior agreement to the 
operating approval, she stated there was no possibility of 
provisional approval at this point. 
 
¶7. (SBU) Ms. Bai states that FedEx will need to refile their 
schedule without the violating flights in order to fly during 
the summer season, which starts March 29.  Although there are 
only a few days left, and even though the normal procedure 
requires 60 days notice, she affirmed that the Dept. of Air 
Transport would do "everything in its power" to see that 
regular services are not disrupted should FedEx refile. 
Econoff noted that if FedEx did this, it would be without 
prejudice to their rights under the agreement as outlined in 
the Nelson/McDermott letter. 
 
¶8.  (SBU)  Econoff spoke with FedEx Vice President for 
International Affairs, Alan Turley.  Turley regretted that 
more progress could not be made, but thanked the Embassy for 
it advocacy efforts.  He stated FedEx would file its revised 
schedule with CAAC on Thursday morning.  Turley noted that 
FedEx has been given little room for negotiation when the 
conditional operating approval for their hub had been forced 
on them by CAAC on February 6.  He stated that Guangzhou city 
officials would meet tonight with Director General WANG 
Ronghua of CAAC,s Dept. of Air Transport, Ms. Bai,s boss, 
and emphasize the commercial importance of FedEx,s hub to 
their city.  Turley believes CAAC,s intransigence on this 
issue stems directly from CAAC Administrator Li Jiaxiang,s 
desire to win a larger share of the international air cargo 
business for Chinese carriers.  He also noted CAAC,s 
decision will strengthen existing doubts that FedEx corporate 
management have of CAAC,s willingness to live up to its 
commitments under the ATA. 
PICCUTA