DHL Fights for Right
To Do Business in U.S.
FedEx, UPS Try to Push Competitor
Out of Domestic Air-Cargo Market
By STEPHEN POWER and RICK BROOKS
Staff Reporters of THE WALL STREET JOURNAL
DHL Airways INC., part of one of the world's largest air-cargo networks, is in a dogfight over its right to keep doing business in the U.S.
Competitors FedEx Corp. and United Parcel Service Inc., which dominate the U.S. market, are trying to persuade federal regulators that Miami-based DHL is controlled by the German postal monopoly, Deutsche Post AG. That would violate aviation law that forbids foreign-owned airlines -- and those controlled by noncitizens -- from hauling freight or people between U.S. cities.
But a decision in Washington could depend less on federal law than other factors: the influence of powerful politicians with parochial and personal ties to the competing companies, lingering anti-German sentiment over the Iraq war and a cantankerous federal administrative judge whose remarks from the bench have led to accusations that he is biased against DHL .
The outcome is to be decided by the U.S. Department of Transportation, which tried to rule in DHL's favor in 2002 in a more informal inquiry. After the DOT's inspector general criticized the process, Congress -- after lobbying by FedEx and UPS -- ordered the DOT to review the case again. Deutsche Post says it doesn't control DHL , despite close ties, and says its rivals are trying to throttle a competitor.
UNFRIENDLY SKIES
FedEx and UPS have descended on Washington to persuade regulators that DHL Airways is controlled by Deutsche Post, the German postal monopoly, and thus violates a federal law restricting foreign-owned carriers from the U.S. market. A brief look at the companies:
FedEx United Parcel Service DHL Airways
HEADQUARTERS Memphis, Tenn. Atlanta Miami
2002 REVENUE $22.49 billion* $31.27 billion $253.9 million
U.S. MARKET SHARE 27% 52% 0.3%
*For fiscal year ended May 31
Sources: the companies; Department of Transportation; SJ Consulting Group
It is because of the U.S. citizenship law that the nation's airlines, unlike most other businesses, don't face foreign competition in domestic markets. A web of international rules limits U.S. carriers in similar ways in other countries around the world, though an effort is under way to loosen those restrictions among U.S. and European carriers.
The next ruling has major implications for the $46 billion-a-year U.S. package-delivery business, the world's biggest freight market. A decision against DHL could not only ground the airline in the U.S., but also could imperil Deutsche Post's proposed $1.06 billion acquisition of most of Airborne Inc. of Seattle. Airborne is the fourth-biggest U.S. parcel carrier, after the U.S. Postal Service, with 6% of the market.
DHL , which has just an 0.3% sliver of the U.S. market, has even gone so far as to change its name and ownership structure to help avert an unfavorable ruling. On Monday, the stock of DHL was acquired by its chief executive and two other investors, and it will become known as Astar Air Cargo.
The Transportation Department's administrative law judge has set a hearing next month. The agency has told the judge to make a recommendation by Oct. 31, but it is not bound by his recommendation.
Both sides are courting congressional allies in case the DOT rules against them. FedEx Chairman and CEO Frederick Smith met with House Majority Whip Roy Blunt (R., Mo.) last month at Charlie Palmer's Steak, a trendy Washington restaurant. Mr. Blunt, whose son Andrew is a lobbyist for UPS in Missouri, tried unsuccessfully last spring to amend an $80 billion war-spending bill to bar DHL from competing with FedEx and UPS for U.S. military cargo contracts. The measure would have disqualified any company that gets at least 50% of operating revenue from a foreign entity that either owns a voting interest or is owned by an "agency or instrumentality of a foreign state."
Not to be outdone, DHL and Airborne are adding their own lobbyists. DHL has hired John Timmons, former aide to Senate Commerce Committee Chairman John McCain. Airborne hired former Transportation Secretary William T. Coleman Jr. and former Sen. Slade Gorton (R., Wash.).
Politically, allies of FedEx and UPS appear to have the upper hand. After trying unsuccessfully to help Mr. Blunt with his anti-DHL amendment, Senate Appropriations Committee Chairman Ted Stevens (R., Alaska) attached a similar measure to a pending aviation bill. The measure would require that air carriers offering point-to-point service in the U.S. be under the "actual control" of U.S. citizens. Although the DOT has enforced that standard for years, the 1938 aviation law doesn't spell out the meaning of "control."
Mr. Stevens says he is pushing his amendment to "ensure reciprocity" with European governments that have similar laws. But like Mr. Blunt, he has more than an academic interest in airline ownership requirements. Last year, Alaska-based Lynden Air Cargo LLC lost a multimillion dollar U.S. military contract to DHL . Lynden is siding with FedEx and UPS in the DOT dogfight.
Mr. Blunt has said that his proposal was intended to clarify previous DOT rulings "on a matter of national security," and that the military shouldn't use foreign-owned carriers to transport cargo. A spokeswoman for Mr. Blunt added that he doesn't recall details of his encounter with Mr. Smith. A FedEx spokeswoman says the two men simply "bumped into" each other at the restaurant.
This is an awkward time for DHL to be facing scrutiny over its citizenship, because of the Iraq war and Germany's opposition to it. FedEx, based in Memphis, Tenn., and Atlanta-based UPS deny any attempt to tap into anti-German feelings in Washington, but their campaign against DHL has coincided with efforts by some lawmakers to bar German, French and Russian companies from postwar reconstruction contracts financed by the U.S.
For now, the strangest part of the case is a war of words between DHL and the administrative law judge presiding over next month's DOT hearing. The airline's attorneys have repeatedly attacked rulings by the judge, Ronnie Yoder, and asked the DOT to intervene. Last month, DHL accused him of "a hostile attitude ... from the outset" that includes "automatically" denying DHL's requests "without FedEx or UPS even picking up a pen to object." DOT officials haven't responded to DHL .
During a preliminary hearing in April, Mr. Yoder appeared to link the ownership dispute to the Sept. 11, 2001, attacks and the war on terror. "There is an interest here that goes beyond this case," Mr. Yoder said, explaining that Americans, "whether in skyscrapers or on the ground," should "have some assurance" that planes flying in U.S. skies are "operating and controlled by U.S. citizens." At a May hearing, the judge, upset about letters from DHL employees, said to one of the airline's lawyers: "I'm glad to meet the fellow who thinks it's a good idea to send ugly letters to the chief judge."
Mr. Yoder declined to discuss the case. In an order last month, he said the "allegations of judicial bias are unsubstantiated and unfounded and do not gain credence through repetition."
The DOT has overruled Mr. Yoder in previous cases. Politically, though, a decision against DHL by Mr. Yoder, a judge for 27 years, would be hard for administration officials to ignore.
It isn't clear who will steer the DOT's deliberations on the case. The White House says it plans to nominate Karan Bhatia for the open job of assistant secretary for aviation and international affairs. But Mr. Bhatia once worked for a law firm that represented DHL's international unit. A DOT spokesman said the agency hasn't determined whether Mr. Bhatia would participate in the DHL case.
Adding to the uncertainty, two other DOT officials, Deputy Secretary Michael Jackson and General Counsel Kirk Van Tine, are about to leave. And the DOT's policy undersecretary, Jeffrey Shane, has recused himself because he once represented a DHL affiliate.
Here is a link to the case...
http://dms.dot.gov/search/searchFormSimple.cfm?CFID=1927565&CFTOKEN=22221088
put in 13089 in the docket #
