Full Article from NY Times
"April 10, 2004
> Pentagon Seeks to Use Foreign Airlines
> By MICHELINE MAYNARD
>
> The Pentagon is asking Congress for the authority to award contracts to
> foreign airlines to move troops and equipment, a business that has always
> been limited to - and been lucrative for - American-based carriers.
>
> The proposal, in the Defense Department's budget request for fiscal year
> 2005, could have its greatest impact on the Civil Reserve Air Fleet, a
> group
> of 24 passenger and cargo carriers that sign contracts with the Pentagon
> each year. These airlines were instrumental in transporting military
> personnel and equipment to the Middle East last year before and during the
> Iraq war.
>
> In all, American passenger and cargo carriers were paid $1.2 billion to
fly
> nearly 500,000 troops to and from the war zone during the formal Iraq
> conflict. The cargo companies carried more than 161,000 tons of equipment,
> according to a Pentagon report last fall.
>
> But they may not have a lock on the Pentagon's business for long. In its
> 2005 appropriations request, submitted last month, the Pentagon asked
> Congress to repeal a law that bars foreign-owned airlines from bidding on
> its contracts.
>
> Specifically, the Defense Department is seeking to repeal Section 2710 of
> the Emergency Wartime Supplemental Appropriations Act of 2003. That
section
> requires that contracts be awarded to air carriers with American ownership
> of 50 percent or more. That is the level that is required for airlines to
> be
> certified as domestic carriers by the Transportation Department.
>
> In an analysis that accompanied its appropriations bill, the Defense
> Department said the limit, "while laudable in intent," presents
significant
> difficulties in practice. Before awarding contracts, the analysis said,
> Defense Department officials must determine whether 50 percent of an air
> carrier's operating revenue came from American or foreign-based interests.
>
> "To determine an air carrier's controlling interest is questionable since
> detailed data regarding source of operating revenues is usually not
> available. Such information is not readily available or transparent, so
> contracting officers are forced to assume the risk of unknowingly
violating
> the law," the analysis said.
>
> The analysis did not mention the reserve fleet, but industry officials
said
> the request, if approved by Congress, could lead to competition from
> foreign
> carriers.
>
> Word of the request was first disclosed yesterday in an Internet
> newsletter,
> Inside the Air Force. A spokesman for the Air Force's Transportation
> Command, based at Scott Air Force Base in Illinois, confirmed the request.
>
> Participants in the reserve fleet sign up for government contracts to
> transport troops around the world in peacetime. In return, they agree to
> turn over their planes on short notice, for 30 days at a time, to move
> soldiers and gear during emergency wartime mobilizations.
>
> Two such mobilizations have been declared since President Harry S. Truman
> authorized the program in 1951. The first occurred in 1991, during the
> Persian Gulf war, and the second in 2003 when war began in Iraq.
>
> Last year's mobilization proved a lifeline for participating airlines,
> which
> had been battered by a drop in traffic because of fears over the outbreak
> of
> war, a weakened economy and the SARS virus. The $1.2 billion paid to the
> airlines during the mobilization, which lasted from February to June, was
> part of an overall budget of $2.4 billion in 2003 for the reserve fleet.
> The
> same amount has been allocated for 2004.
>
> The biggest passenger carriers participating in the reserve fleet last
year
> were ATA Airlines, United Airlines, Delta Air Lines, Continental Airlines,
> and the charter airline World Airways, according to the Pentagon. The
> biggest cargo carriers taking part were Atlas, Evergreen, Polar, Gemini
and
> World, which handled cargo as well as passengers.
>
> Officials at the Air Transport Association, which represents domestic
> airlines, did not return calls seeking comment.
>
> By allowing foreign carriers to bid against domestic rivals for contracts,
> the Pentagon could benefit in two ways, said Robert W. Mann Jr., an
> industry
> consultant based in Port Washington, N.Y.
>
> Competition could bring down the price that the military pays to transport
> troops, he said. American carriers transport soldiers and equipment from
> bases in the United States, like Dover, Del., to military installations
> overseas. The planes do not fly to conflict zones.
>
> The Pentagon pays a flat 8.5 cents a seat mile for a round-trip flight.
The
> cost of a typical flight between Dover Air Force Base and Kuwait City was
> $379,965, according to the Pentagon report last year. That was for a
> 13,546-mile, round-trip flight using a McDonnell Douglas DC-10 with 330
> seats.
>
> But Mr. Mann said foreign airlines, especially charter companies, have
been
> known to seek as little as 5 cents a seat mile for equivalent trips. The
> Pentagon "may feel they can get better pricing from other suppliers," he
> said. It was not clear which foreign airlines would participate. But
> industry experts noted that competition in Europe between low-fare
carriers
> and major airlines has led to excess capacity there. Meanwhile, a decline
> in
> flights to the Middle East because of the Iraq conflict could cause
> carriers
> based there to become interested in bidding for Pentagon contracts.
>
> The Pentagon already has the ability to grant contracts to foreign
airlines
> case by case if no American carrier is willing to assume the risk of a
> flight. In the past, the Pentagon has chartered flights by Volga Dnepr
> Airlines of Russia and Ukrainian Cargo Airways.
>
> Mr. Mann said foreign airlines could provide the Pentagon with a wider
> supply of planes. This winter, the Pentagon encountered some reluctance by
> American companies to bid on individual trips that were needed to begin
the
> rotation of troops to and from Iraq, the largest such movement since World
> War II.
>
> The rotation requests came as airlines were adding flights to their
> schedule
> in anticipation of stronger spring and summer traffic, which can yield
more
> in revenue than what the Pentagon pays.
>
> In addition, reserve flight planes must carry double crews, because the
> aircraft touch down to deposit troops and equipment and take off quickly
> afterwards once they are repaired and refueled, not allowing enough rest
> time for one crew.
>
> There was speculation in aviation circles that the Pentagon might have to
> resort to another emergency mobilization. But after contacting each
> participant in the reserve fleet, Air Force officials were able to find
> enough volunteers to transport troops and equipment during the rotation
> period.
>
> But that was before comments this week by Defense Secretary Donald H.
> Rumsfeld that the Pentagon might send more troops to Iraq. The
> participation
> of foreign airlines in the reserve fleet could provide the military with
> more leeway, should that be necessary, Mr. Mann said.
>
