FedEx may have thought it was simply buying Evergreen International's all-cargo route authority to China. In fact, it bought a ringside seat to an aviation row between Beijing and Washington, which had, at presstime, left the carrier unable to operate any China services.

Evergreen was the only US carrier with all-cargo authority to China. It started flying two weekly services in 1993 after Washington pressure ended Chinese threats against forwarders who tried to book freight on Evergreen. In February the US Department of Transportation awarded Evergreen two more flights as part of the new frequencies allowed at the start of this year under the bilateral.

Evergreen decided to sell the China route for an undisclosed sum to help its debt restructuring. As part of the deal FedEx agreed to lease two 747 freighters from Evergreen, contingent on Washington's approval of its route purchase.

FedEx knew before it closed this deal that Beijing was balking at US carriers increasing weekly frequencies from 20 to 27 even though the bilateral allowed them. What FedEx did not know was how determined the Chinese could be, or that they would also object specifically to FedEx's planned stop in Tokyo enroute to Shanghai and Beijing, even though this stop is also permitted under the bilateral. By April talks had not silenced China's complaints about 'imbalance' and fifth freedoms and FedEx had still not launched its China service.

In opposing the new frequencies, Beijing may have been gearing up for a Sino-US trade war over intellectual property, which was only avoided by a late February truce. But Beijing's continued opposition could mean the stance is aimed at bolstering its request to allow a third Chinese carrier - widely expected to be China Southern - to serve the US.

FedEx sounds confident this dispute will be settled and Washington might even secure more frequencies, with two or three more awarded to FedEx, in exchange for approving a third Chinese carrier. With most US majors clamoring for China access, however, that seems optimistic.

Beijing seems less concerned about FedEx frequencies than routing them through Tokyo. Ironically, when Washington first awarded this route several years ago it picked Evergreen over FedEx because Evergreen proposed nonstops while FedEx planned flights via Japan. As successor to Flying Tiger's liberal rights beyond Japan, FedEx should escape Japanese opposition to its China plans, although Tokyo has steadfastly blocked FedEx from starting new routes beyond Japan without capping its fifth freedom traffic.

FedEx could obviously avoid confrontations with both China and Japan by operating via its Subic Bay hub, slated to open 1 May, rather than through Tokyo. The company has already said it might route some China flights through that new hub.

FedEx's attempt to penetrate China is part of a growing scramble for control of Asia. It was forced to retreat from Europe three years ago and faces intense competition from TNT Express, an Australian-European-Filipino venture with a Manila hub and strong regional ties. United Parcel Service is expanding its Hong Kong and Singapore hubs, while DHL claims to enjoy more Asian flexibility by buying space on other carriers than facing FedEx's bilateral headaches.

Source: Airline Business