UPS 2011 Annual Report Download - page 24

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regulatory authority over United Parcel Service Co.’s (“UPS Airlines’”) air transportation services. The Federal
Aviation Act of 1958, as amended, is the statutory basis for DOT and FAA authority and the Aviation and
Transportation Security Act of 2001, as amended, is the basis for TSA aviation security authority.
The DOT’s authority primarily relates to economic aspects of air transportation, such as discriminatory
pricing, non-competitive practices, interlocking relations and cooperative agreements. The DOT also regulates,
subject to the authority of the President of the United States, international routes, fares, rates and practices, and is
authorized to investigate and take action against discriminatory treatment of U.S. air carriers abroad.
International operating rights for U.S. airlines are usually subject to bilateral agreement between the U.S. and
foreign governments. UPS Airlines has international route operating rights granted by the DOT and we may
apply for additional authorities when those operating rights are available and are required for the efficient
operation of our international network. The efficiency and flexibility of our international air transportation
network is dependent on DOT and foreign government regulations and operating restrictions.
The FAA’s authority primarily relates to safety aspects of air transportation, including aircraft operating
procedures, transportation of hazardous materials, record keeping standards and maintenance activities, personnel
and ground facilities. In 1988, the FAA granted us an operating certificate, which remains in effect so long as we
meet the safety and operational requirements of the applicable FAA regulations. In addition, we are subject to
non-U.S. government regulation of aviation rights involving non-U.S. jurisdictions, and non-U.S. customs
regulation.
FAA regulations mandate an aircraft corrosion control program, along with aircraft inspection and repair at
periodic intervals specified by approved programs and procedures, for all aircraft. Our total expenditures under
these programs for 2011 were not material. The future cost of repairs pursuant to these programs may fluctuate
according to aircraft condition, age and the enactment of additional FAA regulatory requirements.
The TSA regulates various security aspects of air cargo transportation in a manner consistent with the TSA
mission statement to “protect the Nation’s transportation systems to ensure freedom of movement for people and
commerce.” UPS Airlines, and specified airport and off airport locations, are regulated under TSA regulations
applicable to the transportation of cargo in an air network. In addition, personnel, facilities and procedures
involved in air cargo transportation must comply with TSA regulations.
UPS Airlines, along with a number of other domestic airlines, participates in the Civil Reserve Air Fleet
(“CRAF”) program. Our participation in the CRAF program allows the U.S. Department of Defense (“DOD”) to
requisition specified UPS Airlines wide-body aircraft for military use during a national defense emergency. The
DOD compensates us for the use of aircraft under the CRAF program. In addition, participation in CRAF entitles
UPS Airlines to bid for military cargo charter operations.
Ground Operations
Our ground transportation of packages in the U.S. is subject to the DOT’s jurisdiction with respect to the
regulation of routes and to both the DOT’s and the states’ jurisdiction with respect to the regulation of safety,
insurance and hazardous materials. We are subject to similar regulation in many non-U.S. jurisdictions.
The Postal Reorganization Act of 1970 created the U.S. Postal Service as an independent establishment of
the executive branch of the federal government, and created the Postal Rate Commission, an independent agency,
to recommend postal rates. The Postal Accountability and Enhancement Act of 2006 amended the 1970 Act to
give the re-named Postal Regulatory Commission revised oversight authority over many aspects of the Postal
Service, including postal rates, product offerings and service standards. We sometimes participate in the
proceedings before the Postal Regulatory Commission in an attempt to secure fair postal rates for competitive
services.
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