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Air Carriers To Bring Puerto Rico Service On Par With U.S. Mainland

Federal judge decision clears way for guaranteed morning delivery and weekend service.

By Francisco Javier Cimadevilla

May 9, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

In the wake of a favorable federal court decision last week, air cargo carriers serving Puerto Rico are moving to bring their services to the island on par with what they offer elsewhere in the U.S.

"Our plane arrives at 10 a.m. every morning, but up to now our next day service delivery could not be guaranteed before 5 p.m. Now our trucks will probably be hitting the streets by 11 a.m.," Angel Correa, Airborne Express District Manager for Puerto Rico and the U.S. Virgin Islands told CARIBBEAN BUSINESS.

For years, Puerto Rico residents have had to withstand substandard overnight delivery service because air cargo carriers were precluded from delivering packages until after payment by the consignee of local excise taxes to the local Treasury, or Hacienda. That forced the carriers to prepay on behalf of their clients and obtain payment from them upon delivery. Still, the cumbersome procedure precluded the next day, early morning delivery as well as weekend delivery most carriers guarantee elsewhere in the U.S.

But last week federal district court judge Carmen Cerezo struck down the local Hacienda arbitrios statutory scheme holding it was preempted by a federal statute (the Federal Aviation Administration Authorization Act of 1994, which prohibits states, including Puerto Rico, from enforcing any local regulation that may affect air carriers’ prices, routes or services) and was, therefore, invalid and unenforceable under the U.S. Constitution.

The local government has applied to Cerezo for a stay (suspension) of her permanent injunction while an appeal is considered by the Court of Appeals for the First Circuit, but legal observers say the government is unlikely to prevail in either.

"Our service to our customers will definitely improve," Correa said. "For example, we used to have a plane come in on Saturday, but had to discontinue, because Hacienda doesn’t work on weekends so we couldn’t clear arbitrios for Saturday delivery. We’ll be looking to reestablish that service now," added Correa.

"Besides being beneficial for the industry, this decision will have a tremendously beneficial impact on Puerto Rico’s economy," UPS legal counsel Guillermo Zuñiga told CARIBBEAN BUSINESS. "Think, for example, of a pharmaceutical company not having to stop production and wait until Monday in order to receive a spare part."

At a press conference Tuesday, Star Travel Air Cargo president Thomas Hayden was expected to echo the same message on behalf of the Puerto Rico Air Cargo Managers Association.

Cerezo’s decision puts the local government in a bind at a time when it is struggling badly to balance the budget for next fiscal year (starts July 1). During hearings held last year Treasury Secretary Juan Flores Galarza estimated in $100 million the amount of foregone excise tax revenue that Hacienda would have to make up if air carriers were allowed to deliver packages without collecting taxes on its behalf and rely instead on consignees’ good faith to voluntarily pay the tax at a Hacienda collection center within 48 hours of delivering the package, as they are supposed to do now with packages received through the U.S. Postal Service.

Flores Galarza declined to be interviewed for this story, leaving unanswered the question of why the government didn’t account for this contingency while preparing the budget for next fiscal year.

This Caribbean Business article appears courtesy of Casiano Communications.
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