A federal administrative judge found on Friday that an air cargo company at the heart of an international ownership dispute is a US business and found no evidence it was illegally controlled by overseas interests as rivals have asserted.

The decision by Transportation Department administrative law Judge Burton Kolko on Miami-based Astar Air Cargo, formerly DHL Airways, serves as a recommendation to Transportation Department officials who will make a final ruling on the politically charged case.

It is uncommon for the agency to overrule an opinion of an administrative judge. The losing side could appeal any final decision to the federal courts.

The legal recommendation was a bitter setback for FedEx and UPS. Both had long challenged the ownership and control structure of DHL Airways, which had been Chicago-based, before it was sold last summer for USD$57 million to a group of American investors and renamed Astar. The lead investor was DHL Airways chairman John Dasburg.

Under pressure from the US cargo companies, Congress ordered the Transportation Department - months prior to the creation of Astar - to review its previous conclusion that DHL Airways was a US company and not an arm of Brussels-based DHL Worldwide Express. DHL Worldwide is a unit of German postal group Deutsche Post.

Kolko found that Astar easily met the US corporate citizenship requirements and was not under the control of the Deutsche Post network, despite clear financial links that FedEx and UPS highlighted earlier this year at hearings.

Among other things, Astar has agreed to use virtually all of its 40 planes to support DHL Worldwide as its chief customer. In return DHL Worldwide has guaranteed Astar a minimum annual payment of USD$15 million. But there are caveats that leave Astar free to pursue other business.

"Based upon the entire record, I find that a preponderance of reliable credible and probative evidence exists to support that, under the totality of circumstances, Astar is actually controlled by US citizens," Kolko wrote in his opinion.

FedEx and UPS said in separate statements they were disappointed by the finding and turned their attention to consideration of his recommendation by senior transportation policy makers.

"We disagree with this decision but understand that the Department of Transportation will now review the matter. We urge careful analysis," said UPS spokesman David Bolger.

UPS also would not retreat from the company's assertion that Astar does not operate independently. "We continue to believe that DHL controls Astar," Bolger said.

But Dasburg said in a statement he was confident that the Transportation Department would agree with the recommendation.

"Now that FedEx and UPS have had the hearing they sought, we call upon them to accept Judge Kolko's decision and redirect their efforts to competing with Astar in the marketplace," Dasburg said.

The Astar case has been closely watched by those following the debate in Washington about foreign control of US airlines. Congress refused to embrace a Bush administration proposal to relax the law that limits overseas investors to 25 percent voting stock in a US carrier.

(Reuters)