Amicus Curiae Brief — Northwest Airlines, Inc. v. County of Kent

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Boome oor. 2 2.

EFIRED

No. 92-97

ALG 4 1993

IN THE OFFICE OF THE @LERK

Supreme Court of the United States

OCTOBER TERM, 1993

NORTHWEST AIRLINES, INC., et al.,

Petitioners,

Vv.

COUNTY OF KENT, MICHIGAN, et al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Sixth Circuit

BRIEF OF AIR TRANSPORT ASSOCIATION

OF AMERICA AS AMICUS CURIAE

IN SUPPORT OF PETITIONERS

Mary E. Downs *

General Counsel

DAVID A. BERG

Air Transport Association

of America

1301 Pennsylvania Avenue, N.W.

Washington, D.C. 20004-1109

(202) 626-4000

* Counsel of Record Counsel for Amicus Curiae

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TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ....000.0000000..occccoooccecceeee. ii

INTEREST OF AMICUS CURIAE.............-0--0000..... 1

SUMMARY OF ARGUMENT ........00.... eee 3

ERECT SEES SES SEE A ee a 4

THE ECONOMICS OF THE NATION’S AIR-

PORTS DEMONSTRATE WHY THE ANTI-

HEAD TAX ACT AND THE COMMERCE

CLAUSE REQUIRE REVERSAL -......0....... 4

A. Airport Charges Are Out of Control ...........

B. Excess Revenues Are Significant and Ex-

ees 8

C. The Reasonableness of Airport Fees and

Charges Must Be Considered in Context

With Passenger Facility Charges 10

IEE chakitiacisssislcacibhiidiniiaceiiennvtsietedennsesnttiniatetwesesoneee ‘ 12

TABLE OF AUTHORITIES

CASES Page

Evansville-Vanderburgh Airport Authority Dis-

trict v. Delta Airlines, Inc., 405 U.S. 707 (1972).. 6

International Society for Krishna Consciousness,

Lee, 60 U.S.L.W. 4749 (U.S. June 26, 1992), 550

U.S. ——, 120 L.Ed.2d 541, 112 S.Ct. 2701

CRED oncccceccoccerevsnnsnccnacennensuesaniansinssanienin 4

International Society fora Krishna Consciousness,

Inc. v. Lee, 925 F.2d 576 (2d Cir. 1991) ............. 4

STATUTES

Airport and Airway Development Act of 1970,

Pub. L. No. 91-258, 84 Stat. 219 000. 10

Airport and Airway Improvement Act of 1982,

Pub. L. No. 97-248, Tit. V, 96 Stat. 671 (codi-

fied as amended at 49 U.S.C. App. § 2210

CRBGB) ) .-cercecssssscscesesensesiunniensnaneemnaseiannnaannannnnn passim

Anti-Head Tax Act, Pub. L. No. 93-44, §7(a),

87 Stat. 90, codified as amended at 49 U.S.C.

ARID. § LIBEB .ncncceseccsssssssonsesesennmeneeee passim

Aviation Safety and Capacity Expansion Act of

1990, Pub. L. No. 101-508, Tit. IX, § 9110, 104

Stat. 1388-357 (codified as amended at 49 U.S.C.

OS) aaa 6, 10, 11

LEGISLATIVE MATERIAL

S. Rep. No. 93-12, 93rd Cong., Ist Sess., reprinted

in 1978 USCCAN 1484 ......................0..00......0..020- 6,9

OTHER AUTHORITIES

Air Transport Association of America, Air Trans-

port 1993: Annual Report of the U.S. Scheduled

Airline Industry (June 1998) .......00000000000.00e 6

Air Transport Association of America, 1993 State

of the U.S. Airline Industry: A Report on Re-

cent Trends for U.S. Air Carriers (Feb. 1933).. 7

iii

TABLE OF AUTHORITIES—Continued

Airport Improvement Program: Opportunity to

Consider FAA's Role in Meeting Airport System

Needs, Statement of Kenneth Mead, Director of

Transportation Issues, U.S. General Accounting

Office, before the Subcommittee on Aviation,

Committee on Public Works and Transportation,

House of Representatives (May 26, 1993) GAO/

American Association of Airport Executives and

Airport Council International—North America

(formerly Airport Operators Council Interna-

tional) , Statement before the Committee on Pub-

lic Works and Transportation, U.S. House of

Representatives (March 5, 1991) ..........................

American Association of Airport Executives, Sur-

vey of Airport Rates and Charges 1991-1992

oo _.___.sepensennnensssonsesecosscos

Glen F. Bunting and Alan C. Miller, Riordan

Makes Case for L.A. in Washington, Los

Angeles Times, June 23, 1993, at B-1 ..... os

Federal Aviation Administration, Record of De-

cision, Kent County Department of Aeronautics,

Grand Rapids, Michigan (Sept. 9, 1992) ..........

Page

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

No. 92-97

NORTHWEST AIRLINES, INC., ef al.,

. Petitioners,

COUNTY OF KENT, MICHIGAN, et al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Sixth Circuit

BRIEF OF AIR TRANSPORT ASSOCIATION

OF AMERICA AS AMICUS CURIAE

IN SUPPORT OF PETITIONERS

INTEREST OF AMICUS CURIAE

The Air Transport Association of America (ATA)

was founded in 1936. It is a non-profit, unincorporated

association of federally certificated air carriers that pro-

vide scheduled and charter passenger and cargo services.

ATA’s 17 operator members’ account for more than

! Alaska Airlines, Aloha, Airlines, American Airlines, American

Trans Air, Continental Airlines, Delta Air Lines, DHL Airways,

Evergreen International, Federal Express, Hawaiian Airlines,

Northwest Airlines, Reeve Aleutian Airways, Southwest Airlines,

Trans World Airlines, United Airlines, United Parcel Service,

USAir. Associate members are Air Canada and Canadian Airlines

International.

97% of the passenger and cargo traffic flown annually

in the United States. In 1992, ATA members enplaned

441,187,000 domestic and international passengers. Do-

mestically, ATA’s members serve approximately 400 air-

ports—virtually every commercial airport in the United

States—and in 1992 had more than 12,000,000 arrival

and departure operations.

ATA’s principal function is to represent the interests

of the U.S. commercial airline industry before the United

States Congress, Federal agencies, state legislatures, and

before Federal and state courts. ATA works closely with

the various Federal agencies that regulate the airline in-

dustry, in particular the Department of Transportation

and the Federal Aviation Administration. ATA frequently

submits briefs amicus curiae in Federal and state court

proceedings on matters of concern to the industry.

With respect to this case,” ATA is able to provide the

Court with a broad perspective of the issues raised by

the parties and the impact of this case on air travel

as a whole. ATA, both directly and through its mem-

bers, is intimately familiar with the manner in which

airports operate and the mechanisms for the funding of

their operations. Through its legislative activities rela-

tive to funding the Airport Improvement Program admin-

istered by the Federal Aviation Administration (FAA),

and by reviewing the applications of more than 170 air-

ports for approval to collect passenger facility charges for

airport development projects, ATA has developed con-

siderable expertise regarding airport operating costs and

funding. Moreover, ATA recently began a program of

financial audits of airport operations. This has enabled

ATA to gain an even greater insight into airport financ-

ing and cost accounting methodologies.

The outcome of this case will have far-reaching effects

on air transportation. Airport costs are among the fastest

2 The parties have consented to the filing of this brief amicus

curiae.

growing of airline operating costs. The facts below dem-

onstrate the importance of this case to Congress’ intent

that the national air transportation system operate without

undue burden from airport user fees.

SUMMARY OF ARGUMENT

This brief discusses the nationwide consequences of the

decision of the Sixth Circuit and the extent to which that

decision subverts Congress’ intent in the Anti-Head Tax

Act. In that Act, Congress recognized that the Nation’s

airports are publicly funded and should not impose ad-

ditional user fees beyond those that are reasonable and

necessary to make those airports “self-sustaining.” Con-

gress clearly and certainly intended to prevent the Nation’s

airports from becoming profit centers for local communities.

Nevertheless, as will be shown, numerous airports now

encroach on Congress’ limitations and that trend is in-

creasing as the pressure on communities to find revenue

sources for local needs intensifies. As a result, fees and

charges imposed by numerous airports no longer merely

“sustain” airport operations, but, instead, create the very

“financial windfall” that Congress intended to prevent.

Undoubtedly, Grand Rapids is an extreme example of

that trend.

Further confirmation that Congress intended to pre-

clude windfalls such as those at Grand Rapids can be

found in its most recent enactment in the area of airport

funding. In its 1990 legislation permitting airports to

assess and collect certain limited passenger facility

charges, Congress made clear that any such charges

would be authorized only for specific projects necessary

to maintain airport services. It certainly did not author-

ize what has been created in this case—enormous excess

funds having no clear airport purpose whatever.

If the Sixth Circuit is upheld, Congress’ intent in both

the Anti-Head Tax Act (AHTA) and the Airport and Air-

way Improvement Act will be completely subverted and

airports nationwide will be given license to become the

enormous profit centers Congress intended to avoid. The

result will be a devastating burden on air commerce that

those statutes were specifically designed to prevent.

ARGUMENT

THE ECONOMICS OF THE NATION’S AIRPORTS

DEMONSTRATE WHY THE ANTI-HEAD TAX ACT

AND THE COMMERCE CLAUSE REQUIRE RE-

VERSAL

At its essence, this case asks whether it is reasonable

for airport proprietors when setting airport fees for com-

mercial airlines to ignore what this Court already has

recognized, that is, that “[v]irtually all who visit [air-

port] terminals do so for purposes related to air travel.”

International Society for Krishna Consciousness v. Lee,

60 U.S.L.W. 4749 (U.S. June 26, 1992), 550 US. ;

120 L.Ed.2d 541i, 112 S.Ct. 2701 (1992) (emphasis

added). Simply put, the ground-side, non-aeronautical

commercial enterprises (the concessions) at airports

would not exist but for the commercial airline opera-

tions.’ For example, it is estimated that during the Per-

sian Gulf War, when airline traffic fell off dramatically,

3 As the Second Circuit explained, consumers of airport concession

products and services would have no reason to be at an airport

but for the commercial airline services. “The Port Authority’s

terminals are remote from pedestrian thoroughfares and are in-

tended solely to facilitate a particular type of transportation—air

travel—unrelated to protected expression .. . It is true that the

various commercial establishments and art exhibits at the three

airports create an appearance similar to a busy downtown street.

It is also true, however, that the facilities in question exist solely

to accommodate the needs of air travelers .. .” International Society

for Krishna Consciousness, Inc. v. Lee, 925 F.2d 576, 581 (2d Cir.

1991) (emphasis added).

U.S. airports lost an average of $3.1 million per week

in concession revenues."

Given these realities, it is unreasonable for airports

not to consider the effect of concession revenues when

determining airline fees and charges. The airport operator

that fails to consider concession revenues virtually as-

sures itself of excess revenues. This is so because air-

lines, and other airport users, are “captive” users. It is

in recognition of this reality, together with the importance

of assuring that interstate and foreign commerce are not

impaired by parochial interests, that Congress and the

courts have articulated the requirement that airport fees

and charges be “reasonable,” that is, that fees and

charges as a whole be based on a fair approximation of

costs and benefits.

Without these restrictions, airports could extract poten-

tially unlitnited tribute from the national and international

air transportation system. The result, at best, is that the

excess revenues sit idle, looking for a pupose. Such

revenues invite misuse and misapplication. Moreover,

when local governments are desperate for cash to meet

budgetary demands, the inevitable result is that they

seek to tap the revenues generated at their airports to pay

for non-aviation related services. This, too, of course, is

prohibited by the AHTA and the Commerce Clause.

Nevertheless, efforts are underway to do just that.’

Under the test of reasonableness espoused by the

Respondent and adopted by the Sixth Circuit, whereby a

“chinese wall” is erected between air-side costs and fees

on the one hand, and other airport costs and fees on the

other hand, fees may be charged to airlines without regard

4 American Association of Airport Executives and Airport Coun-

cil International—North America (formerly Airport Operators

Council International), Statement before the Committee on Public

Works and Transportation, U.S. House of Representatives (March

5, 1991).

5 See Los Angeles Times, June 23, 1993 at B-1 (Riordan Makes

Case for L.A. in Washington).

to whether the airport reaps the type of financial wind-

fall proscribed by the Anti-Head Tax Act (AHTA)"

and the Commerce Clause,’ or whether the airport as a

whole is “self-sustaining.” as required by the Airport and

Airway Improvement Act of 1982 (AAIA).° The re-

sult is a legal fiction that. in the end. circumvents the

requirement that airline fees and charges be reasonable,

and defeats the Congressional purposes underlying the

AHTA and the AAIA.”

Consequently. the very things that Congress intended to

prevent instead occur. First, fees charged to airlines

grow at a rate out of all proportion to the airport's real

operating costs. Second. airports generate surplus reve-

nues well beyond what is required to be “self-sustaining.

The presence of these attributes—fundamentally incon-

sistent with the purposes underlying the AHTA-~are

strong indicia that airport fees and charges are unreason-

able. And third, the fact that Congress did not intend to

authorize such fees and charges has been recently reaf-

firmed in the Aviation Safety and Capacity Expansion Act

of 1990, Pub. L. No. 101-508, Tit. IX, § 9110.

A. Airport Charges Are Out of Control

The U.S. airline industry has lost $10 billion over the

past three years. Air Transport Association of America,

Air Transport 1993: Annual Report of the U.S. Sched-

‘Pub. L. No. 93-44, § 7, 87 Stat. 90, codified as amended at 49

U.S.C. App. § 1513.

7 See: Evansville-Vonderburgh Airport Authority District v.

Delta Airlines, Inc., 405 U.S. 707 (1972).

* Pub. L. No. 97-248, 96 Stat. 671, codified at 49 U.S.C. App. § 2210.

* The AHTA was intended, inter alia, to ensure that airports do

not reap “financial windfalls” by imposing direct or indirect charges

on persons and goods moving by air. S. Rep. No. 93-12, 93rd Cong.,

Ist Sess., reprinted in 1973 USCCAN 1434, 1446. The AAIA, by

providing Federal funding of airport projects, exacts a promise

from airports that the revenues they generate are used for capital

and operating costs, so that airports are “as self-sustaining as

possible.” 49 U.S.C. § 2210(a) (9) & (12).

uled Airline Industry (June 1993). As a result, operating

costs have been closely scrutinized and, where possible

and consistent with safety obligations, curtailed. Unlike

many other cost items, however, airport costs have risen

dramatically. Airport charges are among the fastest grow-

ing Operating expense items incurred by airlines. In the

eleven years from 1982 to 1992, airport fees and charges

paid by airlines have risen virtually unimpeded—to the

point where they no longer bear any rational relationship

to other airline operating costs.

On a per-passenger basis, landing fees and rental costs

increased 83.2% between 1982 and 1992. Landing fees

alone increased by 79% during that period. By com-

parison, consumer prices have risen 46% and the pro-

ducer price index has risen just 18%. Further, airline

labor costs (on a per employee basis) have risen 34%,

meal costs have risen 44%, advertising costs (obviously,

unlike landing fees, a controllable item) have decreased

by 10%, and interest rates have decreased by 15%. The

cost of fuel on a per gallon basis has decreased by 36%.

In the aggregate, airline operating costs other than airport-

related costs have risen oniy 19.5% since 1992."°

During the same 1982-1992 time period, average ticket

prices have increased by only 7%."

Thus, as can be seen from the chart below, the dramatic

increase in fees and charges imposed by airports on the

commercial airlines stands out in stark contrast to the

other airline operating costs noted above and the mod-

erate increase in the price of airline tickets. Airports’ real

operating costs do not justify these dramatic increases.

The lack of real cost justification is demonstrated by ex-

tensive and growing excess airport revenues.

Statistics maintained by Air Transport Association based on

data submitted to the Department of Transportation on DOT Form

41. See Air Transport Association of America, 1993 State of the

U.S. Airline Industry: A Report on Recent Trends for U.S. Air

Carries (Feb. 1993).

1! Statistics maintained by Air Transport Association of America.

AIRPORT COSTS PEP. PASSENGER vs ALL OTHER COSTS

and AIR FARES

INDEX (1982=100)

200

180 outa 6O6O60 06 OOKS00 66466666 0815644064686 00600 CHR RHSES OT EIU IET

AIRPORT COSTS

160

140

120

00}... AIRFARES |

100 oes °, ceesesseees rw SB ecccecees

ert

002 83 84 85 86 87 88 8 9 91 92

B. Excess Revenues Are Significant and Extensive

Surplus revenues in excess of operating costs are the

second indication of unreasonable landing fees. The latest

survey of U.S. airport rates and charges confirms that

manv of the nation’s airports are. in fact, generating

excess revenues. American Association of Airport Execu-

tives, Survey of Airport Rates and Charges 1991-1992

(undated) (the Survey).

For example, among the nation’s largest airports, excess

revenues for calendar year 1991 include $137,000,000 at

John F. Kennedy International Airport, $122,000,00 at

Newark International Airport, $66,000,000 at Las Vegas

McCarran International Airport, $58,500,000 at Boston

Logan International Airport, $52,300,000 at Houston In-

ternational Airport, $45,000,000 at La Guardia Airport,

and $43,500,000 at Seattle Tacoma Internatioal Airport.

The nation’s twenty largest airports reporting in the Sur-

vey averaged more than $36,500,000 each in excess

operating revenues in 1991.

Excess revenues are not limited, however, to the na-

tion’s largest airports. Medium and small hub airports

also generate significant excess revenues. Twenty-seven

medium hub airports, of which Respondent is one, gen-

erated $266 million in excess revenues in 1991, or nearly

$10,000,000 per airport. Forty-six small hub airports gen-

erated approximately $47,000,000 in excess revenues in

1991.

These kinds of surplus revenues, or profits, are exactly

the “financial windfalls” Congress intended to prevent.

S. Rep. No. 93-12, 93rd Cong., Ist Sess., reprinted in

1973 USCCAN 1434, 1446. Congress’ reasoning is un-

assailable. Funding local airport profits necessarily in-

creases airline operating costs which, in turn, cause higher

ticket prices to be paid by passengers. /d. at 1451.

The impact on the airlines of funding airport excess

revenues cannot be understated. Reducing airline costs

by just two percentage points would affect hundreds of

millions of dollars in revenue. For example, if the Fed-

eral ticket tax were reduced by two percent, from 10%

to 8%, it is estimated that 6.5 million additional passen-

gers would fly annually, airline industry revenues would

increase by $900 million and net profit by $300 million.

Airport profits, like the ticket tax, sap the ability of the

airlines to achieve these results.

If the decision below is upheld, airports across the

country will continue to earn more and more excess reve-

nues and will become even more aggressive in exacting

still higher payments. The inevitable consequence is that

costs of air transportation will likewise grow unabated.

This trend will further burden a U.S. airline industry that

already has seen seven large airlines slip into bankruptcy.”

Such a result would necessarily and unduly burden air

commerce—the precise result the AHTA was intended

to prevent.

C. The Reasonableness of Airport Fees and Charges

Must Be Considered in Context With Passenger

Facility Charges

In 1990, Congress authorized airports to impose a fee

on passengers for the purpose of funding future airport

development projects for which funding was otherwise

unavailable (Passenger Facility Charge or PFC)."* This

amendment to the Federal Aviation Act permits most U.S.

airports with regularly scheduled service to charge enplan-

ing passengers a PFC of $1.00, $2.00 or $3.00. This

funding is in addition to funding under the FAA's Air-

port Improvement Program (“AIP”).”

12 Fastern Air Lines, Continental Airlines, Pan American World

Airways, Trans World Airlines, America West Airlines, Braniff

Airlines, and petitioner Midway Airlines. Today, only three of these

airlines continue to operate.

13 Aviation Safety and Capacity Expansion Act of 1990, Pub. L.

No. 101-508, Tit. IX, § 9110.

14 The AIP program, established by the Airport and Airway Im-

provement Act of 1982, Pub. L. No. 97-248, 96 Stat. 671, replaced

the previous funding program created in 1970 by the Airport and

Airway Development Act, Pub. L. No. 91-258, 84 Stat. 219. The

AIP program is funded by a 10% federal tax on domestic airline

tickets. Since 1982, nearly $13 billion in AIP funds have been spent

on airport improvement projects. Airport Improvement Program:

Opportunity to Consider FAA's Role in Meeting Airport System

Needs, Statement of Kenneth Mead, Director of Transportation

The PFC enabling legislation makes clear that Con-

gress did not abandon its long history of fiscal concern

and constraint on airports to ensure that they not reap

windfalls when determining rates and fees charged to air-

lines. The statute states, in pertinent part:

“(7) AIR CARRIER RATES, FEES, AND

CHARGES.

“(B) CAPITAL COSTS.—-Except as provided by

subparagraph (C), a public agency which controls

a commercial service airport shall not include in its

rate base by means of depreciation, amortization, or

any other method that portion of the capital costs of

a project paid for using revenues derived from fees

collected pursuant to this subsection for the purpose

of establishing a rate, fee, or charge pursuant to a

contract between such agency and an air carrier.”

49 U.S.C. App. § 1513(e)(7)(B).

FAA is given the responsibility for determining whether

proposed development projects satisfy the eligibility cri-

teria set out in the statute. 49 U.S.C. App. § 1513(e)(2).

In essence, PFC eligibility is limited to projects that are

eligible for AIP funding, as well as certain noise abate-

ment compatibility measures. 49 U.S.C. App. § 1513

(e)(15)(C).

As of July 1993, FAA had approved PFC-financed

projects at 119 airports totalling $7.2 billion, and had 62

applications pending for an additional $3.8 billion. Re-

spondent is among the 119 airports that have obtained

approval for PFC funded airport development projects.

Indeed, in this particular case, respondent is authorized

to impose, and has begun collecting, a $3.00 PFC from

all enplaning passengers for the construction of a parallel

Issues, U.S. General Accounting Office, before the Subcommittee on

Aviation, Committee on Public Works and Transportation, House of

Representatives (May 26, 1993) GAO/T-RCED-93-43. Congress

appropriated $1.8 billion for AIP funding. In FY 1992, Congress

appropriated $1.9 billion for AIP funding.

runway and related facilities. Federal Aviation Adminis-

tration, Record of Decision, Kent County Department of

Aeronautics, Grand Rapids, Michigan (September 9, 1992),

at 2. Respondent is permitted to collect $12,500,000. The

balance of the cost of this project $33,585,600, is to be

funded by “AIP discretionary funds and funds from other

sources.” /d. This project appears to duplicate exactly a

project relied upon by Respondent at trial to justify col-

lecting excess revenues. See Defendant’s Exhibit DA 23,

APP-001479, lines 26-29. Given the fact that Respondent

is collecting a PFC to fund a project which purportedly

justified its rates and charges, those rates and charges

necessarily are unreasonable,

Against this backdrop, excess airport revenues are uni-

formly unreasonable. By authorizing a new program to

fund needed airport development projects for which fund-

ing was otherwise lacking, Congress underscored its intent

in the Anti-Head Tax Act that all airport revenues are to

be protected. The PFC enabling legislation filled a per-

ceived need for additional airport capital development

financing. To suggest that at the same time excess charges

could be imposed is illogical and any such charges are

necessarily unreasonable within the meaning of the

AHTA.

CONCLUSION

The judgment below should be reversed and the case

remanded for consideration of petitioners’ damages.

Respectfully submitted,