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

‘Ad09 FIQVTIVAY 1834

TABLE OF CONTENTS

Page

pF ETE iil

INTEREST OF AMICUS CURIAE ........................008 1

SUMMARY OF ARGUMENT ..................:00cseeeeeeeeeeeees 3

(EE crbcnecnteennnnendenesenconssnnescnneenssnsnnesnenenscnennese 4

I. THE COMPENSATORY METHODOLOGY FOR

DETERMINING LANDING FEES IS NOT

ONLY REASONABLE BUT SERVES THE

GOALS OF AIRPORT DEVELOPMENT ......... 4

A. The Comgpunpeny Methodology Charge

Airlines Costs Of Services The Air-

port Provides To The Airlines ............... 4

B. The Compensatory Methodology Is Inher

fA ETS 5

C. Because It Allows To Fund pou

ital eae 4 ith Earnings From

Non-Airline Tenants, The satory

or eh Aly

” eeihiinithiasieiaaaiidihiaiiieaieititaialiieiaaetaces 9

Il. THERE IS NO LEGAL OR POLICY BASIS FOR

FINDING THAT AIRLINES MUST RECEIVE

THE ECONOMIC BENEFIT OF AN AIR-

PORT’S CONCESSION REVENUES ................ 12

A. The Courts Have Deferred To Rate-Mak-

ing Bodies On Issues of Rate-Making

iiaietaaaaialdii ial aiaiiiiataaes 12

B. The Department Of Transportation Has

Accorded Broad Discretion In

AHTA As y Prohibiting Head Taxes

Or Their Bewteenie ... incusiaiendaisdiienemnenensess 13

C. Concession Revenues Do Not Constitute

An Indirect Tax On Air Travelers ......... 14

il iil

| r Requiring That :

py a TABLE OF AUTHORITIES

Airside Operations .........::sssssserseeeeenee 17 - Senin Page(s)

CO a 19 Mite Mites « Divccter of Tesation of Beweil

I renee 13

American Airlines, Inc. v. Massachusetts Port Auth.,

560 F.2d 1036 (1st Cir. 1977) ............ccccceeeees 18

Chevron, U.S.A. v. Natural Resources Defense Coun-

Bly Ge ee Ge COD cccccericcccccccseccccsscccecccees 14

City and County of Denver v. Continental Airlines,

Ine., 712 F. Supp. 834 (D. Colo. 1989) ......... passim

Colorado Interstate Gas Co. v. Federal Power

Comm'n, 324 U.S. 581 (1945) .............cccceceeeee 12

Evansville-Vanderburgh Airport Auth. Dist. v. Delta

Airlines, 405 U.S. 707 (1972) ..............:000000 6,13,18

Federal Power Comm'n v. Hope Natural Gas Co.,

EN 6

Indianapolis Ai Auth. v. American Airlines,

Ine., 733 F.2d 1262 (7th Cir. 1984) .......... 6,12,16-17

Interface Group, Inc. v. Massachusetts Port Auth.,

631 F. jan. 483 (D. Mass. 1986), aff'd in part

and vacated in part, 816 F.2d 9 (1st Cir.

ST icacnereecsgees ctasuninsessensensonsenneroeoecoes 15

National Ass'n of Greeting Card Publishers v.

United States Postal Soule, 462 U.S. 810

EEC SD 12

New England Foundation v. Siesshnadtte

Port Auth., F.2d 157 (1st Cir. 1989) ...... 13

Northwest Airlines, Inc., v. County of Kent, Mich-

igan, 955 F.2d 1054 (6th Cir. 1992), cert.

granted, 113 S. Ct. 2926 (1993) .............ccce+e- passim

Northwest Airlines, Inc. v. County of Kent, Michi-

gan, 738 F. Supp. 1112 (W.D. Mich. 990), aff'd

im part and rev'd in part, 955 F.2d 1054 (6th

Cir. 1992), cert. granted, 113 S. Ct. 2926

STII Siiaiisilisbiiaeenatsenssesesanecscssesesesessescecccoccorcee passim

Raleigh-Durham Airport Auth. v. Delta Air Lines,

ne., 429 F. Supp. 1069 (D. N.C.

STII iil iaiiaasisabeessecescoeresessdeccosescoesccseeeses 6,12,13

iv

Table of Authorities Continued

Page

Reagan v. Farmers Loan & Trust Co., 154 U.S.

Of en 12

Salem Transp. Co. v. Port Auth., 611 F. Supp. 254

ae 15

State ex rel. Arizona Dep't of Revenue v. Cochise

Airlines, 128 Ariz. 432 (Ariz. Ct. App.

TD cécseqscsatecsesnerentreninsnsatnansimenmntniianiaianmnatentios 15

Statutes:

Airport and Airway Improvement Act of 1982, Pub.

L. No. 97-248, tit. V, 96 Stat. 671 (codified,

as amended, at 49 U.S.C. app. 2201 et seg.

CED ccnretuctiisisesisiinsesanadiinedminmnnsaente )

49 U.S.C. app. 2210(aX9) (1988) .........-eeeeeeeeeeeeeeees 10

4B UBC. amp. IBIS (BBB) ...ccccccccccccccccsescscccceccecees 2

Administrative Decisions:

Investigation Into Massport Landing Fees, FAA

Docket 13-88-2 (Dec. 22, 1988) (Decision of the

Deputy Secretary of Transportation), aff'd, New

England Legal Foundation v. Massachusetts

Port Auth., 883 F.2d 157 (1st Cir. 1989) ...... 13

Rules:

Be TOGR, GOB cccccceccccseceserecssssscsecenesessnecensssssssssesoene 3

Legislative Materials:

S. Rep. No. 12, 93d Tt Ist Sess. (1973), re-

printed in 1973 U.S.C.C.A.N. 1434 (accompa-

nying the Anti-Head Tax Act) ............... 10,14,15,16

Other Authorities:

American Ass’n of Airport Executives, 1991-92

Rates and Charges Survey ............::::csseeeeeeeees 7-8

Table of Authorities Continued

Letter from FAA Administrator Donald D. E

to Senator Mark Andrews (Feb. 1, 1985)

seeeee

U.S. Department of Transportation, to

‘ati the

“*

SPPSSHSSSOSSSOOSESSOSO SOO SOCOSCOS OSES OOS ES SES OO OE SOC ECCS SSCCCS

ieee a

14

IN THE

Supreme Court of the Anited States

OCTOBER TERM, 1993

No. 92-97

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 FOR

CITY OF LOS ANGELES AS AMICUS CURIAE

IN SUPPORT OF RESPONDENTS

INTEREST OF AMICUS CURIAE

Amicus curiae, the City of Los Angeles, owns and,

through its Department of Airports, operates Los Angeles

International Airport (““LAX’’) and three smaller airports

in the Los Angeles area. LAX is one of the largest in-

ternational airports in the United States. On an average

day, 130,000 passengers and 3.8 million pounds of freight

and mail pass through the airport on 1,700 flights. LAX

serves the residents of the Los Angeles area and millions

of visitors drawn to the region’s business, commercial and

2

tourist enterprises and activities. Visitors arriving at LAX

spend approximately $17.7 million per day in the region.

LAX also is a large hub airport, serving travelers en route

to and from national and international destinations. It is

a major gateway to the Pacific, Asia, and Australia, as

well as to Europe, Canada, Mexico and Latin America.

LAX creates $3.3 billion in aviation activity at or near

the airport, and almost three times this sum in air freight

and visitor expenditures in the region. Approximately

50,000 jobs are directly attributable to LAX.

LAX recently adopted a “compensatory” methodology

to calculate airline landing fees. This methodology charges

to airline tenants only those costs attributable to their use

of airport services and facilities. It does not subsidize air-

line costs with revenues from concessionaires and other

airport tenants, but it does allow an airport to use non-

airline revenues to fund capital projects. In this and other

cases, now including LAX, the airlines are challenging the

right of an airport to use a compensatory methodology to

determine landing fees charged to the airlines.'

Revenues from concession and other non-airline tenants

are critical to allow LAX to become self-sustaining, which,

contrary to the airlines’ assertion in this case, does not

simply mean that an airport’s current operating revenues

must equal its current operating costs. Airports have mas-

sive capital needs, and if airports are unable to fund nec-

‘In a lawsuit filed recently in the United States District Court for

the Central District of California, airlines servicing LAX have sought

to invalidate its landing fees, among other grounds, as unreasonable

under the Anti-Head Tax Act, 49 U.S.C. app. 1513 (“AHTA”). Air

Transport Ass'n of America v. City of Los Angeles, No. CV 93-4539-

AWT (filed July 30, 1993). As in the case before the Court, the airline

plaintiffs in the Los Angeles suit seek a judicial determination requiring

that the airport cross-credit in favor of the airlines the concession and

other revenues the airport earns from non-airline tenants. The City of

Los Angeles has moved to dismiss the complaint on the ground that

the AHTA does not create a private right of action.

essary expansion and improvement j

eae i ww p nt projects, they cannot

The City of Los Angeles wants to manage and develo

its concessions and other sources of non-airline ome

efficiently in order to fund the capital projects necessary

for LAX to maintain and improve its position as a world-

class airport. The City believes that LAX, as a public

——T plays an important role in the economic well-

ing of Los Angeles and the region. Therefore, it is nec-

essary that the City and its citizens have the financial

capability to decide the priorities and direction of LAX

The City submits this brief to provide the Court the per.

spective and experience of one of the nation’s largest air-

ports on the issues of airport rate-setting and capital

funding.* The Court’s resolution of the issues in this case

likely will have a significant effect on the financial con-

dition of LAX and the nation’s other large hub airports.

SUMMARY OF ARGUMENT

The City of Los Angeles urges this Court to a

judgment of the U.S. Court of Appeals for the wy Gn

cuit, which properly upheld the right of an airport to choose

a compensatory methodology for the calculation of rates

and charges. As applied by the City of Los Angeles, the

pare say methodology is a reasonable method for cal-

S ne charges. The methodology attributes to airlines

nly costs of those services the airport provides to the

airlines, and results in fee amounts comparable to those

assessed by airports across the country. The compensatory

methodology also makes available a source of revenue crit-

ical to an airport's ability to be less dependent upon federal

assistance and debt, and thus, more self-sustaining.

* The City of Los Angeles is a political subdivisi

. vision of a State and j

therefore permitted to file, through its authorized law officer, an pe tn

curiae brief without the consent of the parties. Sup.Ct.R. 37.5.

4

No federal statute, regulation or policy, and certainly

nothing in the Anti-Head Tax Act, prohibits the use of a

compensatory methodology by an airport proprietor. To

portation have given broad discretion to airport proprietors

in their selection of a rate methodology and fee structure.

In no sense can concession revenues be found to constitute

a tax on air passengers since no airport user is required

to use the concessions or services offered. Moreover, the

airlines’ contention that they are the true source of airport

concession revenue is demonstrably false and, even if true,

provides no legal basis for requiring that only a residual

methodology be used in calculating airport fees and

charges, or that concessionaires share in the costs of air-

side operations under a compensatory methodology.

ARGUMENT

I. THE COMPENSATORY METHODOLOGY FOR DETER-

MINING LANDING FEES IS NOT ONLY REASONABLE

BUT SERVES THE GOALS OF AIRPORT DEVELOP-

MENT.

A. The Compensatory Methodology Charges Airlines

The Costs Of Services The Airport Provides To

Respondents and LAX use a “compensatory’’ or cost-

of-services methodology to calculate landing fees charged

compensatory methodology is similarly used to determine

landing fees at many of the nation’s other major airports,

including those in Boston, Denver, St. Louis, Phoenix and

New York.

The compensatory methodology is premised on a theory

of cost recovery. It separately charges costs to, and ac-

counts for revenues received from, the airport’s various

classes of tenants. Accordingly, the rates charged to airline

tenants reflect all the costs associated with the airlines’

5

use of airport facilities and services, without crediting to

those airlines revenues derived from other non-airline ten-

ants, such as concessionaires. The airport proprietor is free

airline tenants to fund airport capital projects. As a result,

the airport has an incentive to manage and develop its

non-airline sources of revenue productively.

In contrast, a “residual” methodology provides for the

airport revenues (excluding landing fees from airlines), and

then caleulated to cover the amount by which total ex-

penses exceed total revenues. In addition, airlines typically

permit airports to apply an amount towards the airport's

marked for current or future capital projects. As a result,

airlines exercise control over the amount of total revenues

allocated to the airport's capital fund. Airlines generally

prefer a residual methodology because it subsidizes airline

costs with revenues received from non-airline tenants and

_ gives airlines a degree of control over airport expenditures.

B. The Compensatory Methodology Is Inherent!

sonable. y ee

The compensatory methodology is inherently reasonable

because it charges airlines only those costs properly at-

tributed to the airlines. Charges assessed to the airlines

are not based on the airport’s future capital needs, but

on the current costs of only those facilities and services

ee tne Setines. Vor these seasons, virtuaiiy ait courte

t have considered the compensatory methodology as a

basis for determining landing fees have concluded that the

methodology is reasonable.*

* See Northwest Airlines, Ine., v. County of Kent, Michi 955 F.2d

1054, 1061 (6th Cir. 1008) Gees ase senssndhie ¥ based en @ tate

6

This Court has also held that “it is the amount of the

tax not its formula, that is of central concern.’”’ Evansville-

Vanderburgh Airport Auth. Dist. v. Delta Airlines, Inc.,

405 U.S. 707, 716 (1972) (emphasis added); see also Federal

Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591,

603 (1944) (“it is the result reached not the method em-

ployed which is controlling.”’). The application of the com-

hodc by the City of Los Angeles at LAX

has resulted in landing fees that, even

creases, are reasonable in amount, and are less than or

Respondents, using a compensatory methodology, charge

a landing fee of $0.70 per 1000 pounds of landed weight

at Grand Rapids. At LAX, also using a compensatory

, the City of Los Angeles currently charges

a landing fee of $1.56 per 1000 pounds of landed weight

for signatories to operating permits. The following table

shows 1991-92 landing fees of various major hub airports

in the U.S.:

approximation of cost of providing facilities) (citing Evansville-Vander-

burgh Airport Auth. Dist. v. Delta Airlines, 405 U.S. 707, 712-14 (1972),

cert. granted, 113 8. Ct. 2926 (1993); Northwest Airlines, Inc. v. County

of Kent, Michigan, 738 F. Supp. 1112, 1120 (W.D. Mich. 1990) (rates

and charges based on airlines share of operating expenses found rea-

sonable), aff'd in part and rev'd in part, 955 F.2d 1054 (6th Cir. 1992),

cert. granted, 113 8. Ct. 2926 (1993); City and County of Denver v.

Continental Airlines, Ine., 712 F. Supp. 834, 839 (D. Colo. 1989) (re-

jecting argument that exclusion of concession revenues in consideration

of landing fees is unreasonable); Raleigh-Durham Airport Authority v.

Delta Air Lines, Ine., 429 F. Supp. 1069, 1079 (D. N.C. 1976) (multiple

enepolis Airport Auth. v. American Airlines, I F.2d 1262 (7th Cir.

1984).

PASSENGERS

METHODOLOGY

@e2& £5 RR RR

= &@ £ & RR RB

— ~ ~ N o-

Residual

Residual

Hybrid

Compensatory

Compensatory

Cc .

Compensatory

Residual

19,151,278

18,117,113

26,300,000

19,700,000

21,451,858

48,198,208

20,704,555

22,300,000

59,787,000

)

1.49

0.93

1.98

2.70

(Per 1,000 Ibs.)

y.

1.37

0.93

1.98

2.16

Other

Hybrid

15,041,935

22,140,437

16,313,289

10,970,899

Source: American Ass'n of Airport Executives, 1991-92 Rates and Charges S

Tacoma Int'l

Washington

Dulles

=

————— TT

survey

By mee

Dayton

* This

9

The Air Transport Association of Ameries (“ATA”), pre-

rica as Amicus Curiae

| t 7-8 (“ATA Brief’). However,

figures and chart are misleading. It ro Geey Sp

i

i

if

ion of airline costs) declined by 36% dur-

ing the same period. Jd. at 7. Air fares have also declined

airlines have engaged in fare wars and have

ir fares substantially below costs, resulting in

massive losses for the industry in recent years.

Finally, landing fees constitute only about two percent

of total airline operating expenses. See The Airline Mon-

i

C, Because It Allows Airports To Fund Capital Im-

provements With wavamnge From Non-Airline Ten-

ants, The Methodology Serves

Congress’ Goal Airports Become “As Self-

Sustaining as Possible.”

The compensatory methodology allows airports to use

provements. As a result, the methodology

enables airports to reduce their reliance on federal fund

ing—a goal Congress sought to when enacti

| | ng

. The Airport and Airway Im-

provement Act (AAIA”S specifically requires airport

owners or operators receiving federal grants to ‘‘maintain

* Airport and Airway Improvement Act of 1982, Pub. L. No. 97-248,

10

a fee and rental structure for the facilities and services

being provided the airport users which will make the air-

port as self-sustaining as possible ... .’"* Moreover, Con-

gress has recognized that concession revenues are an

important source of funding for the capital needs of air-

ports, and that airports that generate substantial conces-

sion revenues are more able to be self-sustaining.’

Retained earnings from concession revenues permit air-

ports to be less burdened by local debt. Indeed, as the

district court below observed, prudent management of sur-

pluses “‘allows the Airport to run efficiently and with fore-

sight thereby avoiding the necessity of seeking extra tax

or bond revenues from the citizens of [the community] for

expansion or improvement.” Northwest Airlines, Inc. v.

County of Kent, Michigan, 738 F. Supp. at 1120. While

airlines may have chosen to meet their capital needs by

taking on massive debt, airlines have no right to presume

that airports should place themselves in a similarly vul-

nerable financial position.

The ATA’s amicus brief states that, for the calendar

year 1991, some of the nation’s largest airports earned

substantia] revenues in excess of their operating expenses.

See ATA Brief, at 9. The ATA asserts that airport rev-

enues in excess of operating costs are “windfalls” that

are indicative of ‘unreasonable landing fees.’’* See id. at

tit. V, 96 Stat. 671 (codified, as amended, at 49 U.S.C. app. 2201 et

seg. (1988).

49 U.S.C. app. 2210(ax9) (1988).

‘See S. Rep. No. 12, 98d Cong., Ist Sess. (1973), reprinted in 1973

U.S.C.C.A.N. 1434, 1440 (report accompanying Anti-Head Tax Act)

concession revenues allow them to cover both operational expenses and

to underwrite needed capital investment borrowing).

*On the basis of a press report, the ATA speculated that the City

of Los Angeles seeks to use revenues generated at LAX for the City's

general expenses. ATA Brief, at 5 & n.5. However, the ATA in its

11

8-9. To the contrary, profits from non-airline tenants allow

airports to fund at least part of their improvements and

expansion without burdening federal, state and local tax-

payers, and allow airports to reduce their debt burden. In

addition, revenues in excess of expenses provide reserves

for emergency repairs and replacements. Finally, if air-

ports are unable to retain and use profits from non-airline

tenants, airports will lack incentive to develop new conces-

sions and other non-airline sources of revenue.

The airlines’ argument erroneously assumes that new

capital improvements and expansion of existing facilities

are not needed for operations. The argument ignores the

tremendous growth in airport passengers and the necessity

to accommodate this growth. It is non-airline profits that

allow airports to sustain themselves by becoming increas-

ingly independent of federal funding, local debt and airline

control.*

suit against the City of Los Angeles failed to allege any claim of

iversi . the ATA was forced to concede that “{djefendants

apparently recognize that they may not divert airport revenues to the

City’s General Fund unless and until numerous federal laws, grant

bond covenants are changed.” Complaint for Decla-

ratory and Injunctive Relief ¢ 61, Air Transport Ass'n of America v.

City of Los Angeles, No. CV 93-4539-AWT (filed July 30, 1993).

12

II. THERE IS NO LEGAL OR POLICY BASIS FOR FIND-

ING THAT AIRLINES MUST RECEIVE THE ECO-

NOMIC BENEFIT OF AN AIRPORT'S CONCESSION

REVENUES.

A. The Courts Have Deferred To Rate-Making Bod-

ies On Issues of Rate-Making Methodology.

Historically, federal courts have declined to involve

themselves in issues of rate-making methodology. Rate-

making, including the cost allocation component of rate-

making, “is essentially a legislative function.”’ Colorado

Interstate Gas Co. v. Federal Power Comm'n, 324 U.S.

581, 589 (1945). This is so because “‘{aJllocation of costs

is not a matter for the slide-rule. It involves judgment on

a myriad of facts. It has no claim to an exact science.”

Id., quoted in National Ass'n of Greeting Card Publishers

v. United States Postal Service, 462 U.S. 810, 825 (1983).

Courts considering the AHTA have uniformly observed

that Congress did not intend that courts perform a rate-

making function by deciding what methodology airports

must use in setting landing fees.’ Accordingly, the Sixth

* See, e.g., Northwest Airlines, Inc. v. County of Kent, Michigan, 955

F.2d at 1066 (Nelson, J. concurring in part and dissenting in part) (In

the absence of a statutory cost-allocation formula, the courts have ‘no

warrant to require the use of one acceptable method in preference to

another.”’) (citing Colorado Interstate Gas Co. v. Federal Power Comm'n,

324 U.S. 581, 589 (1945); Indianapolis Airport Auth. v. American

Airlines, Inc., 733 F.2d 1262, 1270 (7th Cir. 1984) (“the powers of a

federal court in regulating rates are more limited than those of an

administrative agency. We can invalidate an unreasonable rate, but we

cannot fix the reasonable rate; that is a legislative or administrative

rather than a judicial function."’) (citing Reagan v. Farmers Loan &

Trust Co., 154 U.S. 362, 397-98 (1894)); City and County of Denver,

712 F. Supp. at 839 (‘Nothing in the history and purpose of [the AHTA]

indicates that Congress intended the courts to act as a public utility

commission and intervene in the setting of airport rates and charges

through the adoption or rejection of any particular type of .

counting methodology.”’).

13

Circuit below properly deferred to airport proprietors ‘‘as

long as they act within a broad range of reasonableness.”

Northwest Airlines, Inc. v. County of Kent, Michigan, 955

F.2d at 1060 (citing Evansville, 405 U.S. at 712-14).

B. The Department Of Transportation Has Accorded

Airports Broad Discretion In Rate Setting And

Has Construed The AHTA As Only Prohibiting

Head Taxes Or Their Equivalents.

As a matter of policy, the Department of Transportation

(“DOT”) has given airports “wide latitude in selecting a

particular rate methodology and fee structure.”’ Brief for

the United States as Amicus Curiae, On Petition for a

Writ of Certiorari to the United States Court of Appeals

for the Sixth Circuit, at 8, Northwest Airlines, Inc., v.

County of Kent, Michigan, United States Supreme Court

No. 92-97. With specific reference to the AHTA, the DOT,

in its decision with respect to landing fees at Boston's

Logan International Airport, found that:

Congress, when it passed the Anti-Head Tax Act

(49 U.S.C. 1513), sought to prevent the imposi-

tion of taxes by local authorities on passengers

traveling in air commerce ... . Both the lan-

guage and legislative history of the Anti-Head

Tax Act indicate that Congress was concerned in

that statute only with prohibiting head taxes or

their equivalents. Cf., Aloha Airlines v. Director

of Taxation of Hawaii, 464 U.S. 7 (1983).

Investigation Into Massport Landing Fees, FAA Docket

13-88-2 (Dec. 22, 1988) (Decision of Deputy Secretary of

Transportation), aff'd, New England Legal Foundation v.

Massachusetts Port Auth., 883 F.2d 157, 170 (1st Cir.

1989).

Similarly, both the DOT and the Federal Aviation

Administration have concluded that fees charged car rental

companies by an airport are not within the purview of the

AHTA, because the statute is

14

limited in application to situations involving car-

riage by aircraft. Since non-aeronautical off-air-

port service providers are not engaged in carriage

by aircraft they are considered outside the pro-

tection of [the AHTA] and, consequently, a gross

receipts fee imposed upon them by an airport

authority is not prohibited.

Letter from FAA Administrator Donald D. Engen to Sen-

ator Mark Andrews (Feb. 1, 1985), contained in “A Review

of The Imposition of Gross Receipts Fees on Off-Airport

Car Rental Companies,” U.S. Department of Transporta-

tion, Report to the Senate Committee on Appropriations,

the Senate Committee on Commerce, Science and Trans-

portation, the House Committee on Appropriations, and

the House Committee on Public Works and Transportation,

App. B. at 84 (Apr. 1989).

Petitioners are, thus, urging this Court to adopt a con-

struction of the AHTA which is contrary to that given it

by the agency charged with its administration. Since the

DOT’s construction of the AHTA prohibits only “head

taxes or their equivalents,’ and that construction is clearly

reasonable, accepted principles of deference to agency

interpretation require rejection of Petitioner’s contrary

construction of the AHTA. See Chevron, U.S.A. v. Natural

Resources Defense Council, 467 U.S. 837, 842-45 (1984).

C. Concession Revenues Do Not Constitute An Indi-

rect Tax On Air Travelers.

The legislative history of the AHTA also makes clear

that, whether direct or indirect, fees do not fall within the

973 U.S.C.C.A.N. at 1451. By using the phrase “indirect”

ee

15

taxes, Congress sought only to prohibit both the airport

and the airlines from collecting a per passenger charge.

Whether the passenger pays the head ,tax, or

whether it is absorbed by the airlines, the end

result is to raise the cost of air travel ... .

If the passenger must pay a local head tax, it

adds directly to the cost of his trip. And if head

taxes are absorbed by the carriers, where law

permits, because of the cost and difficulty of col-

lection, or even refusal of passengers to pay, it

still will lead to increased air travel costs ....

In the end, a fare increase would have to be

implemented. Thus, the air passenger loses either

way on state and local head taxes.

Id. at 1451 (emphasis added).

As was the case with the courts below, courts address-

ing this issue have concluded that non-airline revenues are

not within the scope of the AHTA.”

To interpret “indirect” taxes to include airport conces-

sion revenues would require an extension of the AHTA’s

protections beyond the class of persons the law was de-

signed to protect. It is clear from the legislative history

“that in enacting § 1513 Congress was solely concerned

with the adverse effects local taxes were having on the

public’s right to travel... ."’ Interface Group, Inc. v. Mas-

sachusetts Port Auth., 631 F. Supp. 483, 494 (D. Mass.

* See Northwest Airlines, Inc. v. County of Kent, Michigan, 738 F.

7 at 1117, (“‘nonairine concession revenues are not within the scope

of the AHTA”’), City and County of Denver, 712 F. Supp. at 836-37

(“Read literally, the Anti-Head Tax Act has no application to .

concession revenues.”’), see also Salem Transp. Co. v. Port Auth., 611

F. Supp. 254, 257 (S.D.N.Y. 1985) (phrase “air transportation” does

not apply to ground transportation); State ex rel. Arizona Dep't of

Revenue v. Cochise Airlines, 128 Ariz. 432, 437 (Ariz. Ct. App. 1980)

(phrase “air commerce” does not include transportation of freight).

16

1986), aff'd in part and vacated in part, 816 F.2d 9 (lst

Cir. 1987). Accordingly, the statute and congressional com-

ments are replete with references to air travelers as the

intended beneficiaries of the statute.’

Airport concession revenues do not implicate the right

to travel. These revenues are not derived solely from air

passengers, but also from non-passengers. Both groups use

airport concessions as consumers exercising individual

choices. Concession users can choose public transit, or

taxis, over car rental and parking fees. They can eat, drink

and shop before going to, or after leaving, the airport.

They may choose to do these at the airport because, as

consumers, they are willing to pay a premium for con-

venience.

The AHTA is not designed to shield consumers from

paying the market premium for convenience. As noted by

the Colorado district court, and by the lower courts in this

case, the airport’s decision to operate concessions at a

profit is outside the purview of the AHTA because it “‘is

not an exploitation of airline passengers who have the

freedom of choice to use the amenities [the airport] has

provided.” City and County of Denver, 712 F. Supp. at

838-39; accord Northwest Airlines, Inc. v. County of Kent,

Michigan, 738 F. Supp. at 1118; Northwest Airlines, Inc.

v. County of Kent, Michigan, 955 F.2d at 1061.

In contrast, head taxes by their nature are assessed on

all captive air travelers, and cannot be avoided.”

“ See, ¢.g., 8. Rep. No. 12, supra, 1973 U.S.C.C.A.N. at 1450 (“Con-

gress ... established a uniform national program of taxation and fund-

ing for airport improvements. This Committee never intended that air

travelers would be subject to state and local head taxes as well as to

national user charges. The Committee believed there was no danger of

this because the basic constitutional guarantee of a citizen's right to

unhindered interstate travel, and a U.S. Supreme Court decision which

had prevailed since 1867, indicated that such taxes could not be con-

stitutionally imposed’’).

“ The Seventh Circuit concluded that it should be a matter of indif-

17

D. There Is No Basis For Requiring That Conces-

sionaires Share In The Costs Of Airside Opera-

tions.

Petitioners argue that concessionaires should share in

the costs of airside operations because, in effect, the air-

lines create the market of concession customers. Petitioners

ignore, however, the fact that concession customers include

individuals who are not air travelers. Large airports and

airports in urban areas may attract people who live or

work in the vicinity of the airport to specialty retail fa-

cilities or restaurants and, indeed, airport operators now

increasingly provide retail establishments for surrounding

residents.

At LAX, the 50,000 people who work at the airport also

use its facilities. Business people frequently use its meeting

facilities. Additionally, particularly at hub airports, friends,

relatives, and acquaintances of travelers often u.~ airport

facilities while meeting air passengers.

Nevertheless, even if all concession customers were also

passengers, Petitioner's argument proves too much. In ef-

fect, the airlines are claiming a right to share in the eco-

nomic activity of air passengers before and after they

travel, simply because airline transportation services de-

liver customers to the activity. In fact, the airlines also

deliver passengers to the city’s businesses and tourist at-

tractions. By the airlines’ logic, because the proprietors of

ference to a traveler “whether he pays $100 for the ticket, $10 in head

tax and $30 for parking; or $120 for the ticket and $20 for parking,

with no head tax. What matters to him is the total cost that he must

distributed among the various items he must buy.”’ Indianapolis, 733

i

numerous private off-site parking facilities that are alternatives to the

18

the area's tourist attractions and businesses benefit from

airside operations, they also should be required to share

in the costs of airside operations.

The airlines urge a self-serving notion of market-making

and benefit. If an airport were located in the middle of

the ocean, few passengers would fly there. It is the mu-

nicipality that an airport serves, including its business and

commercial enterprises, tourist attractions and people, that

is responsible for the market of customers for both the

airlines and the concessionaires. Indeed, if all economic

players were required to share costs based on benefits they

confer upon each other, the airlines would have to share

in municipal costs because it is the municipality that cre-

ates, at least in part, a market for airline passengers.

Even if, however, concessionaires benefit from airside

operations in the manner claimed by the airlines, the law

does not require airside costs to be allocated to conces-

sionaires. Cases addressing the proper allocation of costs

under the AHTA require at most that the amounts «

to the airlines not be excessive in light of the benefits

conferred by the airport on the airlines.’* These decisions

do not require an airport to undertake cost allocations

pent mye why weet tantrum day

on another, or other ethereal “‘benefits’’ subjectively de

termined by the airlines.

* See Evansvilie, 405 U.S. at 716-17 (charges may not be “excessive

in comparison with governmental benefit conferred.’’), accord Northwest

Airlines, Inc. v. County of Kent, Michigan, 955 F.2d at 1061; American

Airlines, Inc. v. Massachusetts Port Auth., 560 F.2d 1036, 1037-38 (ist

Cir. 1977); Northwest Airlines, Inc. v. County of Kent, Michigan, 738

F. Supp. at 1120; City and County of Denver, 712 F. Supp. at 839

(rejecting argument that exclusion of concession revenues in consid-

eration of landing fees is unreasonable).

19

en the tenant tentaie, ths tabaiies tai dads

be affirmed.

James K. HAHN

Gary R. NeETZeER

Senior Assistant City Attorney

BRETON K. LoBNEeR

#1 World Way

Los Angeles, CA 90009-2216

(310) 646-3260

STEVEN 8S. ROSENTHAL*

HarRoLp J. McELHMInny

ANTHONY L. PREss

Lorie M. ALEXANDER

Morrison & FOERSTER

2000 Pennsylvania Ave., N.W.

Suite 5500

Washington, D.C. 20006-1812

(202) 887-1500

Counsel for the City of Los

Angeles as Amicus Curiae

"Counsel of Record

September 1993