Airport Privatization Pilot Program: Application Procedures

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

[Docket No. 28895]

Airport Privatization Pilot Program: Application Procedures

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed procedures; notice of public meeting.

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SUMMARY: Section 149 of the Federal Aviation Authorization Act of 1996

establishes an airport privatization pilot program, and authorizes the

Department of Transportation to grant exemptions from certain Federal

statutory and regulatory requirements for up to five airport

privatization projects. This notice identifies the issues the

Department will need to consider in granting exemptions and approving

the transfer of a public use airport under the program, and proposes

application procedures to be used by interested public airport sponsors

and private parties to apply for inclusion in the program. A public

meeting will be held on the proposed procedures on Wednesday, May 21,

1997.

DATES: Comments must be received by June 4, 1997. The public meeting

will be held on May 21, 1997 at FAA headquarters, 800 Independence

Avenue SW., Washington, DC; 3rd Floor auditorium; telephone: (202) 267-

8728.

Registration: 8:30 a.m.; Meeting: 9:00 a.m.-1:00 p.m. Please note:

Please allow time to go through FAA building security.

ADDRESSES: Comments should be mailed, in quadruplicate, to: Federal

Aviation Administration, Office of Chief Counsel, Attention: Rules

Docket (AGC-200), Docket No. 28895, 800 Independence Avenue, SW.,

Washington, DC 20591. All comments must be marked: ``Docket No.

28895.'' Commenters wishing the FAA to acknowledge receipt of their

comments must include a pre-addressed, stamped postcard on which the

following statement is made: ``Comments to Docket No. 28895.'' The

postcard will be date stamped and mailed to the commenter. Comments on

this Notice may be examined in room 915G on weekdays, except on Federal

holidays, between 8:30 a.m. and 5 p.m.

FOR FURTHER INFORMATION CONTACT: Benedict D. Castellano, Manager,

Airport Safety and Compliance Branch, AAS-310, Federal Aviation

Administration, 800 Independence Ave. SW., Washington, DC 20591,

telephone (202) 267-8728. To request to be

[[Page 19639]]

included on the list of speakers at the public meeting, call Kevin

Hehir AAS-310, (202) 267-8224.

SUPPLEMENTARY INFORMATION:

Introduction and Background

This proposal of application procedures to be used by applicants

for an airport privatization project is being published pursuant to

Sec. 149 of the Federal Aviation Administration Authorization Act of

1996, Pub. L. No. 104-264 (October 9, 1996) (1996 Reauthorization Act),

which adds a new Sec. 47134 to Title 49 of the U.S. Code. Section 47134

authorizes the Secretary of Transportation, and through delegation, the

FAA Administrator, to exempt a sponsor of a public use airport that has

received Federal assistance, from certain Federal requirements in

connection with the privatization of the airport by sale or lease to a

private party. Specifically, the Administrator may exempt the sponsor

from all or part of the requirements to use airport revenues for

airport-related purposes, to pay back a portion of Federal grants upon

the sale of an airport, and to return airport property deeded by the

Federal Government upon transfer of the airport. The Administrator is

also authorized to exempt the private purchaser or lessee from the

requirement to use all airport revenues for airport-related purposes,

to the extent necessary to permit the purchaser or lessee to earn

compensation from the operations of the airport.

In addition to proposing application procedures, this notice

describes the issues the FAA will consider in determining whether to

approve an application for an exemption under Sec. 47134 and other

Federal requirements for airport operation. The term ``public sponsor''

is used in this document to mean the governmental agency or authority

that currently owns or operates a public airport and proposes to sell

or lease it to a private purchaser or lessee. The term ``private

operator'' is used to refer to a private firm or firms that propose to

purchase or lease a public use airport under the program; the term

``applicant'' means all of the parties jointly participating in the

application for privatization of a particular airport.

Requirements for Transfer of a Federally-Assisted Public Airport

A request for transfer of the operation of an airport from an

existing public sponsor to a new operator, whether public or private,

requires FAA approval. The request for exemption under Sec. 47134 would

be considered in conjunction with existing approval requirements and

processes.

Grant/Deed Conditions

Airport sponsors receiving Federal assistance under a grant program

or through donation of surplus property agree as a condition of the

assistance to obtain FAA approval before transferring control or

ownership of the airport to another party. For example, Assurance No.

5.b. in Airport Improvement Program (AIP) grant agreements provides

that a sponsor will not sell, lease, or otherwise transfer any part of

its title or other interests in the airport property subject to the

grant assurances, for the duration of the term of the grant agreement,

without approval by the Secretary. Assurance No. 5 further provides

that the sponsor and the transferee approved by the Secretary shall

insert in the contract or document transferring the sponsor's interest,

and make binding upon the transferee, all of the terms, conditions and

assurances contained in the sponsor's grant agreement. Similar

conditions are written into the deeds of conveyance for Federal surplus

property donated to an airport sponsor.

In reviewing a request for transfer, the FAA will consider whether

the new owner/operator will assume the obligations of the original

sponsor under existing grant agreements or deeds, and whether the new

owner/operator has the powers and authority to fulfill its obligations

under the assurances.

Regulatory Requirements

An operator of an airport receiving air service by aircraft with

more than 30 passenger seats must hold an FAA operating certificate

under 14 C.F.R. Part 139. Authority to certificate airports served by

aircraft with 9 or more passenger seats was granted to the FAA in the

1996 Reauthorization Act. FAA operating certificates are not

transferable; a new operator of a certificated airport must obtain a

new certificate issued by the FAA.

Section 47134

Section 47134 contains specific provisions for issuance of an

exemption in connection with a transfer of airport operation. These

conditions supplement and to some extent overlap the factors that FAA

would consider under Assurance No. 5.b., but do not replace other

requirements for approval of an airport transfer. In summary,

Sec. 47134 provides that the Administrator may issue exemptions to a

public sponsor and a private sponsor only if the Administrator finds

that the sale or lease agreement contains provisions satisfactory to

the Administrator to ensure that:

(1) The airport will continue to be available for public use on

reasonable terms and conditions without unjust discrimination;

(2) The operation of the airport will not be interrupted if the

private operator experiences bankruptcy or other financial difficulty;

(3) The private operator will ``maintain, improve, and modernize''

airport facilities through capital investments, and submit a plan for

these actions;

(4) Airport fees imposed on air carriers will not increase faster

than inflation unless a higher amount is approved by at least 65

percent of the air carriers using the airport and the air carriers

having at least 65 percent of the landed weight of aircraft at the

airport;

(5) Fees imposed on general aviation operators will not exceed the

percentage increase in fees imposed on air carriers;

(6) Safety and security will be maintained ``at the highest

possible levels;''

(7) Adverse effects of noise from operations at the airport will be

mitigated to the same extent as at a public airport;

(8) Adverse effects on the environment from airport operations will

be mitigated to the same extent as at a public airport; and

(9) Collective bargaining agreements that cover airport employees

on the date of the sale or lease.

In addition, the Administrator must find that the transfer will not

result in unfair and deceptive trade practices or unfair methods of

competition.

Number of Participating Airports

In establishing the privatization pilot program, Congress placed

limitations on the number and kind of airports eligible to participate.

Paragraph 47134(d)(1) provides that if the applications of 5 airports

are approved, then one must be a general aviation airport. Paragraph

47134(d)(2) provides that no more than one of the airports approved may

be an airport with more than 1 percent of total passenger boardings (a

large hub airport), as defined in 49 U.S.C. Sec. 47102(10).

Process for Applying for an Exemption Under Section 47134

This part of the notice summarizes the FAA's proposed procedures

for applying for an exemption under 49 U.S.C. Sec. 47134, including the

information required from applicants and the process for agency

handling of requests. Final guidance on application

[[Page 19640]]

procedures will be issued after a review of public comments on this

notice.

Substantive issues the FAA believes need to be considered in the

issuance of an exemption and approval of transfer are discussed below

(see section titled, Issues Considered By the FAA in Granting an

Exemption Under Sec. 47134) as further guidance for applicants.

Exemption Application and Review Process: Overview

Subject to revision after review of public comment, the FAA intends

to apply the following policies to the process for filing and review of

requests for privatization of a public airport:

1. A request for participation in the airport privatization pilot

program will be initiated by the filing of an application for exemption

under Sec. 47134(a).

2. With the exception noted below, applications for exemption will

be accepted on or after December 1, 1997, and will be handled on a

first-come first-served basis until the limits of Sec. 47134 are

reached. An otherwise qualifying application for exemption will be

accepted before December 1, 1997, if the sponsor has issued, on or

before the date of publication of this notice, a formal solicitation or

request for proposals for the sale or lease of an airport. All

applications will be evaluated in the order of receipt.

3. Participation in the program is limited to five airports. The

maximum of five participants in the program will be considered to have

been reached based on applications under review, not exemptions

granted, so that an airport with an application on file will not be in

a race for inclusion in the program.

4. An application received by the FAA will be considered to be

filed on the date received. Application packages will be date-stamped

on receipt in Room 600 East, FAA headquarters building.

5. FAA will review the application to determine if it meets the

procedural requirements stated in this notice.

6. The FAA will not accept ``placeholder'' applications filed

before the applicant has sufficient information on the proposed

transfer. If an application cannot reasonably be brought into

compliance with the requirements of Sec. 47134 and other applicable

Federal statutes with current information, the FAA will notify the

applicant that the application is rejected and that the application is

no longer on file. The applicant may file a new application at any

time, and receive a new ``on file'' date at that time.

7. If the application does meet the procedural requirements

described in this notice, the applicant will be notified that the

application is ``accepted for review.'' The FAA may request additional

information before accepting the application for review, but the

original filing date will remain in effect.

8. The FAA proposes to publish in the Federal Register a notice

that an application has been received under 49 U.S.C. Sec. 47134, and

that the FAA has accepted the application for review. The FAA will

establish a docket and accept public comment on the application for a

defined period.

9. Selection as one of the 5 airports eligible to participate in

the program will be evidenced by the issuance of an exemption under

Sec. 47134(b). If an application is approved, an exemption will be

issued after the execution of all documents necessary to fulfill the

requirements of Sec. 47134 and other laws and regulations within the

FAA's jurisdiction (e.g., issuance of a Part 139 certificate to the

private operator; FAA approval of a security program under Part 107;

and possibly a 3-way agreement between the public sponsor, the private

operator, and the FAA.

10. FAA representatives will be available to meet with parties

interested in an airport privatization project both before and after

the filing of an application for exemption to discuss the Federal

statutory requirements and policies that apply to applications under

Sec. 47134.

Filing an Application

1. Applicants must submit a complete application package containing

the information described under ``Form and Content of Applications'' in

this notice to: Susan L. Kurland, Associate Administrator for Airports,

ARP-1, Room 600 East, Federal Aviation Administration, 800 Independence

Avenue, SW., Washington, DC 20591.

2. Applications may be delivered or mailed, but will not be

considered to be ``on file'' with the FAA until received and date-time

stamped in the Office of the Associate Administrator for Airports, Room

600 East.

Form and Content of Applications

1. There is no required form for an application. However, the

application package must be submitted with a cover letter, signed

jointly by appropriate officials of the current public sponsor and the

private operator proposing to buy or lease the airport, requesting an

exemption pursuant to 49 U.S.C. Sec. 47134 for the purpose of the

privatization of an airport. Officials signing for the public sponsor

must provide evidence of their authority to file the application.

2. The following statements and information must be included in an

application. The FAA realizes that some documents, figures, and other

information will not be available until shortly before the execution of

the transfer transaction. The agency assumes that the application would

be filed after the public sponsor has selected a private operator and

reached sufficient agreement with the operator on the terms of the

transaction to represent those terms in an application. The FAA will

not require that all information listed below be provided at the time

of the application, however. For each item below for which information

is not available, the applicant may substitute a description of the

expected response and the date by which the final information will be

available. Information not provided with the application should be

submitted to the FAA as soon as it becomes available.

The Application

Part I. Parties to the Transaction

A. Name of the airport proposed for sale or lease.

B. Name and address of the public sponsor of the airport; name,

address, telephone number and fax number of the person to contact about

the application.

C. Name and address of the private operator proposing to purchase

or lease the airport; name, address, telephone number and fax number of

the person to contact about the application.

D. If the private operator proposing to purchase or lease the

airport is a partnership, joint venture, or other consortium of

multiple interests, the name and address of each of the participating

members.

E. Citizenship of the private operator and/or each member of the

private operator consortium, and percentage of interest of each such

member.

Part II. Airport Property

A. A description of the airport property to be transferred.

Applicants should describe property in sufficient detail to identify

the parcels of property and facilities to be transferred; a map and a

legal description of the property may be included but are not required.

B. A history of the acquisition of existing airport property:

applicants should include information on grants, types of deeds, the

dates and means of conveyance (e.g. Surplus Property Act), other

Federal conveyance of donated property, parcels purchased with Federal

funds and parcels purchased with only local funds.

[[Page 19641]]

Part III. Terms of the Transfer

A. A detailed description of the terms of the transfer, other than

financial, including:

The form of the transaction (sale, lease, other);

Term of the lease or other transfer agreement;

Description of any rights, authority, or interests retained by the

public sponsor, including reversion of title to facilities;

If the private operator is a consortium, a description of the

respective rights and responsibilities of each member;

B. Financial terms of the transaction:

Amounts and timing of payments to public sponsor.

Amounts of payments to sponsor to be used, respectively, for

airport purposes (including recoupment of public sponsor investments

not previously recovered) and other purposes.

Financing arrangements of the private operator for purchase payment

or initial lease payment.

Other relevant financial terms of the transfer.

C. Copies of all documents executed as part of the transfer, to be

provided as they are executed or are in sufficiently final form to

indicate the substantive nature of the expected final document.

D. If applicable, a request for confidentiality of any particular

document or information submitted, with supporting information.

Part IV. Qualifications of the Private Operator

A. Complete description of airport operations experience. If the

private operator is a newly formed entity, describe the experience of

the constituent members and the proposed management structure to

integrate operational functions.

B. Financial resources for operating/capital expenses of the

airport.

C. Timing/details of application for Part 139 certificate, if

applicable.

D. Plan for compliance with Part 107, if applicable.

E. Affiliations with air carriers or other persons engaged in

aeronautical business activity at an airport (other than airport

management).

Part V. Requests for Exemption

A. Describe the specific exemption requested by the public sponsor

under 49 U.S.C. Sec. 47134(b)(1), from the prohibition on use of

airport revenue for general purposes, including the amount of funds

involved.

B. Describe the specific exemption requested by the public sponsor

under 49 U.S.C. Sec. 47134(b)(2), from the requirement to repay Federal

grant funds or return property.

C. Describe the specific exemption requested by the private

operator under 49 U.S.C. Sec. 47134(b)(3), from the prohibition on use

of airport revenue for general purposes.

Part VI. Certification of Air Carrier Approval

A. Provide a certification that air carriers meeting the

requirements of 49 U.S.C. Sec. 47134(b)(1)(A) approve the exemption

described in Part V.A. above. ( See Granting Exemptions under the

section titled Issues Considered by the FAA in Granting An Exemption

Under Sec. 47134 for definitions and guidance.)

B. Provide a list of all air carriers serving the airport (as

described in the above mentioned section on granting exemptions), a

list of the air carriers that have approved the exemption, the total

landed weight of all air carrier aircraft at the airport within the

preceding year, and the total landed weight of the carriers that have

approved the exemption.

C. Provide a copy of each document indicating air carrier approval

of or objection to the exemption requested.

Part VII. Airport Operation and Development

A. Provide a description of how the private operator, the public

sponsor, or both will address the following issues with respect to the

operation, maintenance, and development of the airport after the

proposed transfer. (Factors the FAA will consider in reviewing

applications are discussed in this notice under the previously

mentioned section on granting exemptions below.)

1. Part 139 certification. A request for Part 139 certificate

should be filed with the local FAA regional Airports Division. The

exemption application needs only to reflect the private operator's

intentions and the status of a certificate application, if applicable.

2. Continuing access to the airport on fair and reasonable terms

and without unjust discrimination, in accordance with Sec. 47134(c)(1).

3. Continued operation of the airport in the event of bankruptcy or

other financial impairment of the private operator, in accordance with

Sec. 47134(c)(2). The application should include any provision for

reversion to the public sponsor.

4. Maintenance, improvement, and modernization of the airport, in

accordance with Sec. 47134(c)(3), including the public sponsor's most

recent 5-year capital improvement plan (CIP) and the 5-year CIP

proposed by the private operator. Applicants should identify the

sources of funds to be used for capital development, including any

continuing contributions by the public sponsor. Applicants should also

include any financial security provisions , such as a letter of credit

or performance bond, for the accomplishment of the maintenance,

improvement, and modernization projects committed to by the private

operator.

5. Compliance with the limitations on air carrier fees described in

Sec. 47134(c)(4).

6. Compliance with the limitation on general aviation fees

described in Sec. 47134(c)(5).

7. Maintenance of safety and security at the airport, in accordance

with Sec. 47134(c)(6). The application should note the applicant's

contacts with the Airports District Office on Part 139 and the Office

of Aviation Security on Part 107, but does not need to duplicate

information filed in connection with those actions.

8. Mitigation of adverse effects of noise from airport operations,

in accordance with Sec. 47134(c)(7). The applicant should specifically

describe its intentions with respect to an existing or future Part 150

noise compatibility program for the airport, with respect to the public

sponsor's commitments under past records of decisions on airport

development projects, and other measures the private operator intends

to take in the future.

9. Mitigation of adverse effects on the environment from airport

operations, in accordance with Sec. 47134(c)(8).

10. Recognition of existing collective bargaining agreements

covering employees of the public sponsor, in accordance with

Sec. 47134(c)(9).

B. The applicant's acceptance of the grant assurances contained in

the public sponsor's grant agreements with the FAA. Assurance No. 25

need not be addressed.

Part VIII. Periodic Audits

Section 47134(k) provides that the FAA may conduct periodic audits

of the financial records and operations of an airport receiving an

exemption under the pilot program.

Applicants should indicate their express assent to this provision

in the application.

Issues Considered by the FAA in Granting an Exemption Under 47134

Granting Exemptions

Section 47134(b) authorizes the Secretary, in connection with

approval of an application for transfer to a private operator, to grant

the following exemptions: From requirements governing use of airport

revenue, to the

[[Page 19642]]

extent necessary to permit the sponsor to recover from the transfer,

the amount approved by 65 percent of the carriers serving the airport

and by carriers whose landed weight at the airport in the preceding

calendar year represented 65 percent of the total landed weight at the

airport;

From any statutes, regulations or grant assurances requiring

repayment of Federal grants or the return of Federal property; and

From requirements governing use of airport revenue to the extent

necessary to permit the airport operator to earn compensation from the

operations of the airport.

The exemption authority is discretionary. The FAA will make every

effort to exercise its authority under Sec. 47134 to permit the

completion of transactions negotiated in good faith in reliance on the

statute and this guidance. The FAA notes that Sec. 47134 authorizes

exemptions only from the requirements on the use of airport revenue to

permit the private operator to earn compensation from the airports. As

discussed below, the compensation of the private operator could also be

subject to limitations based on the requirement that aeronautical fees

be reasonable. Reasonable fees are addressed separately under

Sec. 47134(g).

65 Percent Carrier Approval

The FAA proposes to apply the 65 percent approval requirement as

follows. The FAA would consider ``the carriers operating at the

airport'' to be (1) all air carriers, including air carriers operating

under 14 CFR Part 135, that are parties to a lease, use or operating

agreement with the public sponsor on the date the applicants solicit

carrier certification of agreement, and (2) any other carriers that

conducted at least 50 commercial operations in the calendar year

preceding the application. This would not include infrequent or

transient users of the airport, but would include all carriers with a

substantial interest in the fees charged and facilities provided by the

airport operator. The FAA proposes to define landed weight as the total

landed weight at the airport, as determined from records used by the

public sponsor to calculate weight-based landing fees owed by each air

carrier landing at the airport in the calendar year preceding the

filing of the application. An applicant that did not use landed weight

to calculate weight-based landing fees could request a waiver and

propose an alternate methodology.

Terms and Conditions Required for Approval--General Approach

Section 47134(c) permits the FAA to grant an exemption only upon

finding that the sale or lease agreement includes provisions

satisfactory to the FAA to ensure that nine separate statutory

objectives will be fulfilled.

With respect to some of the objectives listed in Sec. 47134(c), it

may be appropriate to rely on provisions in the sale or lease agreement

that track the general statutory language to meet the substantive

requirements of the terms and conditions. For other objectives, as

discussed below, it will be necessary for applicants to describe the

specific measures they intend to take to meet the objective. The FAA

proposes to require that the purchase or lease agreement provide that

terms and conditions included in the agreement to satisfy objectives in

Sec. 47134(c) (at least those objectives relating to safety,

environment, and reasonable access) are intended to create third party

beneficiary rights for the United States enforceable through a civil

action to obtain specific performance of the terms and conditions. The

FAA will also consider the private operator's adherence to the terms

and conditions agreed upon to meet the objectives of Sec. 47134(c), in

evaluating requests for discretionary AIP grants. These steps are

considered to be reasonably necessary for the FAA to assure that the

terms and conditions will be followed after the sale of an airport or

during the life of a lease.

The FAA solicits comment on whether any additional actions would be

appropriate. In particular, should the FAA conduct an independent

evaluation of the qualifications of the private operator similar to the

evaluation of fitness of an applicant for an air carrier economic

certificate conducted by the Department under 49 U.S.C. Secs. 41108,

41110. The FAA is proposing to require information on the proposed

airport operator's qualifications and financial resources in the

application. Commenters suggesting any other actions are requested to

include the policy or legal justification for their suggestions.

Terms and Conditions To Assure Public Access on Reasonable Terms

Without Unjust Discrimination

Section 47134(c)(1) requires the transfer agreement to include

provisions ensuring that the airport will be available for public use

on reasonable terms without unjust discrimination. The FAA has

construed a corresponding requirement in the AIP grant assurances to

require the following:

(1) that the airport be open to all members of the public for

aeronautical use on reasonable terms and conditions, without unjust

discrimination;

(2) that, subject to its physical limitations, the airport be open

to all commercial aviation service providers who meet the reasonable

terms, conditions and minimum standards adopted by the airport

proprietor, unless the airport proprietor undertakes a particular

aviation service in its own name on an exclusive basis; and

(3) that the rates, fees and charges imposed on aeronautical users

of the airport will be reasonable and not unjustly discriminatory.

The FAA would construe the assurance of access on reasonable terms

in the transfer agreement to encompass no less, even if the assurance

were framed in the general terms of the statute. The FAA invites

comment on whether more specific provisions should be required.

Reasonable Rates and Charges Imposed by Airport Operator

Other provisions in Sec. 47134 make it clear that Congress intended

the airport operator to charge only reasonable, not unjustly

discriminatory fees. For example, Sec. 47134(g) provides that an

airport operator shall not be prohibited from collecting reasonable

fees and charges from aircraft operators. In addition, an airport

operator under this provision would be subject to the Anti-Head Tax

Act, which prohibits imposition of unreasonable airport charges.

Finally, Sec. 47134 provides that consideration of the reasonableness

of fees charged at an airport under Sec. 47134 will be subject to

review under 49 U.S.C. 47129, which provides expedited procedures for

determining the reasonableness of airport fees. In light of this latter

provision, the FAA intends to apply the Policy on Airport Rates and

Charges to aeronautical fees imposed by the transferee. In addition, if

Sec. 47129's jurisdictional requirements are met, the expedited

procedures mandated by Sec. 47129 would be employed to determine the

reasonableness of disputed fees.

Reasonable Compensation for the Airport Operator

Section 47134(b)(3) authorizes the FAA to exempt the private

operator from statutory limitations on use of airport revenue to permit

the transferee to earn compensation from the operations of the airport.

No other exemptions to permit compensation are specifically mentioned

in the statute.

[[Page 19643]]

If a transferee intends to earn compensation from the aeronautical

operations of the airport, then the requirement for reasonable fees

would apply to that compensation. It is well accepted that for a fee to

be reasonable, the amount of compensation to the operator of a

facility, in the form of rate of return or return on equity included in

the fee, must also be reasonable.

The OST/FAA Policy Regarding Airport Rates and Charges (Policy)

addresses the issue of compensation to private airport owners only

briefly. As to fees for the use of the airfield, paragraph 2.4 of the

Policy provides that ``a private equity owner of an airport can include

a reasonable return on investment in the airfield.'' 61 FR 32019. A

private equity owner that has done so may not include an imputed

interest charge, as well. Policy, Par. 2.4.1(a). The Policy does not

further define a reasonable rate of return. For the use of aeronautical

facilities other than the airfield, the Policy permits the airport

owner to establish fees using any reasonable methodology. Policy, Par.

2.6, 61 FR 32020. The FAA considers Paragraph 2.6 to permit a private

equity owner of the airport to earn a reasonable return on its equity

investment in nonairfield aeronautical facilities.

The FAA does not propose to provide additional guidance, at this

time. The FAA will apply the provisions of the policy to permit a

private operator to earn, through aeronautical fees, a reasonable rate

of return on the funds it invests in aeronautical facilities at the

airport. The private operator would not be able to include in the

aeronautical fees a rate of return on its lease payments to the public

sponsor, unless agreed to by the aeronautical users. Comments are

requested on the effect of this aspect of the rates and charges policy

on proposed lease and sale transactions.

The FAA will not attempt to define as a matter of general policy

the level of a reasonable rate of return for equity owners or lessees

but would consider the issue on a case-by-case basis. Consistent with

accepted practices for determining the reasonableness of regulated

rates, the primary factor that the FAA would consider in determining a

reasonable rate of return would be the private operator's cost of

capital for its investment in the airport. The FAA requests that

commenters who disagree with this proposed case-by-case approach

propose and justify an alternative approach that could be adopted as a

matter of general policy.

Consistent with the terms of the Policy, the provisions governing

reasonable rates of return on investment need not be followed if the

private operator and aeronautical users agree to another arrangement.

Policy Par. 2.4. Such an agreement would also be subject to sections

47134(c) (4), (5), as discussed below.

Carrier Approval of Fee Increases

Section 47134(c)(4) requires the transfer agreement to include

provisions ensuring that airport fees imposed on air carriers will not

increase faster than the rate of inflation unless 65 percent of

carriers operating at the airport and air carriers whose aircraft

accounted for 65 percent of the landed weight at the airport in the

preceding calendar year approve of the increase. The FAA does not

intend to require the purchase agreement to include any more specific

language than the statutory provision. However, if a fee increase that

exceeds the rate of inflation is contemplated as part of the initial

transfer, the FAA would require that the application for approval

include proof that the requisite carrier approval has been obtained.

Another provision of Sec. 47134 requires the airport operator to

commit to making capital investments in the airport. Consistent with

that provision, the FAA does not intend to apply Sec. 47134(c) to fee

increases that are attributable solely to inclusion of new investments

in the airport rate base. If the 65 percent approval requirement were

to apply to fee increases caused by new capital improvements, the

requirement would give air carriers an effective veto over those

capital improvements, since investors could not be expected to put

capital into a project that is legally barred from generating

sufficient revenue to earn a return on investment. Thus, an

interpretation of the 65 percent approval requirement to apply to fee

increases attributable solely to new investment at the airport would

frustrate implementation of the statutory provision requiring the

airport operator to commit to making capital investment at the airport.

The FAA, therefore, intends to permit fee increases based solely on new

capital investment at the airport to occur without 65 percent air

carrier approval. Existing majority-in-interest clauses and similar

agreements would continue in effect, however. Comments are requested on

the effect of this interpretation of the 65 percent approval provision.

Terms and Conditions To Assure Continued Operation in the Event of

Bankruptcy or Insolvency

Section 47134(c)(2) requires the sale or lease agreement to include

provisions ensuring that the operation of the airport will not be

interrupted by the insolvency, liquidation, or bankruptcy proceeding.

The FAA considers this to be an issue for which simple repetition of

the statutory assurance in the sale or lease agreement will not be

adequate. Some provisions that could be sufficient to ensure continued

operation are listed below; the FAA invites suggestions for other

approaches:

(1) Including in the transfer agreement an automatic reverter to

the public sponsor in the event that the airport ceases operations due

to the bankruptcy or reorganization of the private operator.

(2) In lieu of automatic reverter, including in the application a

contingency plan for sponsor takeover in defined circumstances.

(3) Recording as an encumbrance on the airport property the

obligation to operate the property as an airport.

(4) Establishing an escrow fund or bond to ensure funds are

available to pay the essential costs of operating the airport.

The FAA's objective is to implement the statutory mandate to assure

that the transferred airport continues to operate while avoiding

requirements that interfere with the feasibility of a pilot program.

The FAA specifically invites comment on whether the individual options

would be effective under U.S. bankruptcy law.

Terms and Conditions To Assure Capital Investment and Improvements by

the Airport Operator

One of the purposes of the pilot program is to use private

ownership or long term leases of airports to increase investment in

airport infrastructure above that available through the public sector.

Section 47134(c)(3) requires the transfer agreement to include

provisions to assure that the airport operator will maintain, improve

and modernize the facilities of the airport through capital investments

and will submit to the Secretary a plan for carrying out such

maintenance, improvements and modernization. The FAA proposes to

consider as acceptable components of the plan for improvement and

modernization (1) a five-year capital improvement plan (CIP), and

inclusion in the transfer agreement of a provision assuring that the

airport operator will substantially implement the five-year CIP; and

(2) an assurance of a certain minimum level of capital investment using

the private operator's funds. For an assurance of sufficient minimum

investment, the applicant could, for example, offer a five-year CIP

that exceeds or accelerates the public sponsor's most recent five-year

CIP for the airport; commit to an amount that exceeds the local match

for entitlement

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funds; commit to apply for and use entitlement funds, if available, for

the life of the lease of the airport; or commit to use sources other

than PFCs to finance at least a share of its investment in the airport.

Terms and Conditions Relating to Safety and Security

Section 47134(c)(6) requires that the transfer agreement include

satisfactory provisions to assure that safety and security at the

airport will be maintained at the highest possible levels.

For airports that are currently subject to airport operator

certificates issued under 14 CFR Part 139, the FAA proposes to satisfy

this statutory mandate as it applies to safety by requiring that the

transfer agreement provide that the private operator shall not take

over operational control of the airport until the private operator has

received a new Part 139 certificate. The FAA proposes to take a similar

approach to airport security by requiring that a transfer agreement for

an airport governed by an airport security plan approved under 14 CFR

Part 107 provide that the private operator shall not take over

operational control of the airport until the private operator has

received approval of an airport security plan under Part 107.

For general aviation airports, including reliever airports, that

are not governed by Part 107 or Part 139, the FAA intends to rely on

the private operator's assumption of the public sponsor's outstanding

grant obligations to provide for the requisite level of safety and

security of the airport. Standard assurance 19.a requires the airport

sponsor to ``suitably operate and maintain the airport and all

facilities thereon or connected therewith,'' and further requires that

the ``airport and all facilities which are necessary to serve

aeronautical users of the airport * * * shall be operated at all times

in a safe and serviceable conditions and in accordance with the minimum

standards as may be required or prescribed by applicable Federal, state

and local agencies for maintenance and operation. It will not cause or

permit any activity or action thereon which would interfere with its

use for airport purposes.'' The FAA relies on the assurances to provide

an appropriate level of safety and security at all grant-obligated

general aviation airports, including privately-owned reliever airports

currently under grant.

Terms and Conditions Relating to Noise Mitigation

Section 47134(c)(7) requires the transfer agreement to include

satisfactory provisions to assure that adverse effects of noise from

the operation of the airport will be mitigated to the same extent as at

a public airport.

The FAA will look to proponents to describe means of assuring that

this condition can be satisfied for the particular airport at issue.

One obvious provision would be the private operator's commitment to

continue to implement the measures of an existing approved Part 150

noise compatibility program, which could be included in the transfer

agreement. (Proponents should note the provision in Section 47109(a),

as amended, setting the Federal share at 40% of project costs if

discretionary funds are used. Although FAA will evaluate applications

from a private operator according to the same priority ranking system

as for a public sponsor, the private operator should anticipate bearing

60 percent of allowable noise project costs as well as other projects

receiving discretionary funds.) The FAA solicits comment on other

possible commitments by applicants that would satisfy the intent of the

congressional requirement. For example, the sponsor could commit to

continue to exercise its land-use control powers, including the power

to condemn land for public purposes, to assure airport compatible land

use.

In proposing measures to assure the implementation of

Sec. 47134(c)(7), proponents should keep in mind that the private

operator will be subject to other assurances to permit access to the

airport on reasonable and not unjustly terms, without unreasonable

burdens on air commerce. Also, the airport under private operation will

be subject to the Airport Noise and Capacity Act of 1990 (ANCA). ANCA

prohibits the adoption of noise or access restrictions on stage 2

aircraft unless specified procedures are followed and prohibits the

adoption of noise or access restrictions on stage 3 aircraft except by

agreement with aircraft operators or upon approval by the FAA.

Terms and Conditions Relating to Environmental Mitigation

Section 47134(c)(8) requires the transfer agreement to include

satisfactory provisions to assure that any adverse effects on the

environment from operations at the airport will be mitigated to the

same extent as at a public airport. The FAA proposes to implement this

provision by requiring the airport operator to assume all mitigation

measures identified in existing records of decisions accompanying final

environmental impact statements, findings of no significant impact, and

airport layout plan approvals previously agreed to by the public

sponsor. The FAA would rely on its current practices for airport layout

plan approval, and approval of AIP grants and PFC applications to

assure that adverse effects from any new airport development are

suitably mitigated.

Terms and Conditions: Collective Bargaining

Section 47134(c)(9) requires the transfer agreement to include

satisfactory provisions to assure that the transfer does not abrogate

any collective bargaining agreement covering employees of the airport

in effect on the date of transfer. The FAA proposes to consider this

provision satisfied if the transfer agreement includes a provision by

which the parties agree not to abrogate any collective bargaining

agreement covering employees of the airport in effect on the date of

transfer. Certification from each collective bargaining representative

that the transfer agreement will not abrogate its contract would also

meet the requirement.

Unfair Competition Finding

Section 47134(e) requires the FAA to find that approval will not

result in unfair and deceptive practices or unfair methods of

competition. The FAA proposes to evaluate each proposed transaction's

potential for unfair competition individually and solicits comment on

information that would be needed to perform this evaluation.

Protection of General Aviation Interests

Section 47134(f) requires the FAA to ensure that the interests of

general aviation users of the airport are not adversely affected in

approving an application for a private transfer. The FAA intends to

review the exemption application and transfer agreement for the

applicant's commitment to this effect. The FAA solicits comments on

whether any additional measures are appropriate.

Revocation Procedures

Section 47134(i) authorizes the FAA to revoke the exemptions

granted to permit a private transfer if, after providing the airport

operator with notice and an opportunity to be heard, the FAA determines

that the transferee has knowingly violated any of the required terms

and conditions specified

[[Page 19645]]

in the section titled, Form and Content of Applications. The FAA

proposes to rely on the procedures in 14 CFR Part 16 to provide the

required notice and opportunity to be heard in the case of a revocation

proceeding. In addition, the FAA will consider other remedies, such as

obtaining orders for specific performance of the terms and conditions,

as an alternative to commencement of revocation procedures. The FAA

invites comments on the adequacy of these procedures in the event of a

violation of the terms of the exemption.

Administration of AIP Grants

Sections 47134(g)(1) authorizes otherwise eligible airports to

continue to qualify for AIP apportionments under 49 U.S.C. Sec. 47114.

In addition, a private operator may receive discretionary AIP funds,

but with a higher local share required than a public sponsor's share.

Under 49 U.S.C. Sec. 47107, the FAA must receive satisfactory written

assurances on a number of subjects before issuing a grant. This

requirement is fulfilled by the standard sponsor assurances included in

every AIP grant agreement. Section 47134 authorizes the FAA to grant

exemptions from a very limited number of the assurances mandated by

Sec. 47107.

In addition, standard assurance 5.b. requires a sponsor, before

transferring an obligated airport to include in the transfer document

and make binding on the transferee all conditions and assurances

contained in the grant agreement.

The FAA intends to apply the requirement in standard assurance 5.b.

to any transfer proposed under Sec. 47134, subject to the specific

exemptions authorized by that section. In addition, the FAA would

require an airport operator applying for new AIP grants to agree to all

standard assurances except those from which Sec. 47134 authorizes an

exemption. As with a public sponsor, approval of a project grant would

be subject to the provisions of 49 U.S.C. Sec. 47106, which requires

the FAA to make special findings on environmental impacts and local

acceptance before approving grants for certain airport improvement

projects.

The FAA employs a priority system to allocate discretionary AIP

funds. The current system does not differentiate between otherwise

equivalent projects proposed by public and private sponsors. The FAA

solicits comment on whether such a distinction is appropriate for

requests for discretionary funds submitted by participants in the pilot

program.

Administration of Passenger Facility Charges

Section 47134(g)(1) authorizes an airport operator to impose a

passenger facility charge (PFC) under 49 U.S.C. Sec. 40117. If a PFC is

being collected at an airport at the time of transfer, the FAA would

require the private operator to agree to accept all of the terms,

requirements, and limitations of the PFC statute, 14 CFR Part 158 and

all applicable records of decision approving collection and use of PFC

revenues as a condition of continuing the existing PFC program. A

private operator would need to comply with the PFC statute and Part 158

to obtain new approval to impose a new PFC or to use PFC revenue not

already approved for use in an FAA record of decision.

Notice of Public Meeting

Background

The FAA will conduct a public meeting on the proposed application

procedures and policies discussed in this notice. Comments from the

public at this meeting should be directed specifically to the agency's

implementation of the Airport Privatization Pilot Program established

in the FAA Reauthorization Act of 1996.

The closing date for comments on the proposal is June 4, 1997. In

order to give the public an additional opportunity to comment on this

notice, the FAA is planning this public meeting. Because this

additional opportunity to comment is provided, the FAA does not intend

to extend the closing date for comments.

Participation at the Public Meeting

Requests from persons who wish to present oral statements at the

public meeting on the Airport Privatization Pilot Program should be

received by the FAA no later than May 16, 1997. Such requests should be

submitted to Kevin Hehir, AAS-310, 202-267-8224 as listed in the

section titled FOR FURTHER INFORMATION CONTACT. Requests received after

May 16, 1997, will be scheduled if time is available during the

meeting; however, the name of those individuals may not appear on the

written agenda. The FAA will prepare an agenda of speakers that will be

available at the meeting. To accommodate as many speakers as possible,

the amount of time allocated to each speaker may be less than the

amount of time requested. Those persons desiring to have available

audiovisual equipment should notify the FAA when requesting to be

placed on the agenda.

Public Meeting Procedures

The following procedures are established to facilitate the public

meeting:

1. There will be no admission fee or other charge to attend or to

participate in the public meeting. The meeting will be open to all

persons who have requested in advance to present statements or who

register on the day of the meeting, subject to availability of space in

the meeting room.

2. The public meeting may adjourn earlier if all speakers have

completed their statements.

3. The FAA will try to accommodate all speakers; therefore, it may

be necessary to limit the time available for an individual or group.

4. Participants should address their comments to the panel. No

individual will be subject to cross-examination by any other

participant.

5. Sign and oral interpretation can be made available at the

meeting, as well as an assistive listening device, if requested 10

calendar days before the meeting.

6. Representatives of the FAA will conduct the public meeting.

7. The meeting will be recorded by a court reporter. A transcript

of the meeting and any material accepted by the panel during the

meeting will be included in the public docket. Any person who is

interested in purchasing a copy of the transcript should contact the

court reporter directly. This information will be available at the

meeting.

8. The FAA will review and consider all material presented by

participants at the public meeting. Position papers or material

presenting views or information related to this notice may be accepted

at the discretion of the presiding officer and subsequently placed in

the public docket. The FAA requests that persons participating in the

meeting provide 10 copies of all materials to be presented for

distribution to the panel members; other copies may be provided to the

audience at the discretion of the participant.

9. Statements made by members of the public meeting panel are

intended to facilitate discussion of the issues or to clarify issues.

FAA officials may ask questions to clarify statements made by the

public and to ensure a complete and accurate record. Comments made at

this public meeting will be considered by the FAA when deliberations

begin concerning whether to adopt any or all of the proposed rules.

10. The meeting is designed to solicit public views and more

complete information on the proposed application

[[Page 19646]]

procedures and implementation of the Airport Privatization Pilot

Program. Therefore, the meeting will be conducted in an informal and

nonadversarial manner.

Issued in Washington, DC on April 16, 1997.

David L. Bennett,

Director, Office of Airport Safety and Standards.

[FR Doc. 97-10355 Filed 4-18-97; 8:45 am]

BILLING CODE 4910-13-P