Policy Regarding Airport Rates and Charges

DEPARTMENT OF TRANSPORTATION

Office of the Secretary

Federal Aviation Administration

[Docket No. 29303]

Policy Regarding Airport Rates and Charges

AGENCY: Departmen of Transportation, Office of the Secretary, and

Federal Aviation Administration.

ACTION: Advance notice of proposed policy, request for comments.

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SUMMARY: This document requests suggestions for replacement provisions

for the portions of the Department of Transportation's Policy Regarding

Airport Rates and Charges (Policy Statement) issued June 21, 1996 and

vacated by the United States Court of Appeals for the District of

Columbia Circuit. The Department is beginning this proceeding in order

to carry out its responsibility to establish reasonableness guidelines

for airport fees.

DATES: Comments must be submitted on or before October 13, 1998. Reply

comments will be accepted and must be submitted on or before October

26, 1998. Late filed comments will be considered to the extent

possible.

ADDRESSES: Comments on this notice must be delivered or mailed, in

quadruplicate, to: Federal Aviation Administration, Office of Chief

Counsel, Attention: Rules Docket (AGC-10), Docket No. 29303, 800

Independence Ave., SW, Room 915G, Washington, DC 20591. All comments

must be marked ``Docket No. 29303.'' Commenters wishing the FAA to

acknowledge receipt of their comments must include a preaddressed,

stamped postcard on which the following statement is made: ``Comments

to Docket No. . The postcard will be date stamped and mailed to the

commenter.

Comments on this Notice may be delivered or examined in room 915G

on weekdays, except on Federal holidays between 8:30 am and 5:00 p.m.

FOR FURTHER INFORMATION CONTACT: Mr. Barry Molar, Manager (AAS-400),

(202) 267-3187 or Mr. Wayne Heibeck (AAS-400), Compliance Specialist,

(202) 267-8726, Airport Compliance Division, Office of Airport Safety

and Standards, Federal Aviation Administration, 800 Independence Ave.,

SW, Washington, DC 20591.

SUPPLEMENTARY INFORMATION:

Background

On June 21, 1996, Office of the Secretary and the Federal Aviation

Administration (together, the ``Department'' of Transportation or

``Department'') issued a Policy Statement (61 FR 31994 et seq.) on the

fees charged by airports to air carriers and other aeronautical users.

This Policy Statement responded to 49 U.S.C. 47129(b), which requires

the Secretary to publish standards or guidelines to be used in

determining whether an airport fee is reasonable in disputes between

airports and airlines. (Section 113 of the Federal Aviation

Administration Authorization Act of 1994, Public Law No. 103-305).

The Policy Statement reflected industry practice at commercial

service airports of establishing fees for the use of airfields (e.g.,

runways and taxiways) and public-use roadways on the basis of the

airport operator's costs, using historic cost valuation (HCA

requirement). This cost-based approach allowed airports to recover out-

of-pocket costs and permitted airfield fees to include as a cost

imputed interest on airport operator funds invested in the airfield,

except funds obtained from airfield fees.

Recognizing that fees for other aeronautical facilities (e.g.,

hangars and terminals) were often established through direct

negotiations with individual users, the Department adopted a more

flexible approach to nonairfield fees. The Department permitted these

fees to be set by any reasonable methodology, including, among others,

appraised fair market value. Among the factors it considered to support

the disparate treatment, the Department found that airports had not

exercised monopoly power in pricing these facilities and that state and

local governments operate airports to provide aeronautical services for

their communities to benefit their residents and improve the local

economic base, not to generate revenue surpluses.

The Policy Statement modified the approach taken in the February 3,

1995 Interim Policy on determining the reasonableness of fees for

nonairfield facilities. (Under the Interim Policy, airfield and

nonairfield fees were considered reasonable only when capped at

historical cost). The Policy Statement also discussed: the Department's

preference for direct local negotiation between airport proprietors and

users; the prohibition on unjustly discriminatory fees; the obligation

to maintain a fee and rental structure that makes the airport as self-

sustaining as possible under the circumstances at the airport; and the

prohibition against unlawful diversion of airport revenues.

Both the Air Transport Association (ATA) and the City of Los Angles

sought judicial review of the policy Statement. The ATA challenged the

Department's approach to determining reasonable nonairfield fees and

the decision to permit airfield fees to include any imputed interest

charge. The City of Los Angeles challenged the HCA requirement for

airfield fees.

The United States Court of Appeals for the District of Columbia

Circuit vacated and remanded portions of the Policy Statement setting

forth guidance on fair and reasonable airfield and nonairfield fees.

Air Transport Association of America v. Department of Transportation

(ATA v. DOT), 119 F.3d 38 (D.C. Cir. 1997), as modified on rehearing,

Order of Oct. 15, 1997. Specifically, the court vacated:

paragraphs 2.4, 2.4.1, 2.4.1(a), 2.5.1, 2.5.1(a), 2.5.1(b),

2.5.1(c), 2.5.1(d), 2.5.1(e), 2.5.3, 2.5.3(a), 2.6, the Secretary's

supporting discussion in the preamble, and any other portions of the

rule necessarily implicated by the holding of [the August 1, 1997

opinion].

The court's opinion found fault with the Department's distinction

between the airfield, on the one hand, and nonairfield facilities, on

the other hand, with respect to the reasonableness of fees. The court

believed the Department should have explained its fees policy in light

of the economics of airport behavior and had failed to justify the

distinction between airfield and nonairfield fees. The court also

questioned the Department's justification for the disparate treatment

of imputed interest charges.

On November 25, 1997, the Airports Council International-North

America (ACI) and the American Association of Airport Executives (AAAE)

filed a

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Petition for Rulemaking proposing revisions of the Policy Statement

(Docket No. OST-97-3158). The ACI/AAAE would have the Department permit

airport proprietors to value airfield assets at an amount greater than

historic cost (but no higher than a competitive market-based fair

market value) and would permit an airport proprietor to charge imputed

interest on aeronautical fees invested in aeronautical facilities. It

would also permit an airport proprietor to charge current costs for

airfield facilities (in addition to non-airfield facilities) not

currently in use.

In support of its petition, the ACI/AAAE explained that it is the

longstanding practice at many commercial service airports to charge

fair market value for exclusive-use assets and to value airfield assets

on the basis of historical cost. They asserted that their proposal

would not necessarily change industry practice.

With regard to monopoly power, the ACI/AAAE disputed the claim that

airports behave like monopolists and did not believe it necessary to

hold all aeronautical fees to cost-of-service levels. Capping the fees

at competitive market rates (as opposed to above-competitive market

rate) would, in any event, prevent any monopolistic abuses, according

to ACI/AAAE. Additionally, ACI/AAAE explained that airport proprietors

engage in competition in order to maintain existing service and attract

new air carriers. Further, the prohibition against unlawful airport

revenue diversion acts as a check to monopolistic charging, according

to these airport industry organizations. Airports compete to be

gateways to domestic and international geographic regions, also. It is

airlines that have market power in many city-pair markets, not

airports, according to ACI/AAAE. Airlines wield power at airports

through majority-in-interest clauses that provide veto power over

construction or other capital projects.

ACI/AAAE also requested revisions to portions of the Policy

Statement not vacated by the D.C. Circuit Court of Appeals. They

proposed that the Department base its review of the reasonableness of

airport fees on written submissions, rather than on a de novo review.

They also proposed language that the Policy Statement and the expedited

procedures created by 49 U.S.C. 47129 should not be applied to fees

charged to signatories to an agreement.

On March 12, 1998, the ATA filed a Petition for Rulemaking

proposing revisions to the Policy Statement. The ATA would have the

Department reinstate the approach taken in the Interim Policy and

require all aeronautical fees to be based on HCA valuation of assets.

The result of this requirement would in turn be to reinstate the HCA

cap on total aeronautical revenues, according to the ATA. In addition,

the ATA would have the policy bar imputed interest in aeronautical

charges, or at most permit imputed interest only on funds derived from

nonaeronautical users. Finally, the ATA would have the Department

reinstate the prohibition on charges for facilities not in use and

apply that prohibition to all aeronautical charges.

In support of its request on the first two issues, ATA asserts that

its proposal would address the concerns expressed by the Court of

Appeals over the disparate treatment of airfield and nonairfield fees.

In addition, the ATA argues that the proposal on asset valuation and

imputed interest is not precluded by the court's opinion, which faulted

the Department for lack of adequate justification. The ATA further

argues that its approach is supported by the Department's recent

determination on remand in the Los Angeles International Airport

(``LAX'') Rates Proceeding, DOT Order 97-12-31 (December 23, 1997), and

that the Department's rationales in that decision apply nationwide.

On the third issue, the ATA argues that the court vacated the

prohibition on charging for facilities not in use only because the

prohibition was limited to the airfield. The ATA argues that because

the basic premise and reasoning for the prohibition were not challenged

before the court, the ACI/AAAE should not be permitted to reopen the

issue, especially when the ACI/AAAE have offered no persuasive reason

to reject the Department's rationale for the prohibition.

Request for Comments

As a first step in responding to the court's decision, the

Department is soliciting suggestions for appropriate replacement

provisions for the portion of the Policy Statement vacated by the

court. In addition, more information on the nature of specific airport

fee practices and analysis of the economics of airport behavior are

necessary before the Department proposes new fee guidelines.

The Department anticipates that these comments will be candid, will

accurately reflect current industry practices, and will suggest

procedures that can be implemented without undue disruption to the

industry. We hope that both the air carriers and the airports will be

able to provide us with the same type of information, from each party's

perspective. This request for comment is limited to the provisions in

the Policy Statement that the District of Columbia Circuit Court of

Appeals vacated. These are the provisions subjected to the remand

proceeding. Accordingly, the Department is not requesting, at this

time, comments on other portions of the Policy Statement nor on our

procedures under 49 U.S.C. 47129.

Specifically, in addition to proposals for replacement provisions,

the Department requests the following:

A description of the existing aeronautical fee structures

and methodologies in place at specific airport(s) (in the case of

aeronautical users, airports where the user pays fees).

The rationale for those methodologies and, if certain fees

are negotiated, including a discussion of the factors considered in

arriving at the final fee product.

The explanation of the basis for distinctions between fees

charged for airfield versus non-airfield assets, if applicable (and, if

applicable, between terminal facilities and hangars and maintenance

facilities). The basis may include industry practice, airport market

power, airline market power, etc.

Evidence that would support a determination that airports

do or do not possess or use monopoly power in setting aeronautical fees

and a discussion of the comment's view of the issue. In the proceeding

that led to the Policy Statement, airport operators and airport users

disputed whether airport proprietors can and do exercise monopoly power

in pricing essential aeronautical facilities.

Proposals on methods to curb abuse of any monopoly power

in a fee reasonableness standard.

If comments suggest a change in fee structures or

methodologies, comments should include an explanation of how the

proposal would affect the economic behavior of airports and air

carriers. Comments should also justify the proposal under the statutory

reasonableness standard (49 U.S.C. 40116(e) and 47107(a)) and explain

how the proposal addresses the concerns raised by the court.

Comments should also address the suggestion in ATA v. DOT

that ``Congress intended the Secretary to fashion a quasi-legislative

uniform approach [for several different methodologies, depending on the

circumstances] to measuring the reasonableness of airport fees.'' 119

F.3d at 40. Examples of approaches that would meet the court's

concerns, accompanied by justification based on

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industry practice, economic behavior, and other relevant criteria are

invited.

Comments requesting the Department to readopt any of the

vacated provisions should include suggestions on how the Department

could better justify doing so in light of the concerns raised by the

court.

Accordingly, the Department is requesting comments on the matters

stated above and is requesting proposals to replace provisions for the

vacated portions of the Policy Statement.

Petitions for Rulemaking

The petitions for rulemaking of ACI/AAAE and ATA evidently start

from different assumptions and propose significantly divergent

policies. Moreover, as discussed above, the Department has determined

that additional information and input is needed before a specific

proposal is formulated. Accordingly, the Department is opening a new

docket to receive comments on fee reasonableness. The Department is

taking no further action on these petitions at this time. Therefore,

this Advance Notice of Proposed Policy is limited to the issues raised

by Air Transport Association of America v. Department of

Transportation, 119 F.3d 38 (D.C. Cir. 1997). The substance of the two

petitions will be considered along with the comments submitted by other

interested parties. Comments on the petitions may be submitted during

the reply period.

Issued in Washington, D.C. on August 5, 1998.

Rodney E. Slater,

Secretary of Transportation.

Jane F. Garvey,

Adminsitrator, Federal Aviation Administration.

[FR Doc. 98-21607 Filed 8-11-98; 8:45 am]

BILLING CODE 4910-13-M