U.S. v. Signature Flight Support Corporation, et al.; Public Comments and Plaintiff's Response

DEPARTMENT OF JUSTICE

Antitrust Division

U.S. v. Signature Flight Support Corporation, et al.; Public

Comments and Plaintiff's Response

Notice is hereby given pursuant to the Antitrust Procedures and

Penalties Act, 15 U.S.C. 16(b)-(h), that the Public Comment and

Plaintiff's Response have been filed with the United States District

Court of the District of Columbia in United States v. Signature Flight

Support Corporation, Civ. Action No. 9900537 (RCL).

On March 1, 1999, the United States filed a civil antitrust

Complaint alleging that Signature Flight Support Corporation's

(``Signature'') proposed acquisition of AMR Combs, Inc., (``Combs'')

would violate section 7 of the Clayton Act, 15 U.S.C. 18. The Complaint

alleged that Signature and Combs are fixed based operators (FBOs)

located at various airports throughout the United States. Signature's

acquisition of Combs would have eliminated its only FBO competitor at

Bradley International Airport and at Palm Springs Regional Airport. The

acquisition would have also significantly reduced the likelihood of

entry of a third, independent FBO competitor at Denver Centennial

Airport. As a result, the proposed acquisition would substantially

lessen competition for FBO services at those airports in violation of

section 7 of the Clayton Act.

Public comment was invited within the statutory 60-day comment

period. The one comment received, and the response thereto, is hereby

published in the Federal Register and filed with the Court. Copies of

these materials may be obtained on request and payment of a copying

fee.

Constance K. Robinson,

Director of Operations and Merger Enforcement, Antitrust Division.

Plaintiff's Response to Public Comment

Pursuant to the requirements of the Antitrust Procedures and

Penalties Act, 15 U.S.C. Sec. 16(b)-(h) (``Tunney Act''), the United

States hereby responds to the single public comment received regarding

the proposed Final Judgment in this case.

I. Background

On March 1, 1999, the United States Department of Justice (``the

Department'') filed the Complaint in this matter. The Complaint alleges

that Signature Flight Support Corporation's (``Signature'') proposed

acquisition of AMR Combs, Inc. (``Combs''), a wholly owned, indirect

subsidiary of AMR Corporation, would violate section 7 of the Clayton

Act, 15 U.S.C. Sec. 18. The Complaint alleges that Signature and Combs

are fixed base operators (FBOs) located primarily at various airports

throughout the United States. FBOs provide flight support services to

general aviation customers. By acquiring the Combs FBO facilities,

Signature would eliminate its sole FBO competitor at Bradley

International Airport (``BDL'') and at Palm Springs Regional Airport

(``PSP''). In addition, Signature's proposed acquisition would

significantly reduce the likelihood of entry by a third, independent

FBO competitor at Denver Centennial Airport (``APA''). As a result, the

Complaint alleges, the proposed acquisition would substantially lessen

competition for FBO services at APA, BDL and PSP in violation of

section 7 of the Clayton Act. 15 U.S.C. Sec. 18.

Simultaneously with the filing of the Complaint, the Department

filed the proposed Final Judgment and Stipulation signed by all the

parties that allows for entry of the proposed Final Judgment following

compliance with the Tunney Act. The Department also filed a Competitive

Impact Statement (``CIS'') on March 15, 1999, that was subsequently

published in the Federal Register on March 26, 1999. The CIS explains

in detail the provisions of the proposed Final Judgment, the nature and

purposes of these proceedings, and the transaction giving rise to the

alleged violation.

As the Complaint and the CIS explain, the merger as originally

proposed was likely to reduce or eliminate competition in three

specific markets for flight support services--the APA, BDL and PSP

markets. The proposed Final Judgment is intended to prevent the

expected lessening of competition the merger would cause in those

markets.

As a remedy to competitive harm in the BDL and PSP markets for

flight support services, the Department and Signature, Combs, and AMR

agreed to divestiture of one of the FBO businesses at each airport. In

addition, the parties agreed to remedy the competitive harm in the APA

market for flight support services by transferring Signature's

[[Page 36401]]

interest in a new FBO facility at APA to another FBO or by divesting

the existing Combs FBO business to an independent and financially

viable competitior. These remedies are intended to protect consumers by

ensuring continued vigorous competition in each market.

The 60-day comment period for public comments expired on May 25,

1999. The Department had received only one comment, from Robert A.

Wilson, President of Wilson Air Center, an FBO located at the Memphis

International Airport in Memphis, Tennessee.\1\

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\1\ The comment is attached. The Department plans to public

promptly the comment and this response in the Federal Register. The

Department will provide the Court with a certificate of compliance

with the requirements of the Tunney Act and file a motion for entry

of final judgment once publication takes place.

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II. Response to the Public Comment

Wilson opposes the Department's decision to permit Signature's

acquisition of Combs subject to the divestiture of FBO facilities or

interests in FBO facilities at APA, BDL and PSP. Wilson claims that the

Department should have challenged the acquisition in another market

that consists of the Memphis International Airport. The Wilson comment

indicates that the Memphis International Airport market has only two

FBO competitors: Combs and Wilson Air Center. According to Wilson,

shortly before the announcement of the transaction between Signature

and Combs, Combs had negotiated various agreements with the Memphis and

Shelby County Airport Authority that he believes place Wilson Air

Center at a competitive disadvantage. In Wilson's view, Signature's

purchase of Combs is objectionable because it perpetuates what he

considers to be anticompetitive agreements at the Memphis International

Airport.

The Clayton and Sherman Acts, judicial precedent, and the

Horizontal Merger Guidelines \2\ govern the Department's review of

mergers. The first step in the review is defining relevant product and

geographic markets where the merging firms are actual or potential

competitors. Once the relevant markets are identified, the analysis

turns to the competitive implications of the proposed transaction's

elimination of one of the firms. Signature and Combs did not compete

with one another at the Memphis International Airport, and there was no

indication that Signature planned to become an independent competitor

at the airport. Since there was no actual or potential competition and

thus, no substantial lessening of competition, that market would not

be--and, in fact, was not--one that merited review. Instead, the

Department identified three geographic markets were Signature and Combs

were actual or potential competitors, and determined that, as a result

of the acquisition, competition in those markets would be substantially

lessened. Accordingly, the Department brought its case on the basis of

those three markets, and obtained as relief divestitures designed to

ensure continued competition in each market. In sum, the Wilson comment

does not raise competition issues caused by the proposed acquisition.

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\2\ Federal Trade Commission and United States Department of

Justice, Horizontal Merger Guidelines (1992, rev. 1997).

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III. The Legal Standard Governing the Court's Public Interest

Determination

Once the Department moves for entry of the proposed Final Judgment,

the Tunney Act directs the Court to determine whether entry of the

proposed Final Judgment ``is in the public interest.'' 15 U.S.C.

Sec. 16(e). In making that determination, the ``court's function is not

to determine whether the resulting array of rights and liabilities `is

one that will best serve society,' but only to confirm that the

resulting `settlement is within the reaches of the public interest.' ''

United States v. Western Elec. Co., 993 F.2d 1572, 1576 (D.C. Cir.

1993) (citation omitted). \3\ The Court should evaluate the relief set

forth in the proposed Final Judgment and should enter the proposed

Final Judgment if it falls within the government's ``rather broad

discretion to settle with defendant within the reaches of the public

interest.'' United States v. Microsoft Corp., 56 F.3d 1448, 1461 (D.C.

Cir. 1995); accord United States v. Associated Milk Producers, 534 F.2d

113, 117-18 (8th Cir. 1976).

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\3\ The Western Electric decision concerned a consensual

modification of an existing antitrust decree. The Court of Appeals

assumed that the Tunney Act was applicable.

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Because Wilson argues for a different case than the one that the

Department brought, and does not address the relief ordered by the

proposed Final Judgment, the comment raises no issues relevant to this

Tunney Act proceeding. The Tunney Act does not contemplate a judicial

reevaluation of the government's determination of which violations to

allege in the Complaint. The government's decision not to bring a

particular case based on the facts and law before it at a particular

time, like any other decision not to prosecute, ``involves a

complicated balancing of a number of factors which are peculiarly

within [the government's] expertise.'' Heckler v. Chaney, 470 U.S. 821,

831 (1985). Thus, the Court may not look beyond the Complaint ``to

evaluate claims that the government did not make and to inquire as to

why they were not made.'' Microsoft, 56 F.3d at 1459; see also

Associated Mild Producers, 534 F.2d at 117-18.

Similarly, the government has wide discretion within the reaches of

the public interest to resolve potential litigation. See, e.g., Western

Elect., 993 F.2d at 1577; United States v. American Tel. & Tel. Co.,

552 F. Supp. 131, 151-52 (D.D.C. 1982). The Supreme Court has

recognized that a government antitrust consent decree is a contract

between the parties to settle their disputes and differences, United

States v. ITT Continental Baking Co., 420 U.S. 223, 235-38 (1975);

United States v. Armour & Co., 402 U.S. 673, 681-82 (1971), and

``normally embodies a compromise; in exchange for the saving of cost

and elimination of risk, the parties each give up something they might

have won had they proceeded with the litigation.'' Armour, 402 U.S. at

681. This proposed Final Judgment has the virtue of bringing the public

certain benefits and protection without the uncertainty and expense of

protracted litigation. Id.; Microsoft, 56 F.3d at 1459.

Finally, the entry of a governmental antitrust decree forecloses no

private party from seeking and obtaining appropriate antitrust

remedies. Thus, defendants will remain liable for any illegal acts, and

any private party may challenge such conduct if and when appropriate.

If the commenting party has a basis for suing the defendants, it may do

so. The legal precedent discussed above holds that the scope of a

Tunney Act proceeding is limited to whether entry of this particular

proposed Final Judgment, agreed to by the parties as settlement of this

case, is in the public interest.

IV. Conclusion

After careful consideration of the comment, the Department

concludes that entry of the proposed Final Judgment will provide an

effective and appropriate remedy for the antitrust violation alleged in

the Complaint and is in the public interest. The Department will move

the Court to enter the proposed Final Judgment after the public comment

and this Response have been published in the Federal Register, as 15

U.S.C. Sec. 16(d) requires.

Dated this 21st day of June, 1999.

[[Page 36402]]

Respectfully submitted.

Nina B. Hale,

Salvatore Mass,

U.S. Department of Justice, Antitrust Division, 325 7th Street, NW,

Suite 500, Washington, D.C. 20530, (202) 307-6351.

Certificate of Service

I, Marian Honus, hereby certify that, on June 21, 1999, I caused

the foregoing document to be served on defendants Signature Flight

Support Corporation, AMR Combs, Inc., and AMR Corporation by having a

copy mailed, first-class, postage prepaid, to:

William Norfolk, Esq.,

Sullivan & Cromwell, 125 Broad Street, New York, NY 1004.

Eugene A. Burrus, Esq.,

AMR Corporation, P.O. Box 619616, MD 5675, Dallas Fort Worth Airport,

TX 75261.

Marian Honus

May 21, 1999.

Mr. Roger W. Fones,

Chief, Transportation, Energy and Agriculture Section, Department of

Justice, Antitrust Division, 325 Seventh St., NW, Suite 500,

Washington, DC 20530

RE: Comments of Wilson Air Center, LLC in Response to Federal

Register Notice Regarding Proposed Final Judgment and Competitive

Impact Statement: United States of America v. Signature Flight

Support Corporation, et al., Federal Register 58 (March 26, 1999)

Dear Mr. Fones: Wilson Air Center, LLC (``Wilson Air'') is an

independently owned Fixed Base Operation (``FBO'') and is the only

FBO other than AMR Combs, Inc. (``AMR'') located at the Memphis

International Airport, Memphis, Tennessee (the ``Memphis Airport'').

Wilson Air comments on the proposed acquisition insofar as it will

impact FBO competition at the Memphis Airport as follows:

Wilson Air is opposed to the acquisition of AMR by Signature

Flight Support Corporation (``Signature'') because it will

perpetuate agreements between AMR and the Memphis and Shelby County

Airport Authority (the ``Authority'') which will give Signature an

illegal competitive advantage for FBO customers at the Memphis

Airport. The timing and substance of the recently executed anti-

competitive agreements suggests that they were negotiated in

anticipation of the instant sale to improperly increase the value of

AMR's Memphis operation. If the proposed sale is implemented at the

Memphis Airport such that Signature assumes the anti-competitive

agreements that are in place, FBO competition at the Memphis Airport

will be stifled and Wilson Air will be irreparably harmed.

The Anti-Competitive Agreements

The new lease between the Airport Authority and AMR was executed

in late July or early August of 1998 but was made effective as of

June 1, 1998 (the ``Lease''). A copy of the AMR Lease is at EXHIBIT

A. In the Lease, AMR procured terms which make it impossible for

Wilson Air to fairly compete for customers. The Lease also directly

violates the Federal Grant Assurances \1\ which, as a contractual

obligation for the receipt of Federal funding, mandate fair and

equitable treatment of FBOs so that competition can be preserved at

airports supported with Federal funds.

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\1\ The Grant Assurances set out fully at Section 47107 of 49

United State Code under the heading Economic Nondiscrimination

provide that ``(e)ach fixed-base operator shall be subject to the

same rates, fees, rentals, and other charges as are uniformly

applicable to all other fixed-base operators making the same or

similar use of such airport * * '' Id. At Para. 22(c). Paragraph 23

of the Grant Assurances, entitled Exclusive Rights, goes on to state

that an airport authority sponsor''* * * will permit no exclusive

right for the use of the airport by any person providing * * *

aeronautical services to the public.'' The Memphis Airport between

1994 and 2008 has and is scheduled to receive $119,380,000 in

federal grant funds from the Federal Aviation Administration. As

such, Memphis Airport is a federally assisted airport operation and

must comply with the Federal Grant Assurances which are incorporated

into the Authority's grant funding contracts with the FAA

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Disparate Lease Rates

The terms of the Lease which violate the Federal Grant

Assurances create the anti-competitive environment which the Grant

Assurances sought to prevent. The Lease includes disparate pricing

terms.\2\ At Paragraph 4 and in its Exhibit C, the Lease in 1998

granted to AMR property at rates far below the then existing market

and far below rates which had been set for Wilson Air more than four

(4) years earlier. More precisely, effective June 30, 1998, the

Lease requires AMR to pay between $.0759 per square foot for

``unimproved land'' and $.0949 per square foot for ``improved

land.'' In the lease, AMR's base lease rental schedule increases

incrementally through 2010. Even so, rates for ``unimproved land''

remain well below the rates paid by Wilson Air until after June 30,

1005. The rates charged to AMR are shown on Exhibit C to the Lease

(EXHIBIT A). Moreover, it appears that AMR is paying nothing for the

13,500 square feet occupied by the General Aviation Building. In

stark contrast Wilson Air, in a lease of more unimproved land

negotiated in 1994 which extends through 2005, must pay $.12 per

square foot. Wilson Air at that higher rate was required to build

its entire facility from the ground up. A copy of Wilson Air's lease

is at EXHIBIT B.

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\2\ The Authority has asserted that the Lease is merely an

extension of AMR's 1979 Lease and an accommodation for giving up

other land. The many substantial discrepancies between the Lease and

AMR's 1979 lease show that it is indeed a new document and not an

extension of the old lease. Other documents exchanged between AMR

and the Authority further rebut this claim.

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The disparate rates included in the Lease make it impossible for

Wilson Air profitably to offer its current and prospective FBO

tenants lease rates which are competitive with the lease rates

offered by AMR. AMR has already used the disparate lease rates to

procure for itself customers. As shown in Paragraph 8a of the

sublease at EXHIBIT C, AMR as of July 17, 1998, subleased to

Richard's Aviation, Inc. at the rate of $.0759 per square foot--four

and one-half cents less than the Authority had leased unimproved

land to Wilson Air. The inability of Wilson Air to enter match such

a rate is obvious. And, as Paragraph IIB of the Notice states

``(t)he largest source of revenues for an FBO is its fuel sales''

and (g)eneral aviation customers generally buy fuel from the same

FBO from which they obtain those other services (hangar rental,

office space rental, etc.)''. Thus, the reduced lease rates given to

AMR preclude Wilson Air from competing for hangar tenants and for

fuel customers. This Lease term restrains trade and commerce at the

Memphis Airport as it relates to the two FBOs and appears to violate

both Section 7 of the Clayton Act and Section 1 of the Sherman Act.

Disparity in Land Under Lease

Wilson Air currently has approximately 16 acres of land under

lease. Through the Lease, AMR has increased the acreage held by it

and has obtained an option for even more land.\3\ At this same time,

Wilson Air has repeatedly requested from the Authority and has been

denied additional land on which to expand its operations. AMR's

Lease grants AMR an option on three separate parcels totaling 13.53

acres (identified in the Lease as N, O and P). In the new Lease, as

amended, the Authority grants AMR an option to these parcels for

$.02 to $.03 per square foot. In addition, 15.45 more acres of new

land were added to the new AMR lease.

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\3\ AMR had approximately 20 acres under its 1979 lease of the

south complex. A copy of that lease is at EXHIBIT D.

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These terms of the Lease are anti-competitive in that they give

AMR approximately 3 times Wilson Air's acreage with which it can

entice customers away from Wilson Air at rates well below what

Wilson Air must pay the Airport Authority without worrying about

running out of space to grow. Since AMR has more land than it can

use, it can grant a sublease like the one at EXHIBIT C ``at cost''

knowing that it will get the customer's business for fuel.\4\

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\4\ Paragraph 37 of the sublease at EXHIBIT C tied that sublease

to a ``fuel agreement.'' Wilson Air, despite request, has never seen

that ``fuel agreement.'' After voicing its concerns, Wilson Air was

advised that Paragraph 37 of the Lease was amended to prohibit

exclusive fueling agreement being entered into by AMR and its

subtenants and customers.

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Additionally, the location of the land covered by the Lease also

precludes Wilson Air access to valuable military fueling contracts.

Due to space limitation, Wilson Air cannot bid on and receive

military fueling contracts because Wilson Air does not have the

available land to handle the type and size of military aircraft for

fueling purposes. As with the rental rates, these lease terms appear

to violate Section 7 of the Clayton Act and Section 1 of the Sherman

Act.

From the documents produced to Wilson Act, it appears that AMR

has been responsible for the maintenance and repair of the General

Aviation Building (``GAB'') for more than 15 years, but has

evidently failed

[[Page 36403]]

to meet those obligations. Rather than force AMR to comply with its

maintenance and repair obligations, however, the Lease grants AMR

rent incentives and abatements on the GAB property. Those Lease

terms are far more favorable to AMR than the rent terms offered to

Wilson Air for another building on the Memphis Airport even though

the two buildings will be subject to the same type of FBO usage.

Wilson Air has asked the Authority to lease to it a building known

as the Northwest AirLink building (the ``NWA''). The Authority

ordered a 1995 appraisal which compared the NWA to more expensive

off-airport commercial buildings and indicated an adjusted appraisal

rental rate of $5.50 per square foot.

Instead of offering any incentives like those given to AMR, the

Authority has demanded a $6.50 per square foot rental rate from

Wilson Air. The NWA previously has not been used for general

aviation tenants, but if Wilson Air rented the building, it would be

used for general aviation tenants and general aviation related

services. Again by contrast, the Authority in the Lease has abated

rent through 2010 on the GAB to AMR while simultaneously demanding

that Wilson Air pay $6.50 per square foot for use of the NWA

property.\5\ Both buildings require the expenditure of substantial

funds for improvements and will experience the same or similar uses.

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\5\ A 1997 airport appraisal of the GAB indicated a minimum $.75

per square foot rental on the building prior to renovation.

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This unequal treatment as to office square precludes Wilson Air

from effectively competing for tenants which would require use of

such facilities.

In addition to the Lease, AMR and the Authority negotiated two

separate ``letter agreements'' which granted AMR month-to-month

leases on 3.21 acres and 6.09 acres of improved (closed) runway and

taxilane property respectively. The December 16, 1997 letter

agreement and the July 27, 1998, letter agreement are at EXHIBITS E

and F. The Authority has now acknowledged that while Wilson Air was

being told that no additional land was available to Wilson Air, the

Authority was giving AMR the free use of this valuable acreage.

Thus, the Authority allowed AMR to use land at no cost, while

denying land to Wilson Air and requiring it to pay full rent for all

land used.\6\

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\6\ Apparently, AMR is still using the old AMR north complex, an

additional approximate 12 acre site at a different location on the

airport, to service tenants, even though Wilson Air Center has been

advised that this site has been designated for use for FedEx

Corporation expansion.

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A portion of this land now lies within one of the option parcels

granted to AMR and as recently as May 11, 1999, AMR (already

operating at the Memphis Airport under the ``Signature'' name) has

used the land without paving rental fees. This is another indicia of

the manner in which Wilson Air has been hurt by the anti-competitive

agreements between the Authority and AMR. These anti-competitive

agreements will persist unless Signature is precluded from assuring

these agreements at the Memphis Airport.

Wilson Air submits that permitting Signature to move forward

with the acquisition of AMR's rights at the Memphis Airport will

violate the Competitive Impact Statement and the spirit of the

Proposed Final Judgment in the subject suit. Wilson Air further

asserts that the Authority's pending assignment of the AMR lease

terms to Signature as required by the AMR Lease will perpetuate the

anti-competitive environment between FBO's at the Memphis Airport.

Accordingly, Wilson Air requests that the Department of Justice

consider the above in determining whether to support the entry of

the Final Judgment in the above-cited suit. Alternatively, Wilson

Air requests that Department of Justice expand its investigation

into the anti-competitive aspects of the sale of AMR to Signature

Flight Support Corporation to include consideration of the AMR Lease

at the Memphis Airport.

Very truly yours,

Wilson Air Center, LLC

Robert A. Wilson,

President.

RAW/kaw

Enclosures

Exhibits A, B, C, D, & E can be obtained from the Document

Office, U.S. Department of Justice, 325 7th Street, N.W., Room 215,

Washington, D.C. 20530, or (202) 514-2481.

[FR Doc. 99-16943 Filed 7-2-99; 8:45 am]

BILLING CODE 4410-11-M