Security of Checked Baggage on Flights Within the United States

SUMMARY: The FAA is proposing that each certificate holder required

under Sec. 108.5 to adopt and implement an FAA-approved security

program screen checked baggage or conduct passenger-to-bag matching for

scheduled passenger operations within the United States when using an

airplane having a passenger seating configuration of more than 60

seats. The security of checked baggage on domestic flights may be

accomplished by screening the checked baggage of every passenger with

FAA-certified explosives detection system (EDS) equipment, by 100%

positive passenger bag matching (PPBM), or by utilizing the FAA-

approved computer-assisted passenger screening (CAPS) system to select

passengers whose checked baggage must be subjected to additional

security measures. The checked baggage of CAPS selectees would be

screened by EDS equipment, where available, or bag matching would be

applied. These requirements for checked baggage on domestic flights are

intended to prevent or deter the introduction of explosives or

incendiary devices into the cargo holds of airplanes on flights within

the United States. This proposal is necessary to provide a high level

of security for domestic civil aviation.

DATES: Comments must be received on or before June 18, 1999.

ADDRESSES: Comments on this proposed rulemaking should be mailed or

delivered, in duplicate, to: U.S. Department of Transportation Dockets,

Docket No. FAA-1999-5336; 400 Seventh St., SW, Rm. Plaza 401,

Washington, DC 20590. Comments may also be sent electronically to the

following internet address: [email protected] Comments may be filed

and/or examined in Room Plaza 401 between 10 a.m. and 5 p.m. weekdays,

except federal holidays.

FOR FURTHER INFORMATION CONTACT: Mr. Lon M. Siro, Aviation Security

Specialist, Civil Aviation Security Office of Policy and Planning, ACP-

100, Federal Aviation Administration, 800 Independence Avenue, SW.,

Washington, DC 20591; telephone (202) 267-3414.

SUPPLEMENTARY INFORMATION:

Comments Invited

Interested persons are invited to participate in the making of the

proposed rule by submitting such written data, views, or arguments, as

they may desire. Comments relating to the environmental, energy,

federalism, or economic impact that might result from adopting the

proposals in this notice are also invited. Substantive comments should

be accompanied by cost estimates. Comments must identify the regulatory

docket or notice number and be submitted in duplicate to the Rules

Docket address specified above.

All comments received, as well as a report summarizing each

substantive public contact with FAA personnel on this rulemaking, will

be filed in the docket. The docket is available for public inspection

before and after the comment closing date.

All comments received on or before the closing date will be

considered by the Administrator before taking action on this proposed

rulemaking. Late-filed comments will be considered to the extent

practicable. The proposals contained in this notice may be changed in

light of the comments received.

Commenters wishing the FAA to acknowledge receipt of their comments

submitted in response to this notice must include a pre-addressed,

stamped postcard with those comments on which the following statement

is made ``Comments to Docket No. FAA-1999-5336.'' The postcard will be

dated, stamped, and mailed to the commenter.

Availability of NPRM's

An electronic copy of this document may be downloaded using a modem

and suitable communications software from the FAA regulations section

of the Fedworld electronic bulletin board service (telephone: 703-321-

3339), the Federal Register's electronic bulletin board service

(telephone: (202) 512-1661), or the FAA's Aviation Rulemaking Advisory

Committee Bulletin Board service (telephone: (800) FAA-ARAC or (202)

267-5948).

Internet users may reach the FAA's web page at http://www.faa.gov/

avr/arm/nprm/nprm.htm or the Federal Register's webpage at http://

www.access.gpo.gov/su__docs/aces/aces140.html for access to recently

published rulemaking documents.

Any person may obtain a copy of this NPRM by submitting a request

to the Federal Aviation Administration, Office of Rulemaking, ARM-1,

800 Independence Avenue, SW., Washington, DC 20591, or by calling (202)

267-9680. Communications must identify the notice number or docket

number of this NPRM.

Persons interested in being placed on the mailing list for future

NPRM's should request from the above office a copy of Advisory Circular

No. 11-2A, Notice of Proposed Rulemaking Distribution System, that

describes the application procedure.

Background

Over the past several years, the Federal Aviation Administration

(FAA) has recognized that the threat against civil aviation has changed

and grown. In particular, recent terrorist activities within the United

States have forced the FAA and other federal agencies to reevaluate

their assessment of the threat against civil aviation. For example,

investigations into the February 1993 attack on the World Trade Center

uncovered a foreign terrorist threat in the United States more serious

than previously known. In addition, in 1995 a conspiracy was discovered

involving Ramzi Ahmed Yousef and co-conspirators who intended to bomb

twelve American airliners over the Pacific Ocean. This conspiracy

showed that: (1) foreign terrorists conducting future attacks in the

United States may choose civil aviation as a target, despite the many

more easily accessible targets equally symbolic of America; (2) foreign

terrorists have the ability to operate in the United States; and (3)

foreign terrorists are capable of building and artfully concealing

improvised explosive devices that pose a serious challenge to aviation

security. In addition to threats posed by foreign terrorists, criminals

operating within the United States also pose a threat. For example, the

partial detonation of a bomb aboard American Airlines flight 444 while

en route from Chicago to Washington, DC, in 1979, has been attributed

to Theodore Kaczynski (known as ``the Unabomber'').

The serious consequences of an in-flight explosion were

dramatically demonstrated on July 17, 1996, when Trans World Airlines

(TWA) flight 800 crashed off the coast of Long Island, New York. While

the Federal Bureau of Investigation (FBI) and the National

Transportation Safety Board (NTSB) determined that this accident was

not the result of a terrorist act, it did elevate concerns regarding

the safety and security of civil aviation. This concern led to the

formation of the White House

[[Page 19221]]

Commission on Aviation Safety and Security (the Commission).

The Commission made several recommendations that were published on

February 12, 1997, in its ``Final Report to President Clinton.'' In

reviewing civil aviation security, the Commission stated that ``the

threat of terrorism is changing * * * it is no longer just an overseas

threat from foreign terrorists. People and places in the United States

have joined the list of targets, and Americans have joined the ranks of

terrorists.'' The Commission indicated that aviation security would be

enhanced by the use of sophisticated technology for determining the

presence of explosives in checked baggage, such as use of explosives

detection system (EDS) equipment. The Commission recommended that,

until those machines are widely available, the FAA should implement bag

matching, initially based on passenger profiling, by December 31, 1997,

and that the FAA should develop an automated system for passenger

profiling. (For the purposes of the discussion of the CAPS system in

this NPRM, the terms ``passenger profiling'' and ``passenger

screening'' are used interchangeably.) Because of the FAA's high degree

of confidence in CAPS' ability to evaluate information from passenger

name records and other passenger records already maintained by air

carriers, as well as its confidence in CAPS' ability to identify the

large majority of passengers who are not associated with a threat to a

flight, the FAA concurs with the Commission's recommendations. In

addition, due to the limited availability of EDS equipment and the

significant operational and economic impacts that immediate compliance

with the Commission's recommendations would have on the air carriers,

the FAA has determined that a phase-in period is necessary. Security

requirements for implementation of the Commission's recommendations are

discussed below.

White House Commission Recommendations

Explosives Detection System (EDS) Equipment-The FAA defines an EDS

machine as an automated device, or combination of devices, which has

the ability to detect, in passengers' checked baggage, the amounts,

types, and configurations of explosive materials likely to be used by

terrorists to cause catastrophic damage to large aircraft. The term

``automated'' means that the system is able to detect explosive

materials and does not depend exclusively on human skill, vigilance, or

judgment. Because EDS equipment is capable of detecting the explosive

materials used in bombs with minimal human intervention, the FAA has

determined that it is highly effective and agrees with the Commission's

contention that use of EDS equipment is preferable to other security

measures for clearing checked baggage, including PPBM. The FAA and the

Commission also agree that full deployment of EDS is not something that

is operationally feasible in the near future, due to the limited

availability of certified EDS equipment. Accordingly, the FAA believes

use of EDS equipment should be phased in to eventually replace PPBM and

other checked baggage security measures. For a further discussion of

this alternative and others, see discussion under ``Alternatives

Considered by the FAA'' below.

Bag Matching, Initially Based on Passenger Profiling--The

Commission recommended that, until sophisticated technology for

determining the presence of explosives in checked baggage is widely

available, the FAA begin implementation of baggage matching, initially

based on passenger profiling (discussed below), for domestic flights.

The Commission stated, ``this approach is the most effective

methodology available now.'' Positive passenger baggage matching

involves matching the passengers who have boarded the airplane to the

baggage that was checked for carriage in the airplane's baggage

compartment so that a passenger's checked baggage is flown only if he

or she is aboard that airplane. Although 100% PPBM is currently

performed on all international flights, pursuant to the International

Civil Aviation Organization (ICAO) requirements, the FAA has not

required PPBM on domestic flights except in periodic emergency

situations. While civil U.S. flag aircraft have long been an attractive

target of terrorists overseas, bombings of airliners within the United

States have been extremely rare, even though the U.S. civil aviation

system is the largest and most complex in the world. Over 500 million

passengers (40 percent of all passengers in the world) enplane at U.S.

airports and check approximately 750 million bags. In addition, 14 of

the world's 20 busiest airports are in the United States.

As stated above, the FAA recognizes the changing threat to civil

domestic aviation and believes that, in lieu of screening by EDS

equipment, checked baggage must be properly matched to passengers on

domestic flights. The FAA, however, also recognizes that, while ICAO

standards may be appropriate for international flights, there are

significant differences between domestic and international flights due

to the varying levels of threat to them and the economic impact of

additional security measures. These differences include: (1) the much

greater number of domestic flights; (2) the use of an extensive and

highly concentrated ``hub and spoke'' system, in which flights converge

on a central connection point, and scheduled connection times may be 25

minutes or less; (3) the significantly earlier check-in time for

international flights, which allows PPBM reconciliation delays to be

kept to a minimum; and (4) the higher rate of last-minute passenger no-

shows and cancellations on domestic flights, which could result in a

greater number of passenger reconciliation and baggage-pull delays.

Automated Passenger Profiling--The Commission's recommendation that

bag matching be implemented was linked to another recommendation that

it be initially based on profiling of passengers flying out of airports

located in the United States. As with manual profiling, the purpose of

automated profiling is to exclude from the additional security measures

the great majority of passengers who are very unlikely to present any

threat and, conversely, to identify passengers to whom heightened

security measures should be applied. Unlike manual profiling, however,

automated profiling offers numerous advantages, including elimination

of the potential perception of personal biases, greater sophistication,

speed, accuracy, flexibility, and protection against compromise of

sensitive security information. The Commission discussed a computer-

assisted passenger screening (CAPS) system developed by the FAA and

Northwest Airlines and recommended that the FAA implement an automated

profiling system by December 31, 1997. On January 1, 1998, several air

carriers voluntarily implemented CAPS, and most other carriers have

since opted to implement it as well. The few carriers that have yet to

complete the phase-in of CAPS are in the process of systemwide

implementation.

In April 1997, in accordance with provisions of an FAA grant, the

FAA and Northwest Airlines completed final programming changes to a

prototype CAPS system, which, as noted above, Northwest Airlines and

most other carriers have since implemented. The CAPS system was

developed as a more feasible alternative to 100% checked baggage

matching and EDS screening of all passenger baggage by narrowing the

pool of passengers on whom additional security measures should be

focused, thus effectively utilizing the currently limited supply of

highly technical

[[Page 19222]]

screening equipment (e.g. EDS), and minimizing the operational impact

of applying other passenger and checked baggage security measures, such

as PPBM.

The CAPS system is based on the same concept as the manual

screening system, which is designed to exclude from additional security

measures the great majority of passengers who are unlikely to present

any threat. There are many advantages to CAPS, however. One important

advantage is that it does not rely on the judgment of individual

airline employees to reduce the population of persons to whom

heightened security measures should be applied. The automated system

``scores'' passengers according to a set of weighted criteria to

determine which should be subjected to additional security measures.

Automated screening excludes from heightened security measures the

great majority of passengers about whom enough is known to determine

confidently that they present no threat.

The use of a profile for the screening of passengers dates back to

the mid-1970's when the FAA began using manual passenger screening to

combat hijackings and to prevent explosives or incendiary devices from

being placed aboard airplanes on international flights departing from

the United States. Manual screening has also been used on domestic

flights during periodic emergency situations. This screening relies on

an employee of an air carrier to determine whether a passenger meets

the profile that the employee has been trained to use. Because manual

screening allows for more extensive human interaction between

passengers and air carrier employees, it carries the potential that,

even though the factors used in conducting manual screening are not

biased, an employee's personal bias can be evident, regardless of

whether a given passenger is a selectee or not. While manual screening

has been a successful tool in combating hijackings and preventing the

introduction of explosives or incendiary devices onto aircraft, it has

been criticized by persons who perceived it as discriminating against

citizens on the basis of race, color, national or ethnic origin,

religion, and gender. It has also been criticized for causing

embarrassment to selectees when fellow passengers became aware of his

or her selectee status. Because a technological substitute for

individual employee judgment has not been available until now, the FAA

has continued to require, in emergency situations, manual passenger

screening for determining the need to implement heightened security

measures for checked baggage in order to combat the placing of

explosives aboard aircraft.

The CAPS system would, in addition to selecting persons pursuant to

the profiling standards, randomly select a limited number of

passengers, as specified in air carriers' FAA-approved security

programs, for heightened security measures. The FAA has determined, and

the Commission has recommended, that random selection, which ensures

that each passenger has a chance of being a selectee, has a deterrent

value that would increase airline passenger security. It means that,

even if an individual with criminal intentions believed he or she had

figured out how to circumvent the CAPS system, the individual still

would have a chance of being designated as a selectee. In addition,

random selection helps to ensure passengers' civil liberties by

guaranteeing that no individual or group of individuals is excluded

from the selection process.

The CAPS system represents a significant improvement over the

existing manual system. It uses a greater number of factors and permits

combinations of sets of factors to determine passengers' status with

greater confidence. In contrast, there are inherent limitations on the

number and complexity of factors that an air carrier employee can

apply. In addition, air carrier employees performing the manual process

have a limited amount of time available to assess the factors and

determine whether a passenger is a selectee. For these reasons, the

number of factors in a manual process must be small and the rules for

applying them must be simple. The CAPS system virtually eliminates the

possibility of subjective selection and inadvertent or deliberate

discrimination by airline employees, as they would not be asked to

implement any selection process themselves. Finally, the CAPS system

provides a more secure system, as only a few key airline employees

(i.e., those who program the computers and implement computer program

changes) are provided with selection criteria and their relative

weights. Other air carrier employees need only be aware of the output

generated by the computer programs, without being aware of the

criteria. Manual screening, though controlled, may be more easily

compromised, as details are contained in FAA Security Directives, which

are available to many airline employees.

The CAPS system is also intended to minimize the overt

identification of passengers selected for additional security

procedures. The CAPS system operates off the computer reservation

systems utilized by the major U.S. air carriers as well as some smaller

carriers. The CAPS system relies solely on information that passengers

presently provide to air carriers for reasons unrelated to security. It

does not depend on the gathering of any additional information from air

travelers, nor is it connected to any law enforcement or intelligence

database. Pursuant to a recommendation by the Department of Justice, as

part of the proposed rule, the FAA would periodically review the CAPS

system and its profiling factors to assure that they continue to be

reasonable predictors of threat. For operations covered under this

proposed rule, CAPS would replace the manual screening system as a

baseline security measure.

Funding for Implementation of White House Commission

Recommendations--The FAA subsidized a substantial portion of the air

carriers' cost for development of the core CAPS system. In addition to

grants of approximately $3.1 million to Northwest Airlines for the

development of the prototype CAPS system, consultation to the FAA, and

technical support to other air carriers, the FAA spent an additional

$7.4 million for the development of core CAPS for other air carriers.

In total, the $10.5 million subsidy has benefited eight lead carriers

(provided to six separate Computer Reservation Systems (CRS)), all

carriers associated with the lead carriers (e.g., feeder carriers),

plus 19 other regional and national carriers. In total, approximately

95% of domestic airline passengers are served by the carriers receiving

FAA subsidies. Also, by the end of fiscal year 1998, the FAA will have

spent $129 million for the purchase, installation, initial training,

and first-year maintenance of advanced security screening equipment

designed to detect explosives in checked baggage. This equipment, which

will be deployed at airports in the United States, includes EDS

machines (54 new and 3 upgrades), advanced technology (AT) equipment

(22 of which are assessed by the FAA as effective), and other high-

technology equipment such as explosives trace detection technologies

used to assist in alarm resolution for EDS and AT equipment. The FAA

intends, subject to Congressional approval, to purchase an additional

20 EDS machines during fiscal year 1998 for $25.1 million, and has

requested additional funding of $100 million in fiscal year 1999 to

continue purchases of advanced security equipment to be installed at

U.S. airports. The FAA intends to

[[Page 19223]]

request appropriations at similar levels in fiscal years 2000 and

later.

Alternatives Considered by the FAA

In developing this proposed rule, the FAA considered the relative

merits and disadvantages of the following alternatives:

(1) Maintaining the current policy for security of checked baggage

on domestic flights. To date, the FAA has required domestic checked

baggage screening and PPBM only when a heightened threat exists.

Domestic baseline security measures under normal conditions, though not

requiring checked baggage screening and PPBM, have thus far been

adequate to counter the domestic threat. However, as evidenced by

events such as the World Trade Center bombing, the FAA believes that

the threat to civil aviation within the United States has increased and

further rulemaking is vital. Though maintaining current baseline

security measures would be the least costly course of action, the FAA

does not believe this option is prudent given the current domestic

threat.

(2) Phasing in mandatory use of EDS (without requirement for CAPS).

The FAA considered requiring carriers to use EDS as it becomes

available to them for screening 100% of checked baggage, and not

requiring CAPS for those that would be using EDS. EDS offers the

highest level of security because it is an automated system. To be

certified, the system must have the ability to detect in passengers'

checked baggage, the amounts, types, and configurations of explosive

materials likely to cause catastrophic damage to an aircraft. The term

``automated'' means that the ability of an EDS to detect explosive

materials does not depend on human skill, vigilance, or judgment.

Baggage that clears through EDS screening does not require additional

security measures on subsequent flight segments. In keeping with the

White House Commission's recommendations, it is the FAA's goal to phase

in EDS for all flights that would be subject to this proposed rule,

which would make continued use of the CAPS system unnecessary in the

future; however, because of the limited availability of EDS equipment,

this goal of all carriers using EDS for 100% of its flights cannot be

implemented in the near future. Under the alternative scenario of

requiring carriers that have EDS to use it and not use CAPS, carriers

that do not have EDS would not be required to do anything beyond what

they are currently required to do (manual profiling or PPBM during

heightened threats) until they are provided with EDS equipment. While

the FAA recognizes that this would be a less costly approach for the

carriers waiting to acquire EDS equipment, it could provide an unfair

competitive advantage to those carriers that have not been provided EDS

because of the additional costs associated with maintaining and

staffing the equipment. Also, there would be little improvement in the

level of security during the early phase-in period when few terminal

gates have any EDS equipment. Moreover, overall aviation security may

be reduced during the early phase-in period because a terrorist could

more easily figure out which carriers were using EDS and which were

not.

(3) Requiring 100% PPBM of each carrier while phasing in mandatory

use of EDS. Although 100% PPBM is required for international flights,

the FAA has determined that this approach is not feasible for domestic

flights, even though it may be an effective alternative while EDS is

being phased in, because it would be too costly. Domestic flights

differ from international flights from the United States in the

following respects: (1) There are a greater number of domestic flights;

(2) they are coordinated around a hub and spoke system; (3) passengers

can check in as late as 10 minutes prior to a flight; and (4) there is

a significant rate of last-minute passenger cancellations and no-shows.

The FAA believes that the passenger would ultimately feel the negative

impact of 100% PPBM because the availability and affordability of air

transportation would be affected. The FAA's studies show that air

carriers would lose on average one rotation per aircraft in service per

day. The loss of flights would be due to longer time needed to load the

baggage for each flight and cumulative delays when problems loading one

flight impact on connecting flights. These operational burdens on air

carriers would result in passengers paying more for tickets and getting

fewer discount offers. While the FAA recognizes that this approach

would also provide a high level of security, it does not believe that

the significant operational and economic costs associated with 100%

PPBM are justified. The FAA also does not consider performing 100% PPBM

a good allocation of air carrier resources, as the vast majority of

passengers who would be subjected to it would not pose a threat. In

addition, since it is the FAA's goal to require the use of EDS

equipment for all flights in the next 10 years, conducting 100% PPBM,

which is not as effective as screening by EDS, would ultimately be

phased out.

(4) Bag matching on randomly selected passengers while phasing in

EDS. While this alternative could be more effective than continuing to

rely on manual profiling, which still has value as a security measure

even though its effectiveness has eroded, the FAA does not believe it

would be practical. Deciding how small or large a percentage to require

would be difficult. Screening too small a percentage of passengers

would not provide an adequate level of security, and screening too

large a percentage would result in the same kinds of inconveniences and

delays described above under ``Requiring 100% PPBM of each carrier

while phasing in mandatory use of EDS.'' Even though the proposed rule

would require that air carriers use an approved CAPS system that would

be programmed to select some passengers at random, both as a deterrent

and to ensure the nondiscriminatory application of CAPS, the use of an

exclusively random selection process, even if it were done by computer

and not manually, would not be a satisfactory security measure. The FAA

therefore does not believe that it would be a good allocation of an air

carrier's resources to conduct bag matching or EDS screening on the

checked baggage of selectees chosen purely at random, as the vast

majority of those selectees would not have posed any risk.

(5) Bag matching on passengers selected by CAPS with use of EDS,

where available (the proposed rule). Until it is possible for air

carriers to acquire and use EDS equipment for screening checked baggage

on all scheduled operations subject to this rule, at which time the use

of CAPS and PPBM would be replaced, the FAA believes that using CAPS to

identify those passengers who possibly are a threat to the security of

a flight and requiring bag matching or screening by EDS, when

available, is the most practical and cost-efficient alternative

currently available to increase the level of security on domestic

flights. Using CAPS would enable air carriers to use already-existing

data from reservations systems, eliminate the civil liberties concerns

associated with manual passenger screening methods, and eliminate from

consideration the majority of passengers who do not pose a threat to

civil aviation. By limiting the pool of selectees to those who meet

certain risk criteria, as opposed to those who are chosen randomly and

most likely would not pose a threat, and subjecting only the checked

baggage belonging to those selectees to bag matching, the air carriers

would realize greater cost benefits than using the random method to

identify selectees. While identifying selectees randomly or

[[Page 19224]]

by using CAPS would result in approximately the same cost to an air

carrier, using the CAPS criteria would allow the carrier to concentrate

its resources on clearing the baggage of passengers about whom there is

insufficient information to confidently conclude that they pose no

threat. For these reasons, the FAA has chosen this alternative as the

basis for today's proposed rule.

(6) Performing bag matching on a limited number of CAPS selectees.

This would be a modification of the proposed rule in that air carriers

would use the CAPS system to determine a pool of selectees, but perform

bag matching on only a portion of them. This would reduce the cost of

implementing the regulations by keeping the pool of selectees as small

as possible. However, this approach would offer a lower level of

security and would essentially amount to reducing the value of the CAPS

criteria.

For more detailed cost analyses of these alternatives, see the

``Regulatory Evaluation Summary'' below.

Discussion of the Proposed Rule

This proposal, if adopted, would amend part 108 (14 CFR part 108)

to require each certificate holder required under Sec. 108.5 to adopt

and implement an FAA-approved security program to employ one of the

following options--(1) use an FAA-approved CAPS system for each

originating passenger checking baggage, then either use FAA-certified

EDS equipment, where available, to screen the checked baggage of the

CAPS selectee or conduct bag matching to ensure that the checked

baggage of the CAPS selectee is not transported aboard an airplane

unless that selectee is aboard the same airplane and flight; or (2)

where CAPS is not used, conduct 100% EDS screening on checked baggage

or 100% PPBM. This requirement would only be imposed on certificate

holders that engage in operations with airplanes having a passenger

seating configuration of more than 60 seats. Certificate holders that

are engaged in operations with an airplane having a passenger seating

configuration of 60 or fewer seats may choose to comply with this

requirement, but they must adopt and implement an FAA-approved security

program to do so.

Under the FAA-approved CAPS system, the checked baggage of the

small percentage of passengers whom the CAPS system has identified as

selectees would be subjected to screening by EDS or bag matching

procedures would be applied. To further enhance the deterrence value of

the system, the CAPS system would be required to also randomly select a

small percentage of other passengers (the percentages to be specified

in each air carrier's standard security program) whose checked baggage

would be subjected to the same types of additional security measures as

that of the other CAPS selectees. These additional security measures

would include EDS, where available, or bag matching. The Department of

Justice has reviewed the FAA's proposed CAPS system and found there to

be no infringements on civil liberties (see discussion of ``Civil

Liberties Issues'' below). For a more in-depth analysis of proposed

rule, see discussion under ``Section-by-Section Analysis'' below.

Civil Liberties Issues

The Commission, while endorsing CAPS, recognized that care must be

taken in implementing automated passenger profiling to ensure that

there would be no infringements on the civil liberties of American

citizens. Accordingly, the Commission convened a panel of civil

liberties experts from outside the government to provide guidance.

Based on the proposals made by this panel, the Commission made several

recommendations, including that the Department of Justice (in

consultation with other experts) review the FAA's proposed CAPS system

prior to implementation ``to ensure that selection is not impermissibly

based on national origin, racial, ethnic, religious, or gender

characteristics.''

On October 1, 1997, following its review, the Department of Justice

issued the ``Report by the Department of Justice to the Department of

Transportation on the Department's Civil Rights Review Conducted of the

Federal Aviation Administration's Proposed Automated Passenger

Screening System.'' In its report, the Department of Justice stated

that its principal finding is that the FAA's proposed CAPS system will

not discriminate on the basis of race, color, national or ethnic

origin, religion, or gender. The Department of Justice went on to state

the following:

CAPS fully complies with the equal protection guarantee

incorporated in the Fifth Amendment to the Constitution. CAPS will

not impermissibly select passengers for heightened security measures

on the basis of race, color, national or ethnic origin, religion, or

gender.

CAPS does not violate the Fourth Amendment prohibition

on unreasonable searches and seizures. CAPS itself involves no

``search'' or ``seizure;'' nor does bag matching, pursuant to CAPS,

occasion any ``search'' or ``seizure.'' A search of a selectee's

luggage pursuant to CAPS, such as by an EDS screening, is a

permissible extension of the constitutional administrative search

procedures that operate at U.S. airports today.

CAPS does not involve any invasion of passengers'

personal privacy. CAPS does not create any new database on

passengers and is not linked to any database other than the existing

airline computer reservation systems. CAPS selectee results will not

be retained on a personally identifiable basis and the information

used to calculate each CAPS result will not be retained on computer

by the airline reservation systems.

In its report, the Department of Justice recommended that the

Department of Transportation, with the Department of Justice, take five

steps to further assure that airline passenger screening is implemented

in a non-discriminatory and appropriate manner. The five

recommendations are as follows:

1. The FAA should undertake regular, periodic reviews of CAPS (and

any residual manual screening system) to ensure that the screening

factors continue to be reasonable predictors of risk or the absence of

risk;

2. The Department of Justice, with the assistance of the Office of

the Secretary of Transportation and the FAA, should undertake a post-

implementation review of CAPS (and any residual manual system),

approximately one year after implementation begins, to ensure that

selection in fact is not impermissibly being based on race, color,

national or ethnic origin, religion, or gender, and should undertake

additional reviews thereafter as appropriate;

3. The Office of the Secretary of Transportation and the FAA should

expand their public education and outreach efforts to inform the

American public about the purpose of airline passenger screening, as

well as the right of passengers to file a complaint * * * if they

believe they were the victim of discriminatory airline security

procedures;

4. The FAA should require that domestic air carriers that implement

CAPS (or any residual manual system) obtain pre-approval from the FAA

before implementing any passenger screening system in addition to the

screening procedures prescribed by the FAA, and the FAA should consult

with the Department of Justice before approving any supplemental

screening procedure; and

5. The FAA should require that air carriers implementing CAPS (or

any residual manual system) establish procedures to ensure appropriate

interactions between air carrier employees responsible for implementing

passenger screening and airline passengers, and should provide

appropriate training to these employees.

In conclusion, the Department of Justice report stated that the

FAA's

[[Page 19225]]

proposed automated airline passenger screening system, as designed,

would not infringe the civil rights or civil liberties of American

citizens. In addition, the Department of Justice stated that the FAA

has taken great care in designing CAPS so as to respect Americans'

civil rights and civil liberties.

Finally, the Department of Justice stated that it would closely

monitor the FAA's passenger screening procedures to ensure that they

remain non-discriminatory.

Section-by-Section Analysis

Section 108.5 Security Program: Adoption and Implementation

This proposal would amend Sec. 108.5 by requiring all holders of

air carrier operating certificates, or holders of operating

certificates for scheduled passenger operations, that engage in

operations with an airplane having a passenger seating configuration of

more than 60 seats, to comply with the provisions of proposed paragraph

(a) of Sec. 108.12 Security of checked baggage for operations within

the United States. The proposal also allows other operators, where they

operate under an FAA-approved security program, to comply with the

provisions of Sec. 108.12. Section 108.12, as more fully discussed

below, would require the implementation of security measures for

checked baggage on domestic flights by screening the checked baggage of

every passenger with an FAA-certified EDS machine, by conducting 100%

PPBM, or by utilizing an FAA-approved CAPS system for screening airline

passengers and subjecting the selectees' checked baggage to screening

by EDS equipment, where available, or bag matching.

While FAA-approved air carrier security programs, which implement

Sec. 108.9, require checkpoint security measures for the screening of

passengers and their carry-on baggage to prevent or deter the

introduction of deadly or dangerous weapons or incendiary devices

carried aboard an aircraft by a passenger, the security programs

prescribe limited measures to prevent the introduction of improvised

explosive devices in checked baggage on flights within the United

States, except in emergency situations. The FAA recognizes the

potential danger associated with an increase in terrorism in the United

States and the limited baseline domestic checked baggage security

requirements to prevent or deter the introduction of explosives in

checked baggage. This proposal addresses security measures for checked

baggage.

Under this proposal, the FAA would require compliance with

Sec. 108.12 for all air carrier operations using aircraft with more

than 60 passenger seats because the FAA has concluded that larger

aircraft are at a significantly higher risk to terrorist attacks. Since

air carriers with operations using aircraft with passenger seating

configurations of 60 or fewer seats may also wish to comply with the

provisions of Sec. 108.12, the FAA has provided that as an option under

this proposal. These operators would be required to adopt and implement

a security program that includes provisions effecting compliance with

Sec. 108.12. Compliance with an FAA-approved security program would be

required because the FAA believes that any carrier, regardless of the

size of operation, that accepts the responsibility for conducting the

important security measures for checked baggage on operations within

the United States should also be accountable for other aspects of a

security program related to the acceptance and control of checked

baggage. For example, smaller operators with large interline partners,

which use the same passenger reservation services, may decide to comply

with Sec. 108.12. This would include, but would not be limited to,

ensuring that no unauthorized person has access to checked baggage once

it has been subjected to security measures.

Section 108.7 Security Program: Form, Content, and Availability

This proposal would amend

Sec. 108.7 (b) to require that each air carrier's FAA-approved security

program include a description of the procedures used to perform the

checked baggage security functions specified in Sec. 108.12 for

scheduled passenger operations. This amendment is needed to ensure that

each air carrier that adopts and implements an FAA-approved security

program in accordance with Sec. 108.5 would include the provisions for

the security of checked baggage on flights within the United States.

Section 108.12 Security of Checked Baggage for Operations Within the

United States

The FAA is proposing to amend part 108 by introducing a new section

to address the security of checked baggage on flights within the United

States. Under proposed Sec. 108.12 (a), each air carrier required to

adopt and implement a security program under Sec. 108.5, would be

required to apply the checked baggage security requirements of this

section for scheduled passenger operations, in accordance with its

security program, for flights within the United States. For each flight

the air carrier would be required--(1) to apply a CAPS system approved

by the Administrator for each originating passenger checking baggage;

(2) to determine that the passenger associated with each originating

checked bag is aboard the flight; or (3) that each originating bag not

matched to a passenger aboard the flight has been screened by an FAA-

certified EDS machine. To receive approval from the FAA, an air

carrier's CAPS system would have to be capable of selecting passengers

according to specific criteria (which had been assigned relative

weights by the FAA) and at random, as provided in the air carrier's

FAA-approved security program.

When compared to the screening of all checked baggage on flights

within the United States by FAA-certified EDS equipment, or conducting

100% PPBM, the proposed rule would result in a much smaller percentage

of passengers being subjected to additional security measures; however,

the FAA believes at this time that performing 100% PPBM for operations

within the United States is not an efficient use of air carrier

resources because the majority of passengers who would be subjected to

it would not pose a threat. In addition, implementation of 100%

domestic PPBM would be impractical given the operational impact it

would have. The FAA recognizes that 100% screening of all checked

baggage on domestic flights by an FAA-certified EDS machine is not

feasible in the near term, due to the limited availability of EDS

equipment. The FAA views 100% screening or matching of checked bags on

domestic flights as a reasonable long-term goal, but has determined

that screening or matching based on CAPS will greatly strengthen the

security of checked bags on domestic flights in the near term. Further,

CAPS-based measures can be implemented without the time air carriers

would need to attempt the 100% EDS screening or bag matching measures.

Accordingly, this proposed rule would permit options for an air carrier

to either subject all passengers to the FAA-approved CAPS system (with

EDS screening of selectees' checked baggage or matching of selectees

and their checked baggage), employ 100% checked baggage screening by

EDS, or conduct 100% PPBM of passengers and their checked baggage for

operations within the United States. The FAA has concluded, as did the

Commission, that this proposal would provide the most effective

methodology currently available for ensuring the security of checked

baggage on domestic flights.

[[Page 19226]]

Proposed Sec. 108.12 (b) would require that for each operation

subject to proposed Sec. 108.12 (a), the air carrier may not transport

the checked baggage of a non-originating passenger, on-line or inter-

line, unless: (1) the passenger is transported on the same airplane and

flight; (2) the passenger associated with the checked baggage was

screened by an FAA-approved CAPS system prior to an earlier flight or

leg and information is available to the air carrier that the passenger

was not selected for additional security measures; (3) information is

available to the air carrier that the baggage was screened by an FAA-

certified EDS machine prior to an earlier flight or leg; (4) the

baggage is screened by an EDS machine prior to the current flight; or

(5) the passenger is screened by an FAA-approved CAPS system for the

current flight and, if selected, subjected to additional security

measures (checked baggage screening by EDS or bag matching). The

intended purpose of this proposed paragraph is to ensure that checked

baggage on domestic flights would be adequately screened or matched

regardless of where the baggage originated. For example, an air carrier

may receive a non-originating inter-line transfer passenger whose

checked baggage may not have been subjected to any screening

requirements. This proposal would ensure that the non-originating

inter-line transfer passenger's checked baggage would undergo checked

baggage security requirements before being placed in the cargo

compartment of the airplane. The FAA has determined that this proposed

requirement is necessary to prevent explosive devices concealed in

checked baggage transferred from earlier flights from being introduced

into the holds of airplanes.

Proposed Sec. 108.12 (c) would require that the checked baggage of

a passenger selected by the CAPS system not be transported aboard the

flight unless it had been screened by an FAA-certified EDS machine,

where available, or had been matched to the selectee. The FAA is

proposing under this paragraph to require the use of available EDS

equipment for the screening of selectee checked baggage because EDS is

highly effective in detecting explosives. To ensure that there is a

consistent and realistic interpretation of when EDS is ``available,''

proposed Sec. 108.12 (d) provides a description of what constitutes EDS

availability. The FAA recognizes that, because of the various factors

that play a role in baggage make-up operations (e.g., the physical lay-

out of an airport's facilities), a definition of ``available'' might be

difficult to apply uniformly in this context. For this reason, the FAA

seeks specific comments on whether the proposed definition of the term

is a reasonable one. The proposed section provides that EDS is

considered to be available to an air carrier for screening checked

baggage when the equipment is--

(1) Under the operational control of the air carrier. The carrier

that has operational control of EDS equipment is generally the air

carrier to which the FAA has provided the equipment. This carrier is

usually responsible for the testing, maintenance, and staffing of the

machine; however, it may be possible for one carrier to share or accept

operational control under a contractual agreement with another air

carrier.

(2) Functioning properly. Carriers with operational control of EDS

equipment are required by their FAA-approved security programs to

conduct daily testing to ensure that the equipment is functioning

properly. Once it is determined, either by carrier testing or by

periodic FAA testing, that the EDS equipment is not performing in

accordance with minimum EDS certification standards, it cannot be used

for the screening of checked baggage until it is repaired or replaced.

(3) Located proximate to where the baggage is tendered by the

passenger or along the route the baggage normally travels during the

process of being loaded onto the aircraft. This is intended to avoid a

situation where an air carrier would be required to use EDS equipment

that is not easily and readily accessible to it, and where using it

would result in significant operational delays. For example, for its

current flight, an air carrier may be authorized to use EDS equipment

which has been installed at a location at the airport that is not at or

near the point of checked baggage acceptance, or in the baggage make-up

area.

(4) Staffed by appropriately trained personnel. Staffing and

training requirements for EDS screeners are described in the air

carrier's FAA-approved security program.

(5) Not in use to screen other identified baggage such that a

significant delay in a flight might result from having to wait to use

the EDS to screen the bag. This description is intended to avoid a

situation where EDS equipment meets all other descriptions for

availability and is performing in accordance with minimum throughput

requirements, but baggage cannot be processed quickly enough to avoid a

significant flight delay. This might occur, for example, when several

flights serviced by the same EDS are leaving at the same time,

resulting in a severe backup of bags waiting to be processed through

the same EDS.

In proposed Sec. 108.12(e), the FAA would require that each air

carrier establish procedures for implementing the screening of checked

baggage under proposed Sec. 108.12. The proposal would also require the

air carrier to ensure nondiscriminatory application, and to reduce to

the extent practicable the overt identification of passengers selected

for additional security procedures.

In proposed Sec. 108.12(f), the FAA would require that each person

used by an air carrier to implement its CAPS system whose job function

will be likely to involve interactions with passengers shall be trained

on the CAPS system. The proposed training would include--(1) an

overview of the purpose of screening, including an explanation that

selection does not imply that a passenger is suspected of any illegal

activity; (2) a general description of the CAPS system and how it is

designed to select passengers on a non-discriminatory basis; (3) an

advisory that the CAPS system selects some passengers at random; (4) an

explanation that the CAPS system is not connected to any law

enforcement or intelligence data base; and (5) instruction on treating

passengers selected by the CAPS system in a respectful and non-

stigmatizing manner. These proposed paragraphs are based on

recommendations from the Department of Justice, as discussed previously

in the ``Civil Liberties Issues'' section. The FAA has determined that

these proposed measures are necessary to implement the Justice

Department's recommendations and to assure that CAPS is implemented in

a non-discriminatory and appropriate manner.

In proposed Sec. 108.12(g), the FAA would require that an air

carrier may not modify the criteria of the CAPS system, or their

weighting, without the written approval of the Administrator. This

proposed paragraph would also provide that an air carrier may not apply

any supplemental system of passenger screening to select passengers for

additional security measures without the approval of the Administrator.

The FAA has determined that this proposal is necessary to ensure that

no impermissible factors are used to select passengers for additional

security measures. This proposal also ensures that there is

standardization among air carriers utilizing an FAA-approved CAPS

system for screening checked baggage (i.e., the same factors are used

in profiling passengers).

[[Page 19227]]

In proposed Sec. 108.12(h), the FAA would require that each air

carrier make available to the Administrator the information specified

in its security program on the operation of its CAPS system; however,

the FAA anticipates that this information would not be routinely

requested. In overseeing compliance with proposed Sec. 108.12, the FAA

would need to know which individuals were actually being selected by

the CAPS system in order to ensure that members of specific ethnic

groups were not being unfairly targeted and that selectee rates did not

vary, for example, between carriers or regions. The FAA believes that

this requirement would be necessary to protect the civil rights and

liberties of individuals selected by the CAPS system. The proposal

would further require that an air carrier dispose of any information

linking a passenger's name or other personal identifying data to

whether that passenger was selected by the CAPS system no sooner than

24 hours, but no later than 72 hours, after a flight's departure. By

specifying data retention for a minimum of 24 hours after a flight

departure, the FAA intends to ensure that it can, when necessary,

obtain information in the course of investigating accidents or security

incidents, overseeing air carrier security programs (i.e., that the

CAPS system has been properly applied and implemented throughout each

step of processing checked baggage), or monitoring the

nondiscriminatory application of the CAPS system. The data retention

limit of 72 hours after a flight departure is intended to ensure that

no long-term database of personally identifiable information is kept.

While the FAA has set forth an all-selectee data retention limit of

72 hours after flight departure as its proposed rule under

Sec. 108.12(h), the Department of Transportation's Office of the

Assistant General Counsel for Aviation Enforcement and Proceedings has

requested that the FAA seek comments on whether information relating to

random selectees should be retained for a more extended period (eg., 18

months) than information on non-random CAPS selectees. The Office of

Aviation Enforcement and Proceedings is the office that investigates

airline security-related discrimination complaints filed with the

Department of Transportation. That office has advised the FAA that,

while it could effectively investigate the application of the non-

random CAPS selection process, it is concerned that there would be no

basis upon which to make determinations regarding the appropriate

application of the random CAPS selection process. The Office of

Aviation Enforcement and Proceedings notes that typically a complaint

is received, and the investigation takes place, three to nine months

after a passenger's flight, and it is not reasonable to expect that the

air carrier employee involved in a particular selection (even if that

employee's identity could be established) would have recollection of

the specific incident being investigated. To determine whether or not

an air carrier employee or the CAPS system made a particular selection,

a record of any random selection would be needed. The Office of

Aviation Enforcement and Proceedings believes that, as long as the only

CAPS selection data retained for an extended period of time concerned

the purely random selections, there would be no infringement on

passengers' privacy rights, while their civil rights would be better

protected. The FAA therefore requests comments (including

implementation and maintenance cost estimates) on the recommendations

of Office of Aviation Enforcement and Proceedings.

Finally, in proposed Sec. 108.12(i), the FAA would require that an

air carrier receive approval from the Associate Administrator for Civil

Aviation Security before it may apply alternate procedures from its

security program for the security of checked baggage in special

situations. As provided under this proposal, these special situations

would include: (1) baggage acceptance at off-airport locations; (2) the

transportation of bags separated from a passenger for reasons outside

the control of the passenger (e.g., lost bags); (3) CAPS system

failures; (4) extraordinary operational circumstances (e.g., natural

disasters or extreme weather conditions); (5) the use of technologies

or equipment other than EDS to screen checked baggage; and (6) any

other situation specified by the Associate Administrator for Civil

Aviation Security in the air carrier's security program. The FAA has

determined that this proposed paragraph is needed to provide relief to

an air carrier for special circumstances and during those extraordinary

and emergency situations where the passenger and air carrier do not

have control over the circumstances.

Paperwork Reduction Act

This NPRM, Security of Checked Baggage on Flights Within the United

States, contains information collection requirements. As required by

the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the FAA has

submitted a copy of these proposed sections to the Office of Management

and Budget (OMB) for its review.

The FAA expects that this proposed rule would affect 32 air

carriers, and that the proposed rules under Sec. 108.12 would impose

additional reporting and recordkeeping requirements on those operators.

This reporting and recordkeeping would be needed, when requested by the

Administrator, as part of monitoring for the nondiscriminatory

implementation of CAPS, accident and security incident investigations,

oversight of air carrier SSP compliance, or evaluating personnel

training records. Accordingly, it is estimated that all 32 affected air

carriers would spend a total of 64 hours, in the first year, to provide

compliance information, and 4,981 hours in all years to generate

training information. Hence, there would be a total burden of 5,045

hours in the first year and 4,981 hours in all subsequent years. Over a

ten-year period (2000-2009), the average estimated annual cost would be

$827,678 per affected air carrier (a total of $26,485,695 for all 32

affected carriers). These cost figures are based on estimates provided

in the FAA's ``Regulatory Impact Analysis.''

The FAA does not expect that there would be any additional record

keeping burden on part 108 aircraft operators which either conduct 100%

PPBM or use FAA-certified EDS equipment to screen checked baggage.

Organizations and individuals desiring to submit comments on the

information collection requirements should do so by June 18, 1999.

Comments should be directed to the Department of Transportation's rules

docket (see ADDRESSES above). These comments should reflect whether the

proposed collection is necessary; whether the agency's estimate of the

burden is accurate; how the quality, utility, and clarity of the

information to be collected can be enhanced; and, how the burden of the

collection can be minimized.

International Compatibility

The FAA has determined that a review of the Convention on

International Civil Aviation Standards and Recommended Practices is not

warranted because the proposed rule would apply to domestic operations

only.

Economic Evaluation Summary

This proposed rule is considered a significant regulatory action

under section 3(f) of Executive Order 12866 and, therefore, is subject

to review by the Office of Management and Budget. This proposed rule is

considered significant under the regulatory policies

[[Page 19228]]

and procedures of the Department of Transportation (44 FR 11034;

February 26, 1979).

Proposed and final rule changes to Federal regulations must undergo

several economic analyses. First, Executive Order 12866 directs that

each Federal agency shall propose or adopt a regulation only upon a

reasoned determination that the benefits of the intended regulation

justify its costs. Second, the Regulatory Flexibility Act of 1980, as

amended May 1996, requires agencies to analyze the economic effect of

regulatory changes on small entities. Third, the Office of Management

and Budget directs agencies to assess the effect of regulatory changes

on international trade. In conducting these analyses, the FAA has

determined that the proposed rule would generate benefits that justify

its costs and is ``a significant regulatory action'' as defined in the

Executive Order and the Department of Transportation Regulatory

Policies and Procedures. The proposed rule will have a significant

impact on a substantial number of small entities and will not

constitute a barrier to international trade. In addition, this proposed

rule does contain Federal intergovernmental or private sector mandates.

Therefore, the requirements of Title II of the Unfunded Mandates Reform

Act of 1995 do apply. These analyses, available in the docket, are

summarized below.

A. Costs

Although the proposed rule requires the use of EDS, where

available, for screening the checked baggage of CAPS selectees, the FAA

was unable to develop a cost of compliance due to the lack of

information on how many EDS machines each air carrier would need at

each airport. Since interpretation of ``where available'' may differ

among air carrier operators, it becomes very difficult to estimate the

potential cost of using EDS. As a result of this situation, the FAA

estimated the cost of this proposed rule on the premise that all air

carriers adopting CAPS would use baggage matching as the security

measure. Baggage matching represents a worst case scenario in terms of

costs.

This analysis has estimated the costs of the proposed rule by

examining the incremental changes from the existing air carrier

security regulations rather than from procedures required by emergency,

temporary regulations. On occasion the FAA establishes security

measures on an emergency basis, typically through limited duration

Security Directives, to respond to specific or assessed threats. For

the past several years, air carriers have been applying a manual

passenger screening system, in most cases conducting bag matching on

the checked baggage of passengers who were selected. At the time it was

instituted, immediate implementation was deemed necessary to counter

the then-prevailing security threat. These contingency measures are not

permanent rules; accordingly, the FAA's analysis reflects the costs of

instituting security measures beyond those required by permanent rules.

Costs for the bag matching implementation, operating, and delay

portions of the proposed rule were based on estimates by SABRE Decision

Technologies Group, South Lake, Texas (SABRE). SABRE based their costs

on interpolation of data from a live study of the operational

feasibility and cost impact of requiring 100% PPBM for part 108

aircraft operators. The proposed rule anticipates that only 5% of

checked baggage would be subject to bag matching. In addition to SABRE,

the National Center of Excellence in Aviation Operations Research (COE)

assisted in the assessment of costs for this proposed rule. The FAA

used cost data developed by SABRE as the potential maximum as the costs

of the proposed rule. Cost estimates used in this analysis were based

on SABRE's analysis of the aforementioned bag matching study. The data

from the bag matching study included a wide diversion of cost

experience by individual air carriers using procedures to accommodate

all checked baggage. Substantially different and less expensive

procedures with fewer delays and system-wide impacts may be applicable

where bag matching is done for a pre-selected group of travelers.

Descriptions of the potentially less costly implementation of the

proposed rule are discussed in the FAA's forthcoming ``Report to

Congress: Domestic Bag Match Pilot Program.''

1. Baggage Matching Costs

The proposed rule would impose an estimated cost of $2.8 billion

($2.0 billion, discounted) over the next 10 years in 1998 dollars, for

baggage matching. This cost estimate is composed of two primary cost

components: (1) Baggage Matching Startup and Operating Costs and (2)

Baggage Matching Delay Costs. The manner by which costs for each of

these two components were derived will be discussed in the following

sections.

a. Baggage Matching Startup Costs. Based on cost information

received from the SABRE Technologies Group (henceforth, referred to as

``SABRE''), baggage matching startup costs for all impacted air

carriers would amount to an estimated $217 million ($203 million,

discounted) over the next 10 years. Startup costs consist of several

components. First, there is initial training for gate agents, ramp

personnel, and skycap personnel. Air carriers would be expected to

train their airport personnel in order to ensure compliance with the

proposed rule. This training would familiarize airport terminal

personnel with the new requirements of baggage matching procedures for

5% passenger screening. At some airports, skycap personnel currently

load passenger baggage on a conveyer belt in the curbside area. Under

the proposed rule, air carriers would have to either train skycap

personnel or use trained ticket agents to handle the checked baggage of

those passengers selected by CAPS, in order to prevent this and other

potential problems. Second, additional hardware would be needed.

Hardware would primarily consist of additional boarding pass readers,

communications equipment, barcode scanners, and magnetic strip readers.

Third, equipment such as radios and carts would be needed. Fourth, some

airport facilities would be changed. The ticket counter, curbside, and

gate areas may be expanded as a means of accommodating the

implementation of baggage matching requirements. Additional staffing

would be needed, as would additional gate agents and ramp personnel to

minimize the number of lost or mishandled baggage.

SABRE obtained aggregated startup costs of $141 million (in 1997

dollars; this estimate was subsequently updated to 1998 dollars using

the GDP Implicit Price Deflator) from seven major air carriers. To

estimate startup costs for the two major air carriers that did not

report cost data, SABRE projected cost based on annual departures.

SABRE believed this procedure would take into account the size of the

air carriers' operations on startup cost. A simple average of the seven

air carriers' costs would have significantly overstated or understated

the startup costs for the two air carriers that did not report cost

data. The startup cost rate for ``majors'' was $36.24 per departure.

This estimate and all other cost estimates were updated to 1998

dollars. Moreover, this estimate was derived by dividing the startup

costs of $141 million by the number of 1997 domestic departures for

those seven major air carriers that participated in SABRE's survey.

For national and regional jet air carriers, the same startup rate

of $36.24 per departure was used to estimate their startup costs.

National and regional operators operate on a much smaller scale than

the majors do. While the

[[Page 19229]]

assumed startup rate for national and regional jet operators may be

higher than what they may actually incur, it is believed to provide a

reasonable first approximation of startup costs for this group of

operators.

For national and regional turboprop air carriers, a startup cost

estimate of $2.82 per departure is used, as estimated by SABRE, based

on an earlier report (March 1996) for 100 % PPBM for national and

regional turboprop air carriers. This estimate of $2.82 was

extrapolated by SABRE in a manner similar to that of the aforementioned

startup cost estimate of $36.24, to reflect an estimate of baggage

matching with a 5% selectee rate. Turboprop airplane operators conduct

significantly smaller scale operations than the jet air carriers. In

addition, turboprop airplane operators have fewer employees, lower wage

rates, smaller airplanes, etc.

b. Baggage Matching Operating Costs (Excluding Delays). Baggage

matching operating costs would impose an estimated $2.0 billion ($1.4

billion, discounted) over the next 10 years. This estimate is comprised

of equipment and hardware costs ($360 million), staffing costs ($1.6

billion) and training costs ($9 million). It is based on cost

information received from SABRE. Annual costs were derived by

multiplying the cost for each component times the number of projected

domestic departures for part 108 air carriers over the next 10 years

and summing to an annual total.

The cost per departure for the major air carriers has been

estimated to be $30.30. The national and regional jet air carriers

would incur an estimated cost of $21.19 per departure. The turboprop

air carriers within the ``nationals and regionals'' category would

incur an estimated operating cost of $5.88 per departure for baggage

matching. All per-departure rates are based on cost information

received from SABRE. These estimates represent costs for recurring

maintenance, staffing, and staff training for baggage matching

requirements of the proposed rule for CAPS.

c. Baggage Matching Delay Costs. Baggage matching delay costs would

impose an estimated $467 million ($323 million, discounted) over the

next 10 years (this cost is equal to 0.1% of the delay costs incurred

by the entire air carrier system on an annual basis). These costs

consist of local air carrier delays ($298 million), downstream delays

($135 million), passenger missed connections ($19 million), and

extended operating days ($16 million). These costs, which are based on

information received from SABRE, were derived by multiplying the cost

per departure for each delay component times the number of projected

annual domestic departures over the next 10 years and summed. The total

delay cost per departure for the major, national and regional jet air

carriers would be an estimated $6.85. For the national and regional

turboprop air carriers, it would be an estimated cost of $1.18 per

departure.

The baggage matching delay cost estimates are from the SABRE

Decision Technologies Group's Dependability Predictor Model (DPM). The

DPM is a proprietary simulation model that was developed for use by a

major airline. The DPM analyzes schedule performance for a typical day

by focusing on delays that could affect the scheduled operations. The

model uses historical data distributions for gate delays (ramp service,

passenger service, mechanical delays, air traffic control (ATC) gate

holds, etc.) and block time delays to simulate the movement of each

flight within the schedule.

While cost information has been received from SABRE, which was

extrapolated from a sample of air carriers, the FAA believes there is

still uncertainty associated with the estimates for startup,

operations, and delay costs for major, national and regional air

carriers. As the result of this uncertainty, the FAA solicits comments

from the aviation industry on startup, operating, and delay costs for

compliance with the baggage matching procedures portion of this

proposed rule.

2. CAPS Program Costs

Part 108 air carriers expected to install CAPS on their computer

reservation systems (CRS's) as the result of this proposed rule, would

incur an estimated compliance cost of $70 million ($51 million,

discounted) over the next 10 years, in 1998 dollars, $8 million from

the federal government. This cost estimate can be further subdivided

between those costs that air carriers would incur in their first year

(2000), at approximately $18 million ($16 million, discounted). The

cost of compliance for subsequent years (2001-2009) would amount to an

estimated $52 million ($35 million, discounted).

The individual cost components for the first year include software

design and construction, system testing, system implementation,

additional capacity for Department of Justice inquiries into how the

air carriers are complying with Department of Justice recommendations,

and check-in personnel training costs. Subsequent year cost components

include hardware and software maintenance, additional capacity for

responding to Department of Justice inquiries, and recurrent check-in

personnel training. The FAA has estimated these component costs for

each impacted air carrier for 1997. In the discussion below, these

components are expressed in terms of per-departure costs to be

consistent for all the other costs discussed in this analysis are

expressed in terms of per-departure costs. The agency has also

determined that the best way to project future costs would be to

calculate the per-departure costs. These per-departure costs are then

multiplied by total departures to calculate costs for the years covered

by this analysis.

The entire CAPS program is made up of three components. These three

components include the computer program, the individualized screens

that would be unique to each air carrier, and the data gatherer. All

air carriers could obtain the necessary licenses from the FAA to use

the computer program free of charge; however, all air carriers would

incur costs modifying both the interface between CAPS and the rest of

the system and the individualized screens for their specific needs.

To establish CAPS on their CRS's, air carriers have three viable

options. These options include joining other air carriers' CRS's,

building their own CAPS systems, and using part of the existing CAPS

and revising other portions. The first option would be the least

costly, while the middle option would be the most costly. Air carriers

that would adopt this costly option would be those whose computers

would not accept the original source code developed for CAPS or would

want more privacy due to proprietary data.

The U.S. Congress has appropriated $8.0 million to the FAA to pay

for the necessary software, hardware, and other costs needed to get the

CAPS program up and running (this does not include the $2.5 million

that the FAA had awarded to Northwest Airlines to develop CAPS). The

FAA has established an Integrated Product Team (IPT) to work with the

air carriers to determine their individual needs. The cost estimates

gathered by the IPT were used by the FAA in this analysis to help

determine first-year implementation costs for the following components:

software design, system testing, and system implementation. For this

analysis, the FAA divided the total costs among these components for

all air carriers by the total number of departures to obtain the per-

departure costs at $1.81, $0.13, and $0.10, respectively. Due to the

need to keep records for Department of Justice inquiries, each air

carrier would need to add additional computer capacity; the

[[Page 19230]]

per-departure cost for this added capacity is estimated to be $0.34. In

addition, all check-in personnel would need training; the per departure

cost for this training is estimated to be $0.33.

Each air carrier would have hardware and software maintenance costs

in the subsequent years, and the software costs would depend on which

of the aforementioned CAPS options the air carrier had chosen. The cost

per departure for hardware and software maintenance is estimated to be

$0.39. Meanwhile, the per-departure costs for the Department of Justice

inquiries and training are $0.05 and $0.33, respectively. Hence, first

year costs sum to $2.71 per departure, while subsequent year costs sum

to $0.77 per departure.

For both the CAPS and baggage matching, the proposed rule would

impose total compliance costs of $2.8 billion ($2.0 billion,

discounted), over 10 years. This estimate is composed of the following

components:

Baggage Matching Startup Costs:

$217 million ($203 million, discounted)

Baggage Matching Implementation and Operating Costs:

$2.0 billion ($1.4 billion, discounted)

Baggage Matching Delay Costs:

$467 million ($323 million, discounted)

CAPS Program Implementation and Operating Costs:

$70 million ($51 million, discounted)

The FAA expects that the total cost of compliance of $2.8 billion

may represent a potential maximum cost estimate. Estimating the

economic cost that this proposed rule would impose on airlines and

passengers was a difficult undertaking, as suggested by the wide range

of estimates that different airlines provided. As mentioned above, in

addition to SABRE, COE assisted in the assessment of costs for this

proposed rule. Because implementation of domestic baggage matching

based on a passenger screening process such as CAPS was not the subject

of any live tests, COE believes that substantial economies may be

achieved by airlines beyond the experience of a live bag matching test

that was conducted in the spring of 1997 and ``a priori'' estimates

supplied by individual airlines. COE projected that the proposed rule

would cost between $500 million (based on 7 cents per passenger

enplanement) and $2.5 billion (based on 36 cents per passenger

enplanement) over the next decade. In addition, according to COE, as

part of a follow-up to the live test conducted for passenger baggage

matching, air carriers stated that the costs they provided were

overstated by at least 33%. This assessment is based on the fact that

air carriers now have a much better idea how they would implement 100%

PPBM if they were required to do so by regulation. Based on this

information, coupled with the fact that there is some uncertainty as

the result of the interpolation technique used by SABRE and COE to

estimate costs, the FAA solicits comments from the aviation community

as to the accuracy of this assessment of costs.

B. Benefits

The primary benefits of the proposed rule would be in significantly

increased protection from terrorism for U.S. citizens and others

traveling on U.S. domestic air carrier flights. Specifically, the

proposed rule is aimed at deterring terrorism by preventing explosives

from being placed on board commercial flights in checked baggage.

Terrorism can occur within the United States. Members of foreign

state-sponsored terrorist groups and radical fundamentalist elements

from many nations are present in the United States. In addition,

Americans are joining terrorist groups. The activities of some of these

individuals and groups go beyond fund-raising to recruiting other

persons (both foreign and American) for activities that include

training with weapons and making bombs. These extremists operate in

small groups and can act without guidance or support from state

sponsors. This makes it difficult to identify them or to anticipate and

counter their activities. The following discussion outlines some of the

concrete evidence of the increasing terrorist threat within the United

States and to domestic aviation.

Investigation into the February 1993 attack on the World Trade

Center uncovered a foreign terrorist threat in the United States that

is more serious than previously known. The World Trade Center

investigation disclosed that Ramzi Yousef arrived in the United States

in September 1992 and presented himself to immigration officials as an

Iraqi dissident seeking asylum. Yousef and a group of Islamic radicals

in the United States then spent the next five months planning the

bombing of the World Trade Center building and other acts of terrorism

in the United States. Yousef returned to Pakistan on the evening of

February 26, 1993, the same day that the World Trade Center bombing

took place. Yousef traveled to the Philippines in early 1994, and by

August of the same year had conceived a plan to bomb as many as twelve

U.S. air carriers flying between East Asian cities and the United

States.

Yousef and co-conspirators Abdul Murad and Wali Khan tested the

type of explosive devices to be used in the aircraft bombings, and in

December 1994 they demonstrated the group's ability to assemble such a

device in a public place by bombing a Manila theater. Later in the same

month, the capability to get an explosive device past airport screening

procedures and detonate it aboard an aircraft also was successfully

tested when a bomb was placed by Yousef aboard the first leg of

Philippine Airlines Flight 424 from Manila to Tokyo. The device

detonated during the second leg of the flight, after Yousef had

deplaned at an intermediate stop in the Philippine City of Cebu.

Preparations for executing the plan were progressing rapidly;

however, the airliner bombing plot was discovered in January 1995 only

by chance after a fire led Philippine police to the Manila apartment

where the explosive devices were being assembled. Homemade explosives,

batteries, timers, electronic components, and a notebook full of

instructions for building bombs were discovered. Subsequent

investigation of computer files taken from the apartment revealed the

plan in which five terrorists were to have placed explosive devices

aboard United, Northwest, and Delta airline flights. In each case, a

similar technique was to be used. A terrorist would fly the first leg

of a flight out of a city in East Asia, plant the device aboard the

aircraft and then get off at an intermediate stop. The explosive device

would then destroy the aircraft as it continued on the subsequent leg

of the flight to the United States. It is likely that thousands of

passengers would have been killed if the plot had been successfully

carried out.

Yousef, Murad and Khan were arrested and convicted in the bombing

of Philippine Airlines Flight 424 and in the conspiracy to bomb U.S.

airliners. Yousef was sentenced to life imprisonment for his role in

the Manila plot, while the two other co-conspirators have been

convicted. Yousef also was convicted and sentenced to 240 years for the

World Trade Center bombing. However, there are continuing concerns

about the possibility that other conspirators remain at large. The

airliner bombing plot, as described in the files of Yousef's laptop

computer, would have had five participants. This suggests that, while

Yousef, Murad and Khan are in custody, there may be others at large

with the knowledge and skills necessary to carry out a similar plot

against civil aviation.

The fact that Ramzi Yousef was responsible for both the World Trade

Center bombing and the plot to bomb as many as twelve U.S. air carrier

aircraft

[[Page 19231]]

shows that: (1) foreign terrorists are able to operate in the United

States, and (2) foreign terrorists are capable of building and artfully

concealing improvised explosive devices that pose a serious challenge

to aviation security. This, in turn, suggests that foreign terrorists

conducting future attacks in the United States may choose civil

aviation as a target. Civil aviation's prominence as a prospective

target is clearly illustrated by the circumstances of the 1995 Yousef

conspiracy. The bombing of a federal office building in Oklahoma City

shows the potential for terrorism from domestic groups. While the

specific motivation that led to the Oklahoma City bombing would not

translate into a threat to civil aviation, the fact that domestic

elements have shown a willingness to carry out attacks resulting in

indiscriminate destruction is worrisome. At a minimum, the possibility

that a future plot hatched by domestic elements could include civil

aircraft among possible targets must be taken into consideration. Thus,

an increased threat to civil aviation exists and needs to be prevented

and/or countered from both foreign sources and potential domestic ones.

That both the international and domestic threats have increased is

undeniable. While it is extremely difficult to quantify this increase

in threat, the overall threat can be roughly estimated by recognizing

the following:

U.S. aircraft and American passengers are good

representatives of the United States, and therefore are appealing

targets;

Up to 12 airplanes could have been destroyed in the

actual plot described above, and thousands of passengers killed

(while the proposed rule would not have prevented the plot described

above, this plot is representative of the type and seriousness of

the threat that this proposed rule is trying to prevent);

These plots came close to being carried out; it was

only through a fortunate discovery and tighter security after the

discovery of the plot that these incidents were thwarted;

It is just as easy for international terrorists to

operate within the United States as domestic terrorists, as

evidenced by the World Trade Center bombing; therefore

Based on these facts, the increased threat to domestic

aviation could be seen as equivalent to some portion of 12 Class I

Explosions on U.S. airplanes. (The FAA defines a Class I Explosion

as an incident that involves the loss of an entire aircraft and

incurs a large number of fatalities.)

In 1996, both Congress and the White House Commission on Aviation

Safety and Security recommended further specific actions to increase

aviation security. The White House Commission stated that it believes

that the threat against civil aviation is changing and growing, and

recommended that the federal government commit greater resources to

improving civil aviation security. President Clinton, in July 1996,

declared that the threat to aviation of both foreign and domestic

terrorism is a national threat. The U.S. Congress recognized this

growing threat in the Federal Aviation Reauthorization Act of 1996 by:

(1) authorizing money for the purchase of specific anti-terrorist

equipment and the hiring of extra civil aviation security personnel;

and (2) requiring the FAA to promulgate additional security-related

regulations.

The cost of a catastrophic terrorist act can be estimated in terms

of lives lost, property damage, decreased public utilization of air

transportation, etc. Terrorists acts can result in the complete

destruction of an aircraft with the loss of all on board.

In the absence of increased protection for the U.S. domestic

passenger air transportation system, it is conceivable that the system

would be targeted for future acts of terrorism. If even one such act

were successful, the traveling public would demand immediate increased

security. Providing immediate protection on an ad hoc emergency basis

would result in major inconveniences, costs, and delays to air

travelers that may substantially exceed those imposed by the planned

and measured steps contained in this proposal.

Based on the above statement, and after evaluating feasible

alternative measures, the FAA concludes that this proposed rule sets

forth the best method to provide increased security at the present

time. Notwithstanding the above, it is helpful to consider, to the

limited extent possible, the benefits of this proposal in reducing the

costs associated with terrorist acts to the threat level and other

factors. The following analysis describes alternative assumptions

regarding the number of terrorist acts prevented and potential market

disruptions averted that result in the proposed rule benefits at least

equal to the proposed rule costs. This is intended to allow the reader

to judge the likelihood of benefits of the proposed rule equaling or

exceeding its cost.

The FAA considers a Boeing 737 as representative of a typical

airplane flown domestically. It flies with an average load factor of

64.7%, which translates into 73 passengers per flight; the airplane

would also have two pilots and three flight attendants.

A terrorist catastrophic incident could also result in fatalities

on the ground. There were 11 such fatalities in the Pan Am 103

explosion and 15 fatalities in a collision of an AeroMexico airplane

with a Piper PA-28 airplane over Cerritos, California in 1986. However,

looking at the number of accidents including aircraft covered by this

proposed rule and the number of fatalities on the ground over the last

ten years, the average fatality was less than 0.5 persons per accident.

Therefore, the FAA will not assume any ground fatalities in this

analysis.

In order to provide a benchmark comparison of the expected safety

benefits of rulemaking actions with estimated costs in dollars, the FAA

currently uses a value of $2.7 million to statistically represent a

human fatality avoided. Applying this value, the total fatality loss of

a single Boeing 737 is represented by a cost of $210.6 million (78 x

$2.7 million).

Quantified undiscounted estimated costs of a single domestic Class

I Explosion on civil aviation are summarized on Table 1.

Table 1.--Costs of a Domestic Class I Explosion

[1998 Dollars]

----------------------------------------------------------------------------------------------------------------

Number Value Total cost

----------------------------------------------------------------------------------------------------------------

Fatalities...................................................... 78 $2,700,000 $210,600,000

Aircraft........................................................ 1 16,500,000 16,500,000

Property........................................................ 1 12,508,028 12,508,028

Investigation................................................... 1 28,640,637 28,640,637

Legal Fees...................................................... .............. 3,569,383 3,569,383

-----------------------------------------------

Total....................................................... .............. .............. 271,818,048

-----------------------------------------------

[[Page 19232]]

Total, discounted........................................... .............. .............. 190,908,689

----------------------------------------------------------------------------------------------------------------

Source: U.S. DOT, FAA, APO-310, March 1999.

Certainly the primary concern of the FAA is preventing loss of

life, but there are other considerations as well. Another large

economic impact is related to decreased airline travel following a

terrorist event. A study performed for the FAA by Pailen-Johnson

Associates, Inc., An Econometric Model of the Impact of Terrorism on

U.S. Air Carrier North Atlantic Operations, indicated that it takes

about 9 to 10 months for passenger traffic to return to the pre-

incident level after a single event. Such a reduction occurred

immediately following the destruction of Pan Am Flight 103 over

Lockerbie, Scotland in December 1988. In general, 1988 enplanements

were above 1987's. There was a dramatic fall-off in enplanement in the

first 3 months of 1989 immediately following the Pan Am 103 tragedy,

and it took until November 1989 for enplanements to approximate their

1987 and 1988 levels.

Trans-Atlantic enplanements increased, from 1985 to 1988, at an

annual rate of 10.7 percent. Projecting this rate to 1989 would have

yielded 1989 enplanements of 8.1 million, or 1.6 million more than Pan

Am actually experienced. This represents almost a 20 percent reduction

in expected enplanements caused by the destruction of Pan Am 103 by

terrorists.

The estimated effect of a successful terrorist act on the domestic

market has not been studied. Although there are important differences

between international and domestic travel (such as the availability of

alternative destinations and means of travel), the FAA believes that

the traffic loss associated with international terrorist acts is

representative of the potential domestic disruption.

There is a social cost associated with travel disruptions and

cancellations caused by terrorist events. The cost is composed of

several elements. First is the loss associated with passengers opting

not to fly--the value of the flight to the passenger (consumer surplus)

in the absence of increased security risk and the profit that would be

earned by the airline (producer surplus). Even if a passenger opts to

travel by air, the additional risk may reduce the associated consumer

surplus. Second, passengers who cancel plane trips would not purchase

other goods and services normally associated with the trip, such as

meals, lodging, and car rental, which would also result in losses of

related consumer and producer surplus. Finally, although spending on

air travel would decrease, pleasure and business travelers may

substitute spending on other goods and services (which produces some

value) for the foregone air trips. Economic theory suggests that the

sum of the several societal value impacts associated with canceled

flights would be a net loss. As a corollary, prevention of market

disruption (preservation of consumer and producer welfare) through

increased security created by the proposed rule is a benefit.

The FAA is not able to estimate the actual net societal cost of

travel disruptions and the corollary benefit gained by preventing the

disruptions. However, there is a basis for judging the likelihood of

attaining benefits by averting market disruption sufficient, in

combination with safety benefits, to justify the proposed rule. The

discounted cost of this proposed rule is $2.0 billion, while the

discounted benefits for each Class I Explosion averted (from Table 7)

comes to $190 million. Hence, if only 1 Class I Explosion is averted,

the present value of losses due to market disruption must at least

equal $1.8 billion ($2.0 billion less $190 million--one Class I

Explosion). If two Class I Explosions are averted, the value of the

market losses must at least equal $1.6 billion ($2.0 billion less 2

times $190 million).

The value of market loss averted is the product of the number of

foregone trips and the average market loss per trip (combination of all

impacts on consumer and producer surplus). If one uses an average

ticket price of $160 as a surrogate of the combined loss, preservation

of 11.2 million lost trips would be suffered, in combination with the

safety benefits of 1 averted Class I Explosion, for the benefits of

proposed rule to equal costs. This represents 3 percent of annual

domestic trips (the traffic loss caused by Pan Am 103 on trans-Atlantic

routes was 20 percent). Calculations can be made on the number of

averted lost trips needed if the net value loss was only 75 percent of

the ticket price or exceeded the ticket price by 25 percent. If total

market disruption cost was $130 or $200 per trip, retention of 13.8 and

9.0 million lost trips, respectively, would need to occur for the

proposed rule benefits to equal the proposed rule costs, assuming 1

Class I Explosion would be prevented. The FAA requests comments on the

potential size of market loss per trip and number of lost trips

averted.

Table 2 presents combinations of the total number of trips not

taken as a result of one to four Class I Explosions at alternative

values per lost trip that would be sufficient to generate monetized

benefits in excess of the estimated proposed rule costs.

Table 2.--Number of Trips Not Taken as a Result of One to Four Class I

Explosions Avoided

[For Benefits to Equal Costs]

------------------------------------------------------------------------

Assumed net market loss per

trip (in 1998 dollars)

Number of class I explosions avoided --------------------------------

$130 $160 $200

(million) (million) (million)

------------------------------------------------------------------------

1...................................... 13.8 11.2 9.0

2...................................... 12.2 10.0 8.0

3...................................... 10.9 8.8 7.1

4...................................... 9.4 7.6 6.1

------------------------------------------------------------------------

Source: FAA, APO-310, March 1999.

The FAA stresses that the range of trips not taken in Table 2 is

shown for illustrative purposes and does not represent an explicit

endorsement that these would be the exact number of trips that would

actually be lost. As noted above, it is important to compare, to the

limited extent possible, the cost of this proposal to some estimate of

the benefit of increased security it would provide as that level of

security relates to the threat level.

Based on the White House Commission recommendation, recent

Congressional mandates and the known reaction of Americans to any air

carrier disaster, the FAA determines that pro-active regulation is

warranted to prevent terrorist acts (such as Class I Explosions) before

they occur.

C. Analysis of Alternatives to the NPRM

The proposed rule is a ``significant regulatory action'' as defined

by Executive Order 12866 (Regulatory Planning and Review) because it

would impose costs exceeding $100 million annually. The Executive Order

requires that agencies proposing significant rules

[[Page 19233]]

provide an assessment of feasible alternatives to their respective

rulemaking actions. In addition, the Executive Order requires that an

explanation of why the proposed rule, which is significant, is

preferable to the identified potential alternatives. In the following

discussion, FAA provides an assessment of six alternatives, with

Alternative Number Five being chosen as the proposed rule:

1. The Status Quo

This alternative would maintain the status quo. Currently, the FAA

mandates manual passenger screening or baggage matching based on this

screening only in situations where the FAA has determined that a

heightened security threat exists. Manual passenger screening is

performed on a contingency basis when the FAA issues Security

Directives (SD's). Security Directives are temporary conditions, which

are considered part of the status quo. While costs are incurred to

implement manual passenger screening whenever a threat exists, they are

not considered permanent costs because they are associated with

procedures required by emergency, temporary rules. The FAA believes

that the threat to civil aviation within the United States has

increased and further rulemaking is necessary.

2. Phasing In the Mandatory Use of Explosives Detection System (EDS)

(Without Requirement for CAPS)

Alternative Two would phase in the mandatory use of EDS over a 10-

year period of time, at a rate of 10% per year. By the end of the first

year, approximately 10% of all passengers and baggage would be covered,

by the end of the second year, 20% of all passengers and baggage would

be covered, etc. Under Alternative Two, air carriers without EDS would

be required to continue performing their status quo security procedures

until they are provided with EDS equipment. Over 10 years, total EDS

costs sum to $2.1 billion ($1.4 billion, discounted).

In terms of benefits, EDS equipment offers the highest level of

security against explosives being stored in the cargo compartments of

airplanes. Explosives detection system equipment is able to examine all

baggage as it passes through on a conveyor belt. Baggage that clears on

the first leg of travel does not require re-examination with subsequent

transfers to other flights or other air carriers.

Alternative Two would, over the initial 10-year period, probably

provide, on average, less benefits than the proposal. In the first

year, only 10% of the passengers and baggage would be covered, so only

10% of the potential increase in overall security (and hence, benefits)

associated with EDS would be attained. Only during the tenth year would

there be full augmentation of EDS, and attainment of the full increase

in security (and hence, benefits) associated with EDS. Averaging these

increases over 10 years yields only 55% of the full EDS benefit. This

contrasts with the proposed rule where each year there would be the

full attainment of benefits.

The FAA believes that where it is applied, EDS would be more

effective than the proposal; however, the benefits of complete EDS

implementation would need to be roughly twice that of the proposal for

Alternative Two to be superior.

A goal of all carriers using EDS for 100% of its flights cannot be

realized immediately due, among other reasons, to the lack of

production capability. This lack of full EDS coverage would lead to a

window of vulnerability as only some flights would be covered. Under

Alternative Two, the step-by-step annual improvements in the level of

security would lead to a bifurcated security program. The public would

realize that some flights would be safer than others. Terrorists may be

able to determine which flights were cleared by EDS and act

accordingly, potentially resulting in an airplane explosion. The FAA

rejects Alternative Two on the basis that it would provide an

unacceptable level of risk higher than the proposed rule.

3. Requiring 100% PPBM of Each Carrier While Phasing In Mandatory Use

of EDS

Alternative Three would supplement the EDS required in Alternative

Two by requiring 100% PPBM for those flights until EDS becomes

available. Hence, the first year would have 10% of the passengers and

baggage covered by EDS and 90% by baggage matching, etc., until the

tenth year which would have 100% of the passengers and baggage covered

by EDS.

This alternative would combine the costs of EDS with the costs of

those flights on which full baggage matching is used. Over 10 years,

total EDS costs sum to $2.1 billion ($1.4 billion, discounted). The

costs of baggage matching portion of this alternative would be $4.6

billion ($3.7 billion, discounted), with total 10-year costs for

Alternative Three at $6.7 billion ($5.0 billion, discounted).

Alternative Three would yield the highest level of security of any

of the alternatives considered; however, this alternative could produce

major operational obstacles. Large numbers of domestic flights are

scheduled around a hub and spoke system. Under this alternative, a 100%

PPBM alternative would probably result in substantial flight delays due

to the unloading of unmatched baggage. These initial delays would

impact and delay some connecting flights. This action would result in a

daily ripple effect, which would get worse as the day wore on. These

operational burdens on air carriers would result both in fewer flights

and passengers paying more for tickets. Facility requirements for each

passenger on each flight of a combined passenger bag match/EDS system

could overload the existing system; the space and time required for

screening all checked baggage by EDS could cause severe congestion at

existing airport facilities.

The FAA has very high confidence in the effectiveness of the

proposed rule in terms of countering the current threat. It believes

that most of the current threat could be successfully countered through

the implementation of CAPS. Alternative Three would be more effective

in countering the threat, but the FAA does not believe that the

incremental increase in security provided by Alternative Three is worth

the additional cost of this alternative, which is about $4 billion more

than the proposed rule.

4. Baggage Matching on Randomly Selected Passengers While Phasing In

EDS

Like Alternatives Two and Three, Alternative Four would move

towards a security system based on EDS screening. Random selection,

rather than CAPS, would determine which passengers would be subjected

to baggage matching.

The FAA believes, for analyzing this alternative, that a 10%

screening rate would be a believable and effective random rate to

provide deterrence to terrorists. Explosives detection systems would be

phased in, such that, for the first year, 10% of the passengers and

baggage would be subject to the full use of EDS and 90% to this reduced

(10%) screening rate of baggage matching, etc. Ten-year costs for the

partial baggage matching portion of this scenario would be $1.4 billion

(net present value, $1.1 billion). With total EDS costs at $2.1 billion

($1.4 billion, discounted), total 10-year costs for this alternative

sum to $3.5 billion ($2.5 billion, discounted).

As above, the FAA believes that where it is applied, EDS would be

more effective than the proposal, so total benefits from 100% EDS

screening would be higher than the proposal;

[[Page 19234]]

however, even with the greater effectiveness of EDS, the major problem

with Alternative Four is the window of vulnerability that would still

exist. In the first year, 90% of flights would depend on a randomly

selected baggage matching alternative that would be much less effective

than CAPS. As discussed above, the FAA assumes that CAPS would be very

effective in countering the threat. Selecting 10% of the passengers at

random would, on these flights, yield benefits only 10% of those that

would be derived from the proposal. Until the tenth year, where full

EDS implementation would be expected, there would be a major shortfall

in benefits.

A goal of using EDS for 100% of flights cannot be implemented

immediately due, among other reasons, to the lack of production

capability. Even when partial EDS screening is combined with random

baggage matching, only some flights would be covered, so many flights

would remain vulnerable. Given that this alternative is more expensive

than the proposal, yet does not close the window of vulnerability, the

FAA rejects this alternative.

5. Baggage Matching on Passengers Selected by CAPS With Use of EDS,

Where Available

This is the proposed rule, which was costed out in the discussion

above.

6. Performing Baggage Matching on a Limited Number of CAPS Selectees

Alternative Six would modify the proposed rule in that the air

carriers would use CAPS to form the pool of selectees, but only subject

a random number of these selectees to baggage matching. For analysis

purposes, the FAA is assuming that 50% of the pool of selectees would

be subjected to baggage matching. This yields ten-year costs of $1.6

billion ($1.1 billion, discounted).

The proposed rule provides benefits by performing baggage matching

on 100% of selectees. Reducing this pool would reduce the protection

afforded by CAPS and baggage matching and would increase the likelihood

that someone who would have been a CAPS selectee but who was excluded

from heightened security measures under this alternative would be able

to cause an explosion on an airplane. The FAA is calculating benefits

by assuming that a 50% reduction in the pool of CAPS selectees would

bring about a nearly 50% reduction in benefits from current levels.

The major problem with this alternative is that it would offer a

lower level of security and would amount to reducing the effectiveness

of the CAPS criteria. As discussed above, the FAA assumes that CAPS

would be very effective in countering the threat. Reducing the selectee

pool by 50% at random would yield benefits equal to roughly half of

those that would be derived from the proposal. This creates a window of

vulnerability on every flight, as only some passengers' baggage would

be screened, and would not mitigate the threat as effectively as the

proposed rule. It is not prudent to establish a computerized automated

profiling system to select passengers and then ignore some of these

selectees, hoping that the deterrence value of the possibility of being

selected would equal or outweigh the benefits of performing baggage

matching. This alternative could allow a selectee whose checked baggage

was not subject to baggage matching to cause an explosion on an

airplane.

Initial Regulatory Flexibility Determination and Analysis

A. Initial Regulatory Flexibility Determination

The Regulatory Flexibility Act of 1980 (RFA) was enacted by

Congress to ensure that small entities (small business and small not-

for-profit government jurisdictions) are not unnecessarily and

disproportionately burdened by Federal regulations. The RFA, which was

amended May 1996, requires regulatory agencies to review rules that may

have ``a significant economic impact on a substantial number of small

entities.'' The Small Business Administration suggests that ``small''

represents the impacted entities with 1,500 or fewer employees. For

this proposed rule, the small entity group is considered to be part 108

scheduled operators with airplanes having 61 or more passenger seats

(Standard Industrial Classification Code 4512) and 1,500 or fewer

employees. The FAA has identified a total of 12 operators that meet

this definition.

To determine the impact of the proposed rule on small part 108

operators, the FAA has estimated the annualized cost impact on each of

those small entities potentially impacted by the proposed rule. The

proposed rule is expected to impose an estimated $122 million on the 12

small entities over the next 10 years. For purposes of this rulemaking,

one percent of the annual median revenue ($823,000, in 1998 dollars) is

considered economically significant in that it may entail either an

increase in airline ticket fares or a requirement to create operating

cost efficiencies to preserve the economic stability of impacted

airlines. Ten of the 12 part 108 small entities would incur a

substantial economic impact in the form of higher costs in excess of

$823,000, as the result of the proposed rule. Furthermore, the cost

burden is not strictly proportionate to the size of the airline as

inferred by the number of employees. For these reasons, a regulatory

flexibility analysis is presented below.

B. Initial Regulatory Flexibility Analysis

Under Section 603(b) of the RFA (amended May 1996), each initial

regulatory flexibility analysis is required to address these points:

(1) reasons why the FAA is considering the proposed rule, (2) the

objectives and legal basis for the proposed rule, (3) the kind and

number of small entities to which the proposed rule would apply, (4)

the projected reporting, recordkeeping, and other compliance

requirements of the proposed rule, and (5) all Federal rules that may

duplicate, overlap, or conflict with the proposed rule.

Reasons why the FAA is considering the proposed rule: Over the past

several years, the FAA has recognized that the threat against civil

aviation is changing and growing. See either the discussion under

``Background'' above, or the background section of the Regulatory

Impact Analysis (RIA) for a more detailed discussion of this threat.

Terrorist and criminal activities within the United States have forced

the FAA and other federal agencies to reevaluate the domestic threat

against civil aviation. The proposed rule is intended to counter this

increased threat to U.S. civil aviation security.

The objectives and legal basis for the proposed rule: The objective

of the proposed rule is to significantly increase protection to

Americans and others traveling on U.S. domestic air carrier flights

from acts of terrorism. Specifically, the proposed rule is aimed at

preventing explosives from being placed on board commercial flights in

checked baggage.

The legal basis for the proposed rule is found in 49 U.S.C. 44901

et seq. As a matter of policy, the FAA must consider, among other

concerns, maintaining and enhancing safety and security in air commerce

as its highest priorities (49 U.S.C. 40101(d)).

The kind and number of small entities to which the proposed rule

would apply: The proposed rule applies to 32 operators of part 108

aircraft, of which 12 are small scheduled operators (with 1,500 or

fewer employees) that use aircraft with more than 60 passenger seats

(SIC Code 4512). A brief financial

[[Page 19235]]

profile of these small entities is provided in the full Regulatory

Impact Analysis (which includes net income, assets, liabilities, and

financial strength ratios) by category: Nationals, Large Regionals, and

Medium Regionals.

----------------------------------------------------------------------------------------------------------------

Total No. of No. of small

Category Annual revenues by category entities carriers

impacted impacted

----------------------------------------------------------------------------------------------------------------

Majors..................................... More than $ 1.0b................... 9 0

Nationals.................................. $100.0m-$ 1.0b..................... 14 3

Large

Regionals.................................. $ 20.0m-$99.9m..................... 6 6

Medium

Regionals.................................. $ 0.0m-$19.9m...................... 3 3

-------------------------------

Total.................................. ................................... 32 12

----------------------------------------------------------------------------------------------------------------

The projected reporting, recordkeeping, and other compliance

requirements of the proposed rule: As required by the Paperwork

Reduction Act of 1995 (44 U.S.C. 3507(d)), the FAA has submitted a copy

of these proposed sections to the Office of Management and Budget (OMB)

for its review.

All air carriers using either CAPS, 100% PPBM screening or checked

baggage screening via FAA-certified EDS system, would need to provide

compliance with the approved security program. The FAA estimates this

compliance effort would take place on a one-time basis and impose an

additional 24 hours of clerical labor for each of the small entities

during the first year of compliance (2000 only). However, the

employment of CAPS as a security procedure for screening passengers,

requires air carriers to make available, where appropriate, certain

information that the CAPS system has been programmed to generate to

facilitate DOJ and OST reviews to ensure that selection is not

impermissibly being based on race, color, gender, national or ethnic

origin or religion. To comply with the recordkeeping requirements for

DOJ inquiries, each small part 108 aircraft operator employing CAPS

will have an estimated annual recordkeeping burden of 100 hours of

clerical labor per year for a period of 10 years (based on having

compliance information available for the DOJ inquiries, and records for

personnel requiring CAPS training). Therefore, the additional

recordkeeping burden, which would apply to each of the small entities,

imposed by the proposed rule would be 124 hours in 2000 and 100 hours

for each year during 2001--2009. The cost for this time would be $2,600

or an average of $218 per respondent for 2000. For the subsequent years

(2001-2009), the additional cost for this time for small entities would

be $2,100 or $176 per air carrier per year.

There are additional annual costs resulting from the collection of

information. The first year (2000 only) estimated cost for the small

entity respondents is estimated to be $523,200 or an average of $43,600

per respondent. For years 2000--2009, the additional recordkeeping

costs for all of the small entities would be $96,500 or $8,000 per air

carrier per year.

All federal rules that may duplicate, overlap, or conflict with the

proposed rule: The FAA is unaware of any federal rules that either

duplicate, overlap, or conflict with the proposed rule.

Other Considerations

Description of lower impact alternatives: A discussion of those

alternatives that would impose less costs on the small entities subject

to this proposed rule is provided below. In addition to the proposed

rule and status quo, the analysis of alternatives reviewed three

alternatives that had a range of compliance costs between $10 million

and $122 million in a 10-year period.

Affordability analysis: For the purpose of this RIA, the degree to

which small entities can ``afford'' the cost of compliance is

predicated on the availability of financial resources. Initial

implementation costs may be obtained from either existing company

assets such as cash, by borrowing, or through the provision of

additional equity capital. Continuing annual costs of compliance may be

accommodated either by accepting reduced profits, by raising ticket

prices, or by finding other offsetting costs.

In this analysis, the assessment of the availability of financial

resources is based on the ability of each of the small entities to meet

their short-term obligations. According to financial literature, a

company's short-term financial strength is substantially influenced,

among other things, by its working capital position and ability to pay

short-term liabilities. Net working capital is the amount by which

current assets exceed current liabilities. It represents the margin of

short-term debt paying ability over existing short-term debt.

In addition to the amount of net working capital, two analytical

indexes of current position are often computed: (1) current ratio and

(2) quick ratio. The current ratio (current assets divided current

liabilities) helps put the amount of net working capital into

perspective by showing the relationship between current resources and

short term debt. And the quick ratio (sometimes called the acid test

ratio) focuses on immediate liquidity (cash, marketable securities,

accounts receivable, etc., divided by current liabilities). A decline

in net working capital, the current and quick ratios over a period of

years (say, 3 years, 4 years, etc.) may indicate that a company is

losing financial solvency. Negative net working capital is a clear

indication of financial difficulty. If a company is experiencing such

financial difficulty, it is less likely to be able to afford additional

costs.

The following conclusions are based on the subject financial

information:

Based on current liquidity, at least three small

entities would probably be able to afford the cost of compliance

associated with this proposed rule. These entities have experienced

increases in their net working capital as well as their current and

quick ratios over the past three or four years, as shown in Table

11B. They are also generally profitable and may, therefore, have

financial resources available to meet the requirements of this

proposed rule.

For one currently profitable small entity, its ability

to afford the cost of compliance is less certain. This uncertainty

stems from the fact that there is no financial performance history

for the small entity from 1994 to 1996 because it has only been

operating as a large passenger air carrier since second quarter of

1997. In 1997, this small entity had a net working capital in excess

of $40 million and its current and quick ratios are at least 1.8,

respectively. While this information is very positive, it does not

necessarily serve as an indicator of future performance, especially

in light of the proposed rule.

[[Page 19236]]

For another air carrier, there is greater uncertainty

than that for the aforementioned air carrier. Uncertainty for this

entity is due to the fact that it has no financial performance

history from 1994 to 1997. This lack of financial information is due

to the fact that this air carrier did not receive its effective

operating authority until mid 1997. Its ability to comply with the

proposed rule and remain in business is unknown due to the lack of

financial information on its performance history.

The current liquidity of the remaining seven small

entities will require action to finance the expected cost of

compliance imposed by this NPRM. Over the past two or three years,

each of these small entities has had negative net working capital.

In addition, their respective current and quick ratios have

generally been on a decline. They have frequently experienced

financial losses.

Relative Cost Impact

The other alternative of assessing affordability,

annualized cost of compliance relative to the total operating

revenues, for each of the 12 small entities impacted by this NPRM

shows relatively small impacts for most of the small entities. The

annualized cost of compliance relative to total operating revenues

would be between 0.2 percent and 7.2 percent; in most cases, the

impact would be less than 1.0 percent.

For seven of the air carriers the ratio of annualized

proposed rule costs to revenues would be less than 1.0 percent, on

average, for the three-year period 1995 through 1997. For these air

carriers, there appears to be a prospect of absorbing the cost of

the proposed rule through some combination of fare increases and

cost efficiencies. Even though the ratio of costs to revenues exceed

1.0 percent, on average, for the seven other air carriers, there is

a prospect that two of these air carriers may have sufficient

working capital to incur initial cost increases.

Disproportionality analysis: The FAA does not believe any of the 12

small entities would be disadvantaged relative to large air carriers,

due solely to disproportionate cost impacts. All of the air carriers

operating airplanes with 61 or more seats have to comply with the

proposed rule for CAPS.

Many small air carriers are expecting to incur relatively smaller

costs proportionate to the size of their operations because most of

them have code-share arrangements with large air carriers within the

majors category. These airlines would probably be able to employ the

CAPS systems of their code-sharing partners and thereby avoid system

development costs. Thus, because of code-share arrangements with larger

air carriers, at least 8 of these 12 small air carriers may incur costs

lower than they otherwise would. In the operating cost of compliance

section of this RIA for passenger baggage matching, major jet air

carriers are expected to incur an estimated departure cost of $30,

national and regional jet air carriers estimated departure cost of

$20.98. Some of the smallest air carriers that fall within the national

and regional turboprop category would incur a departure cost of $5.82.

Hence, on a per operation basis, lower operating costs are anticipated

for carriers which operate smaller aircraft. In general, small entities

are more likely to operate small aircraft than large aircraft.

Competitiveness analysis: The proposed rule, while it may impose

financial burdens on small entities (see affordability and business

closure analyses), is not anticipated to significantly change the

competitiveness of small entity airlines relative to larger carriers on

their domestic routes.

As discussed in the disproportionality analysis, the proposed rule

is not expected to impose a greater relative financial burden on small

compared to large airlines. Furthermore, small entities impacted by

this proposed rule are more likely to either face no competition on

individual route segments or compete among themselves rather than with

large airlines. Medium and large regional airlines (annual revenues

less than $100 million) do not compete directly with major carriers

(annual revenues exceeding $1 billion). Instead, at least two of the

impacted small entities are regional carriers code-share with major

airlines--UFS Inc. with United and Alaska Airlines with US Airways and

Northwest. Code-sharing is a device whereby regional carriers feed

traffic to majors rather than compete for traffic. Thus, for nine of

the small entities, which are classified as medium or large regionals,

to the extent there is competition on routes, competition is generally

limited to carriers within the same revenue categories. Three of the

impacted small entities are classified as nationals (annual revenues

between $100 million and $1 billion). Air Wisconsin, one of the small

entities classified as a national is also affiliated with United

Airlines--a major. Because of this affiliation, it seems unlikely that

the cost impact of the proposed rule per se would significantly change

the relative competitiveness of Air Wisconsin. The remaining two small

entity carriers classified as nationals do compete both with major

airlines, with other nationals, and some smaller revenue carriers

(namely, large regionals). While the financial impact on these small

entities may not be proportionally greater than that imposed on the

majors, the nationals may have greater difficulty in recovering the

costs of compliance with the proposed rule through ticket price

increases. This is because they are engaged in competition with the

majors for price sensitive travelers. Lower ticket prices are vital to

maintaining a competitive edge. There is also another competition

factor important for nationals--the cost of compliance would probably

be less for carriers if they link to an existing computer reservation

system (CRS) which has been modified for CAPS rather than building a

new stand alone CAPS system. Thus, the proposed rule may tend to

increase national carrier reliance on CRS systems controlled by major

airlines. Again, this may exacerbate the competitive advantage of

majors vis a vis national carriers because the terms and cost of CRS

use are determined by the majors.

Business closure analysis: The FAA is unable to determine with

certainty the extent to which those small entities that would be

significantly impacted by the proposed rule for CAPS would have to

close their operations. However, the profitability information (net

income gains and losses) and the affordability analysis can be a factor

in business closures.

In determining whether or not any of the 12 small entities would

close business as the result of compliance with this proposed rule, one

question must be answered: ``Would the cost of compliance be so great

as to impair an entity's ability to remain in business?'' A number of

these small entities are already in serious financial difficulty. For

example, one small entity has already filed for bankruptcy under

chapter 11. To what extent the proposed rule makes the difference in an

entity remaining in business is difficult to answer. The FAA believes

that if the potential cost of compliance materializes as expected,

several small operators could go out business due at least in part to

the proposed rule.

Alternatives Considered

As part of section 603(c) of the RFA, the following is an analysis

of pros and cons of the alternatives to the proposed rule:

1. Status Quo

Under this alternative, the practice of maintaining the current

policy for security of checked baggage on domestic flights would

continue. Currently, the FAA mandates manual passenger screening or

baggage matching only in situations where the FAA has determined that a

heightened threat exists. Continuing with this policy would be the

least costly course of action but less safe. The FAA believes that the

threat to civil aviation within the United States has increased and

further rulemaking is necessary. Thus,

[[Page 19237]]

this alternative is not considered to be acceptable because it permits

continuation of an unacceptable level of risk to U.S. airline

passengers. Conclusion: Under this alternative, there is a likelihood

of one or more terrorist acts resulting in Class I Explosions involving

large commercial airplanes that operate within the United States

(discussed previously in the benefits portion of this Regulatory

Evaluation Summary).

2. Current Proposal Would Apply to Small Entities Only When a Specific

Threat Exists (Standby CAPS Program)

Under this alternative, all small entities (part 108 aircraft

operators) would be required to implement requirements identical to

those of the proposed rule only when the Assistant Administrator for

Civil Aviation Security notified the certificate holder in writing that

a security threat existed with respect to a particular operation. Under

the proposed rule, all small entity operations with 61 or more seats

would be required to implement CAPS for selectees for 5% of all

passengers (originating only) and either 100% PPBM or EDS (where

available). Under this alternative, however, small entity operators

with airplanes having 61 or more passenger seats and 1,500 or fewer

employees would only be required to have a ``standby security

provision'' to implement CAPS and baggage matching for selectees.

This alternative may reduce the potential cost impact to the small

entities. For example, such airlines might incur the initial

implementation cost estimated for the proposed rule but avoid annual

operating costs; however, the proposed rule is based upon the premise

that a terrorist or criminal is not likely to ignore a larger aircraft

(determined by FAA to be those with seating configurations of 61 or

greater seats) merely because it is operated by a small entity.

Accordingly, this alternative is not considered feasible because it

is unlikely to counter the existing terrorist threat. The potential

cost of compliance associated with this alternative is estimated to be

$10 million ($9 million, discounted) over 10 years, 1998 dollars, for

all 12 small entities potentially impacted by this proposed rule. This

cost estimate assumes that potentially impacted small entities would

only incur startup costs for 1998, to be prepared in the event the

Assistant Administrator for Civil Aviation Security requests that they

implement and operate a CAPS program identical to that of the proposed

rule. Further, this analysis assumes that air carriers could respond

immediately to a CAPS program request, using existing personnel in the

short run. Conclusion: This alternative would impose the smallest cost

of compliance on part 108 small entities, and it would not impose a

significant economic impact (less than one percent of the median annual

revenues of the small entities or $823,000) on a substantial number of

such small entities. This alternative would provide minimal improvement

in protection against terrorism because it would be implemented only

after an airline was known to be a target. This alternative is rejected

on the basis that it would permit an unacceptable level of risk to

continue and would jeopardize FAA's intent to address current security

concerns related to U.S. civil aviation.

3. Small Entities Do Nothing When Receiving Passengers From a Large

Entity Air Carrier That Has Applied Proposed Rule

The proposed rule could be revised to require small entities

(having operations using aircraft of 61 or greater seats) to apply the

proposed rule only for originating passengers. For this alternative,

when a passenger transfers from a large entity to a small entity (on

which the flight is to the passenger's final destination), that small

entity would not be required to perform additional security measures.

The small entity would still be required to implement the proposed rule

for originating passengers (including those transferring to a large

entity). The checked baggage of some passengers previously identified

as posing a threat, would be allowed to continue on the small entity if

they had been subjected to heightened security measures by a major air

carrier. The potential cost of compliance associated with this

alternative is estimated to be $61 million ($43 million, discounted)

over 10 years, 1998 dollars, for all 12 small entities potentially

impacted by this proposed rule. This cost estimate was derived on the

premise that the proposed rule would only apply to those passengers

that start their trips on flights provided by the small entities. Since

at least half of the passengers carried by small entities are received

from larger air carriers, the cost of this alternative would be half of

that cost imposed by the proposed rule. Conclusion: This alternative

would impose the third highest cost of compliance impact on part 108

small entities. It would impose a significant economic impact on 6 of

12 small entities. This alternative would achieve only 50% of the

potential safety of the proposed rule. This alternative is rejected on

the basis that it would offer an unacceptably high level of threat to

U.S. civil aviation security. While the potential safety level of this

alternative is higher than that of Alternative Two, it is significantly

lower than that of the proposed rule.

4. Small Entities Apply Proposed Rule on a Smaller Scale

The proposed rule could be revised to allow small entities to apply

baggage matching for a smaller number of selectees. Under this

alternative, the rate for selectees would be 1% (as opposed to 5% for

the proposed rule). The cost savings to small entities would depend on

the magnitude of the reduction in the number of selectees; however,

this would involve reducing the number of selectees arbitrarily and not

based on a prudent rationale. Under this alternative, 80% of the

checked baggage of passengers who would have been identified as CAPS

selectees under the proposed rule would be allowed to go through the

system without undergoing additional security measures. Thus, under

this alternative a high level of risk would still remain that would be

mitigated by the proposed rule. The potential cost of compliance

associated with this alternative is estimated to be $99 million ($71

million, discounted) over 10 years, 1998 dollars, for all 12 small

entities potentially impacted by this proposed rule. This cost estimate

is based on the premise that small entities would primarily experience

a reduction in delay costs of about 80% of that to be incurred under

the proposed rule. The 1% selectee rate of this alternative represents

a reduction of 80% when compared to the proposed rule's selectee rate

of 5%. With 80% fewer passengers as potential selectees, problems with

reconciliation of checked baggage would be significantly reduced. This

impact is assumed to be linear, for lack of more accurate information.

According to technical personnel with SABRE, small changes in the

selectee rate (between 1% and 20%, for example) would only have a

linear affect on delay costs. That is, a 10% selectee rate would have

twice the delay costs than a 5% selectee rate, etc. There may also be

reductions in startup and operating costs, though to what extent is

unknown. This alternative would only generate potential security

benefits of about 20% (\1/5\ = 20%) of that of the proposed rule.

Conclusion: This alternative would impose a lower cost of compliance on

part 108 small entities than the proposed rule; however, this

alternative (when compared to the proposed rule) would provide a less

secure flight environment to small part

[[Page 19238]]

108 operators and passengers. It would also impose a significant

economic impact on a substantial number of such small entities (more

than 1% of the median annual revenues of the small entities, or

$823,000). This alternative is rejected on the basis that it would not

sufficiently reduce the risk of explosions due to terrorism.

5. The CAPS NPRM (Preferred)

This alternative represents the proposed rule for CAPS. Under this

alternative, small entities (in addition to any other part 108 aircraft

operators with airplanes having 61 or more seats) would be required to

implement CAPS (estimated at selectee rate of 5% of all passengers

(originating only) whose checked baggage would be subjected to

additional security measures), or either conduct 100% PPBM or screen

checked baggage by EDS (where available). The cost of compliance

expected to be incurred by the 12 small entities subject to the

requirements of the proposed rule is estimated to be $122 million ($85

million, discounted) over the next 10 years.

This alternative is preferred to the aforementioned alternatives

because it would impose costs and generate benefits in a manner that

would create the best balance between the cost of doing business for

all affected part 108 operators and enhanced aviation security (in the

form of threat reduction) for the traveling public (including

operators).

International Trade Impact Statement

This proposed rule would not present a significant impediment to

either U.S. firms doing business aboard, or foreign firms doing

business in the United States. The proposed rule would only apply to

and impact those part 108 scheduled air carriers (with 61 or more

passenger seats) that conduct operations in the United States. Foreign

air carriers do not compete with U.S. domestic air carriers in

providing air transportation within the United States. Air carriers

that conduct operations outside of the United States are required to

conduct 100% PPBM, which is a more stringent requirement than contained

in this proposal.

Initial Unfunded Mandates Assessment and Analysis

A. Applicability of the Unfunded Mandates Act

Title II of the Unfunded Mandates Reform Act of 1995 (the Act),

enacted as Pub. L. 104-4 on March 22, 1995, requires each Federal

agency, to the extent permitted by law, to prepare a written assessment

of the effects of any Federal mandate in a proposed or final agency

rule that may result in the expenditure by State, local, and tribal

governments, in the aggregate, or by the private sector, of $100

million or more (adjusted annually for inflation) in any one year.

Section 204(a) of the Act, 2 U.S.C. 1534(a), requires the Federal

agency to develop an effective process to permit timely input by

elected officers (or their designees) of State, local, and tribal

governments on a proposed significant intergovernmental mandate. A

``significant intergovernmental mandate'' under the Act is any

provision in a Federal agency regulation that would impose an

enforceable duty upon state, local, and tribal governments, in the

aggregate, of $100 million (adjusted annually for inflation) in any one

year. Section 203 of the Act, 2 U.S.C. 1533, which supplements section

204(a), provides that before establishing any regulatory requirements

that might significantly or uniquely affect small governments, the

agency shall have developed a plan that, among other things, provides

for notice to potentially affected small governments, if any, and for a

meaningful and timely opportunity to provide input in the development

of regulatory proposals or rules.

Since this proposed rule contains a private sector mandate with a

potential cost impact of more than $100 million annually, the

requirements of Title II of the Unfunded Mandates Reform Act of 1995 do

apply. For this reason, an assessment of the Unfunded Mandates Act on

the impacted private sector is discussed below.

B. Unfunded Mandates Act Impact Assessment

To assess the potential impact of the Unfunded Mandates Reform Act

(Act) of 1995 from this proposed rule, the Act identifies six

components that must be addressed in the assessment of this proposed

rule. Each of those components is discussed below.

1. Provision of Federal Law Under Which the Proposed Rule is Being

Promulgated

The legal basis for the proposed rule is found in 49 U.S.C. 44901

et seq. As a matter of policy, the FAA must consider, among other

concerns, maintaining and enhancing safety and security in air commerce

as its highest priorities (49 U.S.C. 40101(d)).

2. Assessment of the Anticipated Costs and Benefits of the Federal

Mandate

a. Estimate of Costs--The proposed rule would impose an estimated

cost of $2.8 billion ($2.0 billion, discounted) over 10 years. This

cost estimate is composed of three components: (1) checked baggage

matching costs ($2.2 billion; $1.6 billion, discounted), (2) checked

baggage matching flight delay costs ($473 million; $326 million,

discounted), and (3) CAPS program costs ($70 million; $51 million,

discounted). During the first year of the proposed rule (2000), which

is also the most costly, part 108 air carriers are expected to incur

costs of approximately $456 million ($426, discounted). This estimate

includes fixed and recurring cost components.

b. Estimate of Benefits--The primary benefit of the proposed rule

would be significantly increased protection to Americans and others

traveling on U.S. domestic air carrier flights from the increasing

threat of acts of terrorism. Specifically, the proposed rule is aimed

at preventing explosives from being placed on board commercial flights

in checked baggage. In order for security benefits to offset compliance

costs, a terrorist act (such as a Class I Explosion) resulting in 380

aviation fatalities (including other types of casualty losses such as

aircraft replacement, market loss, etc.) would have to be avoided over

the 10 years.

c. Estimates of Future Costs of Compliance of the Federal Mandate--

For the 32 aircraft operators that would potentially be impacted by the

proposed rule, the total annual costs in each of the next 10 years

would be greater than $100 million. The total cost of the proposed rule

for the 10-year period (in 1998 dollars) would be approximately $2.8

billion ($2.0 billion, discounted) and the annualized present value of

the costs of compliance would be approximately $234 million per year. A

more detailed discussion of costs is shown in the analysis of costs

section of this regulatory impact analysis summary.

d. Estimates of Disproportionate Budgetary Effects of the Federal

Mandate--The 32 aircraft operators that would be impacted by the

proposed rule are widely dispersed across the United States, as evident

by their respective hub locations. For example, Delta Airlines has its

main hub in Atlanta, GA; United Airlines has its main hub in Chicago,

IL; American and Southwest Airlines have their main hubs in Dallas, TX.

Smaller air carriers (namely regionals) also have their main hubs

dispersed similarly to the majors and nationals since they primarily

carry their passengers into small hub airports. It is for these reasons

that the proposed rule would not impose any disproportionate budgetary

effects on

[[Page 19239]]

any particular region of the country. The proposed rule would, however,

impose costs on a particular segment of the private sector as noted

previously in the estimate of costs section of this Unfunded Mandate

Act Analysis.

e. Estimates of the Effect of the Federal Mandate on the National

Economy--As the result of the proposed rule, the impacted part 108 air

carriers are expected to increase staffing and training of airport

terminal personnel. There is insufficient information to be able to

estimate the multiplier effect the additional jobs spurred by this

proposed rule would have on the local economy in the form of a lower

unemployment rate, added tax revenues, and increased sales for consumer

goods on local communities and the national economy. The FAA is

reasonably certain that the creation of additional jobs by the proposed

rule would have a positive impact.

f. Discussion of the Least Burdensome Regulatory Alternative--The

FAA has identified four alternatives to the proposed rule in addition

to maintaining the status quo: (1) require mandatory EDS (phased in)

without CAPS; (2) require 100% PPBM during phase-in of EDS; (3) require

random bag matching during EDS phase-in; or (4) require bag matching on

only some CAPS selectees. Section V of the full Regulatory Impact

Analysis (RIA) (contained in the docket) describes the four

alternatives to the proposed rule as well as the costs to implement

them. The FAA contends that using CAPS to identify those passengers who

possibly are a threat to the security of a flight and requiring

passenger baggage matching or screening by EDS, where EDS is available,

is the most practical and cost-beneficial alternative currently

available to increase the level of security on domestic flights. A more

detailed discussion of alternatives is shown in the analysis of

alternative section of the RIA.

C. Conclusion

The FAA has determined that the cost of compliance of the proposed

rule would be greater than $100 million in each of the 10 years, but

the economic impact on State, local and tribal governments would not

exceed the $100 million threshold. The proposed rule would impose a

Federal mandate of greater than $100 million per year on the private

sector. Of all of the alternatives examined in this assessment of the

Act and the analysis of alternatives section of the RIA, the proposed

rule provides the largest net benefit.

Federalism Implications

The regulation proposed herein would not have substantial direct

effects on the States, on the relationship between the national

government and the States, or on the distribution of power and

responsibilities among various levels of government. Therefore, in

accordance with Executive Order 12612, it is determined that this

proposal would not have sufficient federalism implications to warrant

the preparation of a Federalism Assessment.

List of Subjects in 14 CFR Part 108

Air carriers, Aircraft, Airmen, Airports, Arms and munitions,

Explosives, Law enforcement officers, Reporting and recordkeeping

requirements, Security measures, X-rays.

The Proposed Amendment

In consideration of the foregoing, the Federal Aviation

Administration proposes to amend part 108 of Title 14, Code of Federal

Regulations (14 CFR part 108) as follows:

PART 108--AIRCRAFT OPERATOR SECURITY

1. The authority citation for part 108 continues to read as

follows:

Authority: 49 U.S.C. 106(g), 5103, 40113, 40119, 44701-44702,

44705, 44901-44905, 44907, 44913-44914, 44932, 44935-44936, 46105.

2. Amend Sec. 108.5 by revising paragraph (a) to read as follows:

Sec. 108.5 Security program: Adoption and implementation.

(a) Each certificate holder shall adopt and carry out a security

program that meets the requirements of Sec. 108.7 of this part for each

of the following scheduled or public charter passenger operations:

(1) Each operation with an airplane having a passenger seating

configuration of more than 60 seats.

(2) Each operation with an airplane having a passenger seating

configuration of 60 or fewer seats that provides deplaned passengers

access, that is not otherwise controlled by a certificate holder using

an approved security program or a foreign air carrier using a security

program required by Sec. 129.25 of this chapter, to a sterile area,

except that where the certificate holder elects to not carry out the

provisions of Sec. 108.12 of this part, that part of the program

effecting compliance with the requirements listed in Sec. 108.7(b)(9)

of this part need only be implemented when the Associate Administrator

for Civil Aviation Security, or a designee, notifies the certificate

holder in writing that a security threat exists with respect to the

operation.

(3) Each operation with an airplane having a passenger seating

configuration of 60 or fewer seats where the certificate holder elects

to carry out the provisions of Sec. 108.12 of this part, except that

where the operation does not provide deplaned passengers access to a

sterile area, the requirements of Sec. 108.7(b) (1) and (4) of this

part need only be implemented when the Associate Administrator for

Civil Aviation Security, or a designee, notifies the certificate holder

in writing that a security threat exists with respect to the operation.

(4) Each operation with an airplane having a passenger seating

configuration of more than 30 but less than 61 seats, that is not

subject to paragraph (a)(2) of this section, except that those parts of

the program effecting compliance with the requirements of Sec. 108.7(b)

(1), (2), (4) and (9) of this part need only be implemented when the

Assistant Administrator for Civil Aviation Security notifies the

certificate holder in writing that a security threat exists with

respect to the operation.

* * * * *

3. Amend Sec. 108.7 by adding paragraph (b)(9) to read as follows:

Sec. 108.7 Security program: Form, content, and availability.

* * * * *

(b) * * *

(9) The procedures used to perform the checked baggage security

functions specified in Sec. 108.12 of this part for scheduled passenger

operations.

* * * * *

4. Add Sec. 108.12 to read as follows:

Sec. 108.12 Security of checked baggage for operations within the

United States.

(a) Each air carrier required to adopt and carry out a security

program in accordance with Sec. 108.5 of this part shall apply the

checked baggage security requirements of this section in accordance

with its security program for scheduled passenger operations within the

United States. For each operation the air carrier shall--

(1) For each originating passenger checking baggage, use a

computer-assisted passenger screening (CAPS) system, approved by the

Administrator, capable of selecting passengers based on specific

criteria and at random; or

(2) Determine that the passenger associated with each originating

checked bag is aboard the flight or that each originating bag not

matched to a passenger aboard the flight has been screened by an

explosives detection system (EDS).

[[Page 19240]]

(b) For each operation subject to paragraph (a) of this section,

the air carrier may not transport the baggage of a non-originating

passenger unless--

(1) The passenger is aboard the flight;

(2) The passenger associated with the baggage was screened by a

CAPS system approved by the Administrator prior to an earlier flight

leg and information is available to the air carrier that the passenger

was not selected;

(3) Information is available to the air carrier that the baggage

was screened by an EDS prior to an earlier flight leg;

(4) The baggage is screened by an EDS prior to the current flight;

or

(5) The passenger is screened for the current flight as an

originating passenger in accordance with paragraph (a) (1) of this

section.

(c) The checked baggage of a passenger selected by the CAPS system

shall not be transported aboard the flight unless--

(1) The baggage is screened by an EDS where an EDS is available; or

(2) Where an EDS is not available, the passenger associated with

the baggage is aboard the flight.

(d) An EDS is considered to be available to an air carrier for

screening a checked bag when it is--

(1) Under the operational control of the air carrier;

(2) Functioning properly;

(3) Located proximate to where the baggage is tendered by the

passenger or along the route the baggage normally travels during the

process of being loaded onto the aircraft;

(4) Staffed by appropriately trained personnel; and

(5) Not in use to screen other identified baggage such that a

significant delay in a flight might result from having to wait to use

the EDS to screen the bag.

(e) Each air carrier shall establish procedures for implementing

security measures for checked baggage under this section that--

(1) Ensures nondiscriminatory application; and

(2) Minimizes the overt identification of passengers selected for

additional security procedures.

(f) Each person used by an air carrier to implement its CAPS system

whose job function will be likely to involve interactions with

passengers shall be trained on the CAPS system. The training shall

include--

(1) An overview of the purpose of screening, including an

explanation that selection does not imply that a passenger is suspected

of any illegal activity;

(2) A general description of the CAPS system and how it is designed

to select passengers on a nondiscriminatory basis;

(3) An advisory that the CAPS system selects some passengers at

random;

(4) An advisory that the CAPS system is not connected to any law

enforcement or intelligence data base; and

(5) Instruction on treating passengers selected by the CAPS system

in a respectful and non-stigmatizing manner.

(g) An air carrier may not modify the selection criteria of the

CAPS system without the written approval of the Administrator. Nor may

an air carrier apply any supplemental system of passenger screening to

select passengers for additional security measures without the approval

of the Administrator.

(h) (1) Each air carrier shall make available to the Administrator

the information specified in its security program on the general

operation of its CAPS system.

(2) Each air carrier shall maintain, for at least 24 hours, but not

longer than 72 hours, after flight departure, information linking a

passenger's name or other identifying data to whether the passenger was

selected by the CAPS system.

(3) Each air carrier shall provide the Administrator with CAPS

system data for any specific flight, including selectee status of

individuals on the flight, when requested as part of--

(i) An evaluation of the CAPS system to determine possible

discriminatory impacts;

(ii) An accident investigation;

(iii) A security incident investigation; or

(iv) Security compliance oversight.

(i) An air carrier may apply alternate procedures that are

established in its security program for screening checked bags to

address special situations. These situations could include--

(1) Baggage acceptance at off-airport locations;

(2) The transportation of bags separated from a passenger for

reasons outside the control of the passenger, e.g., lost bags;

(3) CAPS system failure;

(4) Extraordinary operational circumstances;

(5) The use of technologies or equipment other than an EDS to

screen checked baggage; and

(6) Any other situation specified by the Associate Administrator

for Civil Aviation Security in the air carrier's security program.

Issued in Washington, DC, on April 13, 1999.

Anthony Fainberg,

Director, Office of Civil Aviation Security Policy and Planning.

[FR Doc. 99-9635 Filed 4-14-99; 10:07 am]

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