# Congestion Management Rule for John F. Kennedy International Airport and Newark Liberty International Airport

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3AE8-24046

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** October 10, 2008
- **Citation:** 73 FR 60544

## Text

DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 93
[Docket No. FAA-2008-0517; Amdt. No. 93-88]
RIN 2120-AJ28
Congestion Management Rule for John F. Kennedy International Airport and Newark Liberty International Airport

AGENCY:

Federal Aviation Administration (FAA).

ACTION:

Final rule.

SUMMARY:

This rule establishes procedures to address congestion in the New York City area by assigning slots at John F. Kennedy (JFK) and Newark Liberty (Newark) International Airports in a way that allows carriers to respond to market forces to drive efficient airline behavior. The rule also extends the caps on the operations at the two airports, assigns to existing operators the majority of slots at the airports, and develops a robust secondary market by annually auctioning off a limited number of slots in each of the first five years of this rule. Auction proceeds will be used to mitigate congestion and delay in the New York City area. The rule also contains provisions for minimum usage, capping unscheduled operations, and withdrawal for operational need. The rule will sunset in ten years.

DATES:

This rule becomes effective December 9, 2008.

FOR FURTHER INFORMATION CONTACT:

For technical questions regarding this rulemaking,
contact:
Nan Shellabarger, Office of Aviation Policy and Plans, APO-1, Federal Aviation Administration, 800 Independence Avenue, SW., Washington, DC 20591; telephone (202) 267-7294; e-mail
nan.shellabarger@faa.gov
. For legal questions concerning this rulemaking, contact: Rebecca MacPherson, FAA Office of the Chief Counsel, 800 Independence Ave., SW., Washington, DC 20591; telephone (202) 267-3073; e-mail
rebecca.macpherson@faa.gov
.

SUPPLEMENTARY INFORMATION:

Authority for This Rulemaking

The FAA has broad authority under 49 U.S.C. 40103 to regulate the use of the navigable airspace of the United States. This section authorizes the FAA to develop plans and policy for the use of navigable airspace and to assign the use that the FAA deems necessary for its safe and efficient utilization. It further directs the FAA to prescribe air traffic rules and regulations governing the efficient utilization of the navigable airspace.

Table of Contents

I. Background

II Summary of the Final Rule

III. Authority To Reallocate Capacity

A. The FAA Is Legally Authorized To Allocate Slots Through an Auction Mechanism

1. Slots Are a Form of Property That May Be Leased by the FAA to Others

2. FAA Leases Are Not Covered by IOAA and This Rule Is Not in Violation of Any Current Appropriations Restrictions

3. Leases Are Not Taxes

4. The FAA's Authority To Give Slots to Carriers Through Cooperative Agreements

5. Leases That Terminate by Their Own Terms Are Not a “Taking” of Property

6. The Draft Lease Terms Included in the NPRM Were For Illustrative Rather Than Probative Purposes

7. International Obligations

B. The FAA Has Authority To Retain the Amounts Received From the Lease and Disposal of Property and To Use Those Proceeds for Congressionally Authorized Purposes

C. The Auction of Slots Does Not Affect the Proprietary Rights of the Port Authority

D. The FAA Has Complied With the Administrative Procedure Act

1. The Docket Contained Adequate Information for Meaningful Comment on the Rulemaking Proposal

2. The Discussion of the Auction Process Provided Sufficient Detail for Meaningful Comment on the Rulemaking Proposal

3. The FAA Adequately Considered Alternatives

IV. Discussion of the Rule

A. Allocation of Slots at JFK and Newark

1. Proposed Alternatives

2. Categories of Slots

3. Initial Allocation of Slots

4. Market-Based Reallocation of Slots

a. Impact of Auctions on Competition

b. Impact of Auctions on Carrier Investment

c. Alternatives to Reallocation

B. Secondary Trading

C. Usage Requirements

D. Unscheduled Operations

E. Sunset Provision

F. Other Issues

1. Withdrawal for Operational Need and Future Reductions in the Cap

2. Impact of the Final Rule on the Port Authority's Ability To Run Its Airport

3. Minimum Usage Requirements for Slots Acquired Through Sublease

I. Background

This final rule is the latest action in a history of congestion management at New York airports. Access to both John F. Kennedy (JFK) and Newark Liberty International (Newark) airports is highly sought after. These two factors have forced the FAA to address a dilemma: how can the agency reduce delays while providing some measure of access to carriers wishing to operate at the airport, thus ensuring competition? While there are many factors contributing to the delays and congestion at JFK and Newark, demand for the associated airspace has out-stripped capacity.

History of Congestion Management at JFK and Newark

The FAA managed congestion during the five hours of peak transatlantic demand (3 p.m. through 7:59 p.m. Eastern Time) at JFK under the High Density Rule (HDR) from 1969 through 2006. 14 CFR part 93 subparts K and S. However, not until deregulation of the airline industry did the FAA need to step in and provide for carrier access to the airspace immediately surrounding the airport. Prior to 1985, the carriers at JFK, operating under antitrust immunity, determined who would be allowed to operate and when. The FAA's role was limited to determining how many operations air traffic control could reasonably handle during congested periods and enforcing operator compliance with the rules. The HDR divided the allowable operations (slots) by categories of users (i.e., carriers other than air taxis, scheduled air taxis, and others). 33 FR 17896 December 3, 1968). In 1982, the FAA imposed a minimum usage requirement for the first time. 47 FR 7816 February 22, 1982). Also in 1982, the FAA implemented an experimental buy-sell rule, under which approximately 190 slots were transferred among carriers over six weeks of the program. 47 FR 29814, July 8, 1982).
1

1
This slot program was not implemented under the HDR, but rather under SFAR 44 and was related to the limitations on air traffic control services resulting from the controller's strike.

The FAA established more permanent allocation procedures for slots under the HDR in 1985 when it adopted the Buy/Sell Rule. 50 FR 52195, December 20, 1985. In a companion rulemaking to the Buy/Sell Rule (SFAR 48), the FAA provided for the withdrawal of up to five percent of the slots at the slot-constrained airports through a reverse lottery so as to provide a pool of slots for new entrants and limited incumbents. SFAR 48, 51 FR 8630, March 12, 1986).
2

The Buy/Sell Rule included use-or-lose provisions and, while explicitly stating that the slots were not the carriers' property and did not constitute a proprietary right, the FAA allowed carriers to buy, sell or lease the slots on the secondary market.

For the next 15 years the agency relied primarily on the secondary market authorized by the Buy/Sell Rule to address access issues at the airport. However, the Buy/Sell Rule created market distortions by creating categories of carriers entitled to preferential treatment under an administrative reallocation mechanism which severely limited access to these carriers other than on the open market. Affected carriers complained to the FAA that by grandfathering 95 percent of the slots at the slot-controlled airports to incumbent carriers, there was insufficient capacity available for reallocation. The Buy/Sell Rule also failed to foster a robust secondary market because it did not require any transparency. Accordingly, carriers were able to keep out competitors by arranging private transactions. This resulted in carriers interested in initiating or expanding service at the airports often being unaware that slots were potentially available for sale or lease. Some carriers also complained that they were effectively being denied access to the airport because their competitors refused to sell slots or provide meaningful lease terms.

2
Commenters appear to have forgotten this rulemaking action when arguing that the withdrawal of slots for reallocation is unprecedented.

On April 5, 2000, Congress enacted the Wendell H. Ford Aviation and Investment Reform Act of the 21st Century (AIR-21 or the Act). The Act phased out the HDR at JFK effective January 1, 2007. The Act also preserved the FAA's authority to impose flight restrictions by stating that “[n]othing in this section * * * shall be construed * * * as affecting the Federal Aviation Administration's authority for safety and the movement of air traffic.” 49 U.S.C. 41715(b).

Since the spring of 2006, U.S. air carriers serving JFK have significantly increased their domestic scheduled operations throughout the day. This change in use affected the manner in which the airport's runways could be used. Historically, the air traffic controllers achieved maximum efficiency at JFK by using either two arrival runways and one departure runway, or two departure runways and one arrival runway, to facilitate the transatlantic traffic flows. The increase in domestic traffic—from the two largest operators at the airport, Delta Air Lines (Delta) and JetBlue—affected the efficient use of JFK's four runways.

As a result of the increase in scheduled operations at JFK, the summer 2007 demand exceeded the airport's capacity during many periods of the day. In 2007 flight delays in the New York City metropolitan area soared. Delays impacted all three major commercial airports and cascaded throughout the NAS. The summer of 2007 became the second worst on record nationally for flight delays. On September 27, 2007, the Secretary of Transportation announced the formation of the New York Aviation Rulemaking Committee (NYARC) to help the Department of Transportation (Department) and the FAA explore available options for congestion management and how changes to current policy at all three major commercial New York City airports would affect the airlines and the airports.

By design, the NYARC provided ample opportunity for extensive input by aviation stakeholders, having members from every major air carrier in the United States as well as foreign carriers, passenger groups, and the Port Authority of New York and New Jersey (Port Authority). Through the ARC process, these stakeholders played a key role in exploring ideas to address congestion and ensuring that any actions contemplated by the Department and the FAA would be fully informed. In addition to holding weekly meetings of the full NYARC, five working groups regularly met to explore ways to address both congestion and allocation of the available airspace. The NYARC worked throughout the fall and submitted a report to the Secretary, dated December 13, 2007, discussing its findings. A copy of the NYARC Report may be found at
http://www.dot.gov/affairs/FinalARCReport.pdf
.

While the NYARC process was underway, in September 2007, the FAA designated both JFK and Newark airports IATA Level 2, Schedules Facilitated Airports for the 2008 summer season. 72 FR 57317 (Sept. 24, 2007). The FAA thereby received summer scheduling information from the carriers for those airports. Based in part on this information, in September-October 2007, the FAA and the Secretary of Transportation decided that it was necessary to invoke the Department's authority to convene a meeting of air carriers to discuss flight reductions at JFK, which was determined to have severe congestion during peak hours of operation. 49 U.S.C. 41722. On October 25, 2007, the FAA designated JFK as an IATA Level 3, Coordinated Airport for summer 2008 in order to address any growth in operations at the airport by foreign-flag carriers.
3

72 FR 60710.

3
Under both level 2 and level 3, carriers notify the governmental entity designating the airport of their intended schedules for the affected season and, where possible, the two parties will attempt to resolve each others concerns. However, under a carrier is not obliged to accept the governing authority's position at a level 2 airport.

During the individual air carrier sessions, American Airlines (American), Delta, and JetBlue Airways, which account for over 75% of the total operations at JFK, withdrew their proposed peak-hour schedule increases, and retimed some operations, for the summer of 2008 during the afternoon and early evening peak hours at the airport. The FAA also received comments on the schedule reduction process through the public docket. Docket FAA-2007-29320. On January 18, 2008, the FAA issued an Order temporarily capping scheduled operations at an average of 81 flight operations per hour at JFK and allocating those operations pursuant to the agreements reached at the schedule reduction meeting and after consideration of the comments in the public docket. 73 FR 3510. By its terms, the Order took effect March 30, 2008 and was set to expire at 11 p.m. on October 24, 2009. The Order indicated that the FAA plans to lease any new capacity that becomes available and any allocated Operating Authorizations that are returned to the FAA, for a five year term. The leases would be pursuant to an auction and would be awarded to the highest responsive bidder. The FAA said it would provide additional information about leasing procedures and the relevant statutory authorities before conducting any auction. 73 FR 3510, 3514. On February 14, 2008, the FAA amended the Order to modify the use-or-lose provisions so that they would correspond to those adopted by the International Air Transport Association (IATA) Worldwide Scheduling Guidelines (WSG). 73 FR 8737.

In the autumn of 2007, the FAA also found it necessary to informally discuss summer 2008 schedules with carriers operating at Newark, because it was concerned that the proposed operations would overtax the capacity of the airport system and that limiting operations at JFK would create a spillover effect at Newark. Although some carriers made modest revisions to their proposed schedules, it was clear to the FAA that demand would continue to exceed capacity unless the FAA took further actions. In order to be assured that carriers would not add flights to already oversubscribed hours at Newark, and would refrain from shifting flights from JFK to Newark, the FAA designated Newark as an IATA Level 3, Coordinated Airport effective the summer of 2008. 72 FR 73,418 (Dec. 27, 2007). Some carriers, such as

Continental Airlines (Continental), Newark's primary hub carrier, shifted flights from peak hours to off-peak hours. On March 18, 2008, the FAA proposed to issue an Order to limit hourly scheduled flight operations at Newark and to allocate them pursuant to its informal carrier discussions. 73 FR 14552. The proposal's preamble indicated the FAA's plans to lease new capacity, allocated Operating Authorizations that are returned, and currently unallocated Operating Authorizations, by means of an auction. On May 21, 2008, the FAA adopted the general terms of the proposed Order, effective June 20, 2008, through October 24, 2009. 73 FR 29550. The provisions regarding the use of the IATA WSG for use-or-lose, and the preamble information on the auctions of new and returned capacity, mirrored those in place for JFK.

As indicated in the companion rule addressing congestion and delays at LaGuardia, the FAA determined that it was necessary to cap and allocate flight operations at the three major New York airports operated by the Port Authority. Recognizing the short-term nature of the caps imposed by the Orders for JFK and Newark, on May 21, 2008, the FAA published a notice of proposed rulemaking that sought to provide a longer-term solution and address a number of congestion-related issues. 73 FR 29626. At both JFK and Newark, the FAA proposed to continue the hourly caps on flight operations, and to lease the majority of slots at each airport to the historic operators for non-monetary consideration under its cooperative agreement authority. The agency also proposed to develop a robust market and induce competition by annually auctioning off leases for a limited number of slots during the first five years of the rule.

The FAA proposed two alternatives in the NPRM. Under the first alternative, each carrier operating, respectively, at JFK and Newark would receive a “baseline” of up to 20 slots. At each airport, the FAA would auction off ten percent of the total number of slots (above the baseline) to any carrier serving or wishing to serve the airport and would use the proceeds to mitigate congestion and delay in the New York City area (after the FAA recouped the cost of the auction). Under the second alternative, the same auction procedure would apply to Newark as under the first alternative; at JFK, the FAA would conduct an auction of twenty percent of the slots (above the baseline) and the auction proceeds would go to the carrier holding the slot after the FAA recouped the cost of the auction. Given the significant international presence at both airports, the NPRM proposed to substitute IATA WSG procedures for auctions, in the event of new or returned capacity. Additionally, for both alternatives, the NPRM contained provisions for adoption of IATA WSG for use-or-lose, for historic rights, for unscheduled operations, and for withdrawal for operational need. The FAA proposed to sunset the rule in ten years.

On July 17, 2008, the FAA proposed to limit unscheduled operations at JFK and Newark, to two hourly reservations from 6 a.m. through 1:59 p.m., from 10 p.m. through 10:59 p.m., and to one hourly reservation from 2 p.m. through 9:59 p.m. at JFK. At Newark, the limits would be two hourly reservations from 6 a.m. through 11:59 a.m. and from 10 p.m. through 10:59 p.m., and one hourly reservation from 12 p.m. through 9:59 p.m. 73 FR 41156.

The comment period for the NPRM closed July 21, 2008. Despite numerous requests, the FAA decided against extending the comment period, although it noted that it historically has considered comments filed after the end of a comment period as long as such consideration did not lead to delay. In denying these requests, the FAA provided draft copies of the lease agreements that would result from the initial allocation and reallocation of slots in the final rule. The FAA reiterated that any auction would be conducted under the agency's acquisition authority. The agency also reiterated that interested parties to the auction would be afforded the opportunity to comment on any proposed auction procedures within the context of the agency's Acquisition Management System.

Thirty-eight interested parties filed comments to the docket addressing the NPRM. The majority of comments were consistent in rejecting the proposal. Many commenters said that the FAA had failed to demonstrate how the proposal would achieve any significant relief from congestion. Rather, according to the commenters, the NPRM would impose an untested and unproven auction process on airlines that would not address the fundamental airspace congestion issues in the New York metro area.

On September 30, 2008 the FAA's Office of Dispute Resolution for Acquisition (ODRA) issued a decision responding to protests that had been filed by air carriers, the ATA, the Port Authority, and the New York Aviation Management Association challenging the FAA's legal authority to conduct a proposed auction of two slots at Newark. ODRA concluded that the FAA's statutory authority and its Acquisition Management System authorized agency disposal of property rights by way of a lease as well as the use of a competitive auction process to determine who the lessee should be.

On the same day the Government Accountability Office (GAO) released an opinion letter in response to a congressional request that concluded that the FAA currently lacks authority to auction slots under either its property disposition authority or its user fee authority. The issues involved represent novel legal issues upon which reasonable people, and agencies, acting in good faith, have disagreed. The FAA disagrees with the GAO conclusions and has decided to proceed with the adoption of this final rule.

II. Summary of the Final Rule

In the NPRM, we proposed two alternatives for withdrawal and reallocation by auction of slots at JFK and Newark. The rule we are adopting follows the proposal for alternative 1. It will replace the Orders imposing operating limitations at JFK and Newark and establish a rule limiting unscheduled operations at those airports. As proposed, the starting date of leases under the Final Rule will be based on industry scheduling seasons. Leases obtained in the first auction will start on October 25, 2009 (the first day of the winter scheduling season), and will terminate on March 30, 2019. Leases obtained in subsequent auctions will begin on the first day of the relevant summer scheduling season and terminate on March 30, 2019. Although the preamble to the NPRM discussed the possibility of operations for the summer 2009 season, slots awarded through the first auction may be operated by the acquiring carrier as of October 25, 2009, i.e., for the winter scheduling season of 2009/2010.

The other basic outlines of the rule are unchanged from our alternative 1 proposal. A slot is defined as the right to land or depart during a 30-minute window. Limited and Unrestricted slots that are assigned or awarded under this rule will be for every-day operation.
4

Although the FAA retains the right to change the cap, the rule provides for 81 slots per hour for scheduled operations at both JFK and Newark.

4
Note that some slots are not currently operated on a daily basis. In those situations carriers would be assigned common slots for only the days they are currently operated.

Carriers at JFK and Newark will initially be assigned their baseline operations, which is up to 20 slots per

carrier. Ninety percent of each carrier's slots above its baseline operations will be assigned to the carrier in a lease terminating March 30, 2019. The remaining 10 percent will be designated as limited slots and have shorter leases. Each carrier will identify half of the specific slots that will become its limited slots, and the FAA will select the remaining half. For the first five years of the rule, the FAA will auction one-fifth of the limited slots (approximately two percent of the total number of slots at each airport). Slots awarded through an auction will be designated unrestricted slots after reallocation. Unlike common and limited slots, unrestricted slots will not be subject to withdrawal by the FAA for operational purposes. Unrestricted slots will also not be subject to use-or-lose requirements, although the Office of Aviation Enforcement, within the Office of the Secretary of Transportation, will monitor any anti-competitive activity with respect to the acquisition and use of unrestricted slots.

Carriers will be permitted to buy or sell their lease rights to all types of slots at JFK and Newark, and, as proposed, the final sales terms will be transparent, although actual negotiations will not be disclosed. The FAA intends this rule to provide a means by which the market value of slots can be made clear to all parties. That goal necessitates the disclosure of actual sale prices. The rule also permits the use of the FAA's auction proceedings by any carrier wishing to sell a slot in that fashion. A carrier's decision to use an FAA-operated auction to buy or sell a slot does not change the character of the slot itself. If, for example, a carrier chooses to sell a common slot through an FAA auction, the slot remains a common slot following the purchase. Only limited slots selected for auction by the FAA become unrestricted slots.

We have decided to make final our proposal with respect to the allocation of any new or returned capacity. Any slots that become available in this fashion will be assigned under the procedures of the WSG.

III. Authority To Reallocate Capacity

The Air Transport Association of America (ATA), the International Air Transport Association (IATA), the Port Authority, American, Delta and United Airlines (United) asserted that the FAA's proposed methods of allocating slots are not lawful for several reasons including: prior statements by Government officials indicating that the FAA would need additional legislation to be able to auction slots; the FAA cannot create property by exercising its regulatory power to regulate the use of navigable airspace; slots are not property when created and held by the Government but only become property when transferred to a carrier; the proposed lease of slots for fair market value would be a new user fee in violation of an appropriations restriction on using a particular appropriation to finalize or implement a regulation to establish a new user fee and in violation of the Independent Offices Appropriations Act (IOAA) (the latter of which it is asserted is the FAA's only authority to charge for the lease of slots); the leases would be an unconstitutional usurpation of Congress's authority to levy taxes; the return of slots to the Government at the end of the term of their leases would constitute an unconstitutional taking of property; the Federal Grants and Cooperative Agreements Act does not provide authority for the FAA to give slots to carriers through cooperative agreements; and the FAA lacks authority to retain the proceeds from the lease of slots and use those proceeds to improve capacity in the New York airspace area.

In contrast to the criticisms to the proposed auctions, Virgin America, Inc. agreed with the FAA that it possesses legal authority to conduct auctions and to lease the slots to carriers. Virgin America asserted that the FAA may rely on its exclusive sovereignty over the airspace of the United States, under 49 U.S.C. 40103, to withdraw and reallocate slots. The carriers have no current vested property interest in the slots. Virgin America further maintained that the FAA's exclusive sovereignty over navigable airspace, coupled with its authority to lease property or dispose of an interest in property for adequate compensation, under 49 U.S.C. 40110(a)(2), enables it to lease the slots and maintain the proceeds.

The FAA has the authority to dispose of property interests under 49 U.S.C. 40110(a)(2). The FAA also has the authority to “enter into and perform such contracts, leases, cooperative agreements, or other transactions as may be necessary to carry out the functions of the Administrator and the Administration.” 49 U.S.C. 106(l)(6).
5

The FAA has determined that the allocation of a relatively small number of slots via the auction of a leasehold best effectuates the efficient allocation of slots, both through the initial allocation and through the development of a robust secondary market.

5
A federal agency's power to dispose of property includes the power to lease that property, even without express Congressional authority.
Ashwander
v.
Tennessee Valley Authority,
297 U.S. 288, 331 (1936).

An auction is intended simply to distribute slots to the air carriers who value them the most, thus encouraging their most efficient use. An auction also satisfies the direction of Congress to “place maximum reliance on competitive market forces and on actual and potential competition * * * to provide the needed air transportation system. * * *” 49 U.S.C. 40101(a)(6)(A).
6

This section of law describes the policies that the Department must take into consideration when issuing economic regulations. This rule is not an economic regulation. However, the statutory provision is a clear statement by Congress of a valid public policy aim that the FAA is permitted to take into consideration when issuing regulations under section 40103. The FAA does not intend to set a reserve price on slots so as to assure itself that it recovers its costs associated with either the auction or with providing air traffic services. The FAA instead aims to allocate all of the slots put up for auction, thus allowing for possible new entrants to compete with the incumbent air carriers at JFK and Newark and to accommodate changes in the business strategies of air carriers using the airports.

6
This section of law describes the policies that the Department of Transportation must take into consideration when carrying out its economic regulatory authority over the aviation industry. This section also is a clear statement by Congress of a valid public policy aim that the FAA is permitted to take into consideration.

A. The FAA Is Legally Authorized To Allocate Slots Through an Auction Mechanism

Several commenters quote a statement made in 1985 that the FAA did not propose an auction mechanism because legislation would be required for the collection and disposition of the proceeds (50 FR 52183 (December 20, 1985)), and a more recent statement in the NPRM for the LaGuardia congestion management rulemaking that the FAA “currently does not have the statutory authority to assess market-clearing charges for a landing or departure authorization”. 71 FR 51360, 51362, 51363 (August 29, 2006).

In 1985, the FAA lacked clear authority to collect and dispose of the proceeds from an auction. Rather, any amounts collected by the agency would need to be deposited into the General Receipts account in accordance with 31 U.S.C. 3302. Additionally, while the FAA had authority to dispose of an interest in property, it was not clear that such interests included leaseholds.

In the Air Traffic Management System Performance Improvement Act of 1996, Public Law 104-264, the FAA gained express authority to lease property to others. 49 U.S.C. 106(l)(6), 106(n). The same law also gave the FAA an exemption from 31 U.S.C. 3302, and an account was established specifically for all amounts the FAA collects other than the insurance premiums and fees that it is required to deposit into the Aviation Insurance Revolving Fund. 49 U.S.C. 45303(c). This account is available not just for fees assessed under chapter 453, but for “all amounts” other than insurance premiums and fees.
7

Thus, the statement made in 1985 is no longer correct.

7
The fact that Congress excluded insurance premiums and fees, which are not amounts assessed under chapter 453 of title 49, expresses Congress' plain and unambiguous intent for the FAA to deposit all amounts it collects into this account, not just the amounts assessed under the user fee provisions of chapter 453.

The commenters also refer to the fact that the FAA sought additional legislative authority to conduct auctions, as part of a comprehensive change to how the FAA would be financed and how market-based mechanisms would be used by both the FAA and congested airports. The FAA recognized that it did not have clear statutory authority to implement a wide array of market-based mechanisms and that absent authority beyond that contained in 49 U.S.C. 40103, any reallocation via a market-based mechanism could lead to a challenge that the FAA had violated the “user fee prohibition” attached to the agency's annual appropriations legislation since 1998. The FAA did not address the agency's authority to dispose of property, as provided in the Air Traffic Management System Performance Improvement Act of 1996. Public Law No. 104-264, codified at 49 U.S.C. 106(l)(n). The FAA's proposed reauthorization package, the Next Generation Air Transportation System Financing Reform Act of 2007, would have substituted new user fees for passenger ticket taxes, permitted the airport operators Port Authority at constrained and delayed airports to assess market-based fees and would have also allowed the FAA, under certain circumstances, to impose market-based mechanisms. This legislative proposal, in giving authority directly to airport proprietors to assess and use market-based fees, was profoundly different from the terms of this final rule. This rule, by contrast, relies on the FAA's Acquisition Management System authorities and does not require the FAA to use any of the proposed legislative provisions it sought. The FAA has authority to lease property to others, and to receive adequate compensation for this temporary disposal of property, including the authority to lease the slots at JFK and Newark.

When it published the NPRM for LaGuardia the FAA initially believed that imposing a market-based reallocation mechanism as part of the regulation could be problematic. However, as delays soared in the region in 2007 and Congress failed to pass long-term reauthorization legislation, the FAA reevaluated its options. One option was to impose or continue orders at all three New York metropolitan airports that would last indefinitely. The agency rejected this option because the orders were never intended to be a long-term solution and they perpetuate the inefficiencies contained within the HDR. Likewise, the FAA could have initiated rulemaking that would establish an administrative reallocation mechanism, but the agency concluded that approach also failed to resolve the inefficiencies contained within the HDR. Finally, the FAA could revisit all of its statutory authorities and determine whether it had the ability to allocate slots under its existing legal authorities.

This final approach was the one the agency pursued because the FAA believes it is both legal and best represents the interests of passengers flying in and out of the airport. The FAA also believes this approach best effectuates the FAA's mandate to provide for the efficient use of the NAS, coupled with the Department's mandate to consider competitive effects. The agency can either foster a market-based allocation mechanism and develop a robust secondary market, or it can walk away from the airport after imposing a cap and providing for a very limited administrative reallocation mechanism. It has decided to follow the more free market approach.

The commenters also refer to the fact that the FAA sought additional legislative authority to conduct auctions which it has not yet received. The authority sought by the FAA was part of a comprehensive change to how the FAA would be financed and how market-based mechanisms would be used by both the FAA and congested airports. This rule, however, relies on the FAA's Acquisition Management System authorities and does not require the FAA to use any of the proposed legislative provisions it sought.

1. Slots Are a Form of Property That May Be Leased by the FAA to Others

The Port Authority, the ATA and IATA submit that the FAA has no property rights in the slots the FAA proposes to auction.
8

While the ATA and IATA do not question that the slots are property (they dispute ownership), the Port Authority states that the slots are “neither physical property, real property, intellectual property, nor an intangible property recognized in common law.”
9

8
The Regional Airline Association (RAA) makes a similar argument. In addition, RAA states that the FAA lacks the authority to regulate the types of aircraft and routes to be served in air transportation. The FAA disagrees with the premise of RAA's position, since the FAA may rely on a rational basis to allocate the use of navigable airspace under 49 U.S.C. 40103. Nevertheless, this rule does not attempt to regulate the type of aircraft or the routes served in any manner.

9
The Port Authority also uses the language in the preamble to the SNPRM as evidence that the slots are not property because the FAA stated that there was no Fifth Amendment Takings issue with the proposed slot auction. The FAA's statement, in context, went to the fact that the air carriers have no property interests in the slots after expiration of the current Order until FAA provides them with new slots. It did not imply that the slots were not property; just that the air carriers possess no property interests beyond those accorded them under the Order.

The Port Authority is incorrect; slots are an intangible form of property that may be leased. On January 18, and May 21, 2008, respectively, the FAA issued Orders limiting operations at JFK, and at Newark, pursuant to its broad authority to regulate the use of navigable airspace under 49 U.S.C. 40103(b). 73 FR 3510; 73 FR 29550. Those Orders define an Operating Authorization
10

as “the operation authority assigned by the FAA to a carrier to conduct a scheduled arrival or a departure * * *”
Id.
at 3516; 29554. The Orders expressly allow the trading and leasing of Operating Authorizations.
Id.
at 3516; 29554. Although the Orders do not permit the permanent sale or purchase of Operating Authorizations, they permit any form of consideration to be used in the lease or trade of these Operating Authorizations.
Id.
at 3516; 29554.

10
Both OAs and slots represent property interests, but the FAA has deferred to common usage by reverting to the term “slots.”

These Orders reflect the FAA Administrator's determination that Operating Authorizations are a form of property that may be leased or traded for consideration, and used as collateral. Those determinations have not been legally challenged, and the time period for filing such a challenge has expired. 49 U.S.C. 46110. Indeed, the ATA's and IATA's own members have treated Operating Authorizations, and the HDR

slots that predated them, as a form of at least intangible property: Leasing and trading them for consideration; using them as a form of collateral; and disclosing them as assets on their balance sheets. Bankruptcy courts have held that slots are property.

The Port Authority cites Executive Order 13132 for the proposition that the FAA is ignoring the traditional role of States as sovereigns that can create property and has not closely examined the effect the rulemaking would have on the State instrumentality. The creation of property rights, however, is not the sole responsibility of the states. Federal law determines what constitutes property for the purpose of applying federal statutes.
Ross L. Blair
,
et al.
v.
United States
, Docket 2007-5049 (Fed. Cir. 2008), citing
United States
v.
Kimbell Foods, Inc.
, 440 U.S. 715, 726 (1979) and
United States
v.
Craft
, 535 U.S. 274, 278-79 (2002). The United States Government, pursuant to 49 U.S.C. 40103, has exclusive sovereignty over the navigable airspace, and the FAA exercises plenary powers over that airspace.

Unlike the Port Authority, the ATA and IATA do not dispute that the slots constitute a property interest; rather they argue that the property interest is not the FAA's, because it is created at or after the transfer to an air carrier.
11

Section 40110(a)(2) does not speak to whether the FAA actually owns property that is being disposed of. It only speaks to the disposal of a property interest. Only the FAA has authority to assign the use of navigable airspace under section 40103. Even assuming that the property interest is created at the time of transference, it is still a property interest that falls within the FAA's authority to dispose of under section 40110(a)(2).

11
The airline commenters agree with ATA's assessment that the slots are property of the airlines not of the FAA.
See
, Comments of US Airways Group, Inc. at 24.
But see
, Comments of American Airlines at 7 stating that the Port Authority holds the property interest.

As with certain other valuable public property not expressly owned in fee by the U.S. Government, the Government may allow the use of public property and frequently does so using leases. In fact, the Government routinely “licenses” and “permits” the use of property over which it exercises exclusive sovereignty. In doing so, unless otherwise specified by law, the Government charges market rates in accordance with OMB Circular A-25. For example, under 36 CFR 251.53—Authorities, the Chief of the Forest Service (USDA) issues special use authorizations (e.g., permits, term permits, leases) for National Forest System land. The USDA also issues grazing permits under the Taylor Grazing Act (TGA) of 1934 to allow the permit/lease holder to use publicly owned forage. The Federal Communications Commission licenses portions of the broadcast spectrum, and since 1993 (four years before Congress mandated the use of auctions) has frequently done so using auctions.
12

The General Services Administration issues licenses and permits for the use of its buildings and property,
see, e.g.
, 41 CFR 101-47.901, 101-47.309;
see also
, GSA form 1582, “Revocable License for Non-federal Use of Real Property.” The FAA similarly uses “licenses” to, in effect, lease its real property to non-federal users.
See
, 1.3.7 of the FAA's Real Estate Guidance,
http://fast.faa.gov/realestate/index.htm.

12
The FCC, like the FAA, had a statutory preference for competition prior to the requirement that it conduct auctions.

In short, licenses frequently are used to provide non-federal parties access to public property regardless of whether that property be real or personal (including intangible)
13

and whether the Government owns the property in the traditional sense or is simply its guardian. The FAA selected the word “lease” rather than “license” to describe the documents that will transfer slots to air carriers because the FAA is conveying a longer term interest, with fewer rights by the Government to terminate that interest, than is usually done when the Government licenses a non-federal entity to use public property (licenses of property are usually terminable at will).

13
Such as authorized access to particular radio frequencies and authorized use of intellectual property.

2. FAA Leases Are Not Covered by IOAA and This Rule Is Not in Violation of Any Current Appropriations Restriction

The ATA argues that the only authority by which the FAA may charge for the lease of slots is as a user fee under the Independent Offices Appropriations Act (IOAA) and that the only amount that could be charged is the cost of administering the lease. The ATA is incorrect on both points, but the issue is not relevant because the FAA does not rely on IOAA authority to conduct auctions but on its other authorities.

The ATA similarly argues that this regulation falls within the parameters of an appropriation provision that prohibits the FAA from using funds from its operations appropriation to finalize or implement a regulation that establishes a new user fee not specifically authorized by law.
14

Consolidated Appropriations Act, 2008, Public Law 110-161. The ATA and IATA also suggest that the wording of 49 U.S.C. 106(l)(6)
15

means this authority may not be used because the FAA may only enter into leases using this authority if the leases “may be necessary to carry out the functions of the Administrator and the Administration.” 49 U.S.C. 106(l)(6). The ATA and IATA argue that the only necessary function is a regulatory function to assign airspace under 49 U.S.C. 40103. However, there are several other statutory functions, such as using procedures that provide for an efficient air traffic system, 49 U.S.C. 44505, and the desirability of placing maximum reliance on competitive market forces and on actual and potential competition to provide the needed air transportation system, 49 U.S.C. 40101(a)(6), that make the use of the FAA's commercial authority to lease property to others appropriate.
See also,
the legislative history and findings of Congress when

it granted the FAA the authority to lease property to others in Public Law 104-264. Having created slots, and determined the number of available slots should be limited because of the resulting strain on the NAS from the scheduling of more flights per hour than can be handled under current conditions at JFK and Newark, the function of disposing of its interest in the slots becomes applicable.

14
ATA also suggests that by finalizing or implementing this rule, the FAA would violate the Anti-Deficiency Act. The Anti-Deficiency Act would only be violated if the FAA obligated or expended funds in excess or in advance of an available appropriation, fund, apportionment or other applicable administrative subdivision of funds. 31 U.S.C. 1341, 1517. The FAA may not use its operations appropriation to finalize or implement a rule to promulgate a new user fee not specifically authorized by law, but this rule simply reduces the number of slots (lowers the cap) at JFK and Newark, defines the different types of slots, establishes a reversion of approximately 10 percent of the slots, and discusses the FAA's intent to auction new or returned slots. This rule does not require or impose on any entity a requirement to pay the FAA to obtain a service or even a slot. If the FAA does conduct an auction as contemplated by this rule, it will do so using its pre-existing authorities and regulation. The use of its operations appropriation to finalize and implement this rule therefore does not violate the Anti-Deficiency Act.

15
American Airlines reads 49 U.S.C. 106 as more limited in scope regarding the types of property that fall under its purview. The statute does not limit its scope to any particular type(s) of property that fall under its purview. The FAA has for years, without challenge, interpreted its authority broadly under the statute in support of Congress' intention of allowing the Administrator to acquire, lease, enter into cooperative agreements and other transactions as may be necessary to carry out the Agency's functions. This interpretation is known to Congress, which has repeatedly reauthorized the FAA without making a change to this section. Another commenter raised the fact that the heading of section 106(l) refers to “Personnel and Services” which the commenter says means that subparagraph (6) of that section does not provide the FAA any contracting or leasing authority. It has been long recognized by the courts, however, that the headings of statutes have little if any weight in statutory interpretation. As other paragraphs of this section deal with personnel matters, the heading is not erroneous, but it does not in any way dilute the broad grant of contracting, leasing, cooperative and other transaction agreement authority Congress gave the FAA in paragraph (6).

Even if the only “necessary function of the Administrator or Administration” were a regulatory one, the FAA has not violated the appropriations restriction. Simply put, a lease is not a user fee. A user fee is imposed for a particular service the Government provides to a particular party. A lease on the other hand, is a transfer of a possessory interest in real, personal or intangible property that allows the lessee the use of that property to the exclusion of others including the lessor. In transferring slots to air carriers for defined periods of time, the FAA is not providing any air traffic or other service to the recipients. To the contrary, the FAA's air traffic controllers will not be policing or otherwise cognizant of which air carrier owns which slot and will provide their services in accordance with the FAA's Orders and policies (predominantly first come, first served). In transferring slots to air carriers, the FAA is allowing that air carrier to schedule or reserve access to that segment of navigable airspace that is necessary to take off or land an aircraft at the two airports during a particular half hour of time. In short, the FAA is leasing rather than providing a service to air carriers when it transfers slots to them.

A user fee is calibrated to recover the cost to the government of providing a service or specific benefit to an identifiable recipient. See, e.g.,
United States
v.
Sperry Corp.
, 493 U.S. 52, 60 (1989);
Seafarers International Union of North America
v.
Coast Guard
, 81 F.3d 179, 182-83 (D.C. Cir., 1996). The assignment of a use of navigable airspace for scheduled flight operations is not a “user fee” under the principles articulated in those cases.
16

The cost associated with purchasing a particular slot does not constitute a user fee. First, the cost associated with procuring a slot at auction is not associated with the cost of providing air traffic services for that particular take off or landing. Rather, air traffic services are paid for already through the Airport and Airway Trust Fund receipts. Second, the FAA is not creating assignments of the use of navigable airspace for scheduled flight operations (slots) for the purpose of raising revenue by leasing them to air carriers. More precisely, the FAA has imposed a cap and designated slots for the purpose of allocating the efficient use of navigable airspace. Most of these slots will be awarded to current operators to prevent disruption of air services into and out of JFK and Newark. The FAA is leasing a relatively small number of them, by means of an auction, to air carriers in order to draw in new entrant carriers and provide an opportunity for expansion by carriers already at the airport, thereby inducing airline competition at JFK and Newark and ensuring that airlines winning the slots make the highest and best use of them. The auction is also designed to assure that air carriers will rationalize the use of their slots in accordance with the value attached to them in the auctions, and ultimately, in the secondary market. In the end, the traveling public will benefit.

16
The FAA implemented its regulation to lease its property to others on April 1, 1996, well prior to the first time a restriction was included in the FAA's appropriation concerning the FAA's ability to use the operations funds appropriated to develop or implement a new user fee.

3. Leases Are Not Taxes

A tax is generally defined as an enforced obligation to support the government. See
United States
v.
La Franca
, 282 U.S. 568 (1931); see also
United States
v.
Butler
, 297 U.S. 1, 61 (1937);
Head Money Cases
, 112 U.S. 580, 596 (1884);
Rural Telephone Coalition
v.
FCC
, 8388 F.2d 1307, 1313 (D.C. Cir., 1988);
United States
v.
City of Huntington
, 999 F.2d 71, 73 (4th Cir., 1993). A lease acquired through a slot auction, however, is not a tax. It is not an amount being levied on all members of the industry nor is it a mandatory payment as a tax would be. Further, the lease is not “imposed” as a tax is, and is not designed for revenue-raising purposes.

The auction of a limited number of slots at the airport was never designed to provide the FAA with a new source of revenue. Indeed, in the NPRM, one of the options proposed by the FAA was to allow the carriers at JFK to keep all revenue after covering the FAA's costs in conducting the auction. Rather, the auction mechanism is intended to use market forces to best allocate this limited asset to those carriers who value it the most, placing the asset to its best and highest use. The FAA believes the slots auctions will inform the airlines of the market value of their slots so that slot utilization can be rationalized. While it is true that under today's rule, that the FAA may realize some revenue from the auction, the agency has also committed to putting that revenue back into aviation capacity enhancement and delay mitigation projects in the New York metropolitan area.

Unlike a tax, which imposes an obligation on affected citizens or consumers to pay money to the state, the slot auction imposes no burden on a carrier based on its citizenship or use of the airport. The slot auction lease payments are voluntary: The FAA does not require a carrier to participate in an auction in order to serve JFK or Newark. Carriers serving the airports presently will be given slots through cooperative agreements and slightly less than ten percent of the total number of slots at the airport will be auctioned. Only the carriers winning the bids at the slot auctions will pay for the lease, and that amount of money will have been determined by the free market. The FAA will not have pre-determined a lease amount and will not attempt to cover its costs in conducting the auction by setting a reserve price.
17

17
As discussed in the general discussion of the auction procedures posted under the FAA's Acquisition Management System, the FAA will set a reserve price to assure that, in the event only a single bid is received for a particular slot, the bidding carrier does not actually pay the bid price. In that instance, the winning bidder would pay only the reserve price.

4. The FAA's Authority To Give Slots to Air Carriers Through Cooperative Agreements

A few commenters stated that the Federal Grants and Cooperative Agreements Act does not provide the FAA authority to give slots as cooperative agreements. The Federal Grants and Cooperative Agreements Act defines when a cooperative agreement is to be used. The FAA's broad authority to award cooperative agreements, was given to the FAA in the Air Traffic Management System Performance Improvement Act of 1996, and codified as 49 U.S.C. 106(l)(6). This Act expressly confers on the FAA Administrator the authority to “enter into and perform such * * * cooperative agreements, and other transactions as may be necessary to carry out functions of the Administrator and Administration. The Administrator may enter into such * * * cooperative agreements, and other transactions with * * * any person, firm, association, corporation * * * on such terms and conditions as the Administrator may consider appropriate.” 49 U.S.C. 106(l)(6). There are several functions of the Administrator for which it may be “necessary” to enter into a cooperative agreement. One such function is to encourage the development of civil aeronautics. 49 U.S.C. 40104. By giving

up to 20 slots to all air carriers currently operating at the airport, and 90 percent of the remaining slots to the air carriers currently operating at JFK and Newark in proportion to their current operations, the FAA is encouraging those carriers to continue their development of civil aeronautics at the airport and in the routes served to and from that airport. As several commenters noted, there is substantial economic value both to New York and the communities served by flights from JFK and Newark.

American Airlines raised an additional concern about the use of cooperative agreements, based upon the language in 49 U.S.C. 40110(a)(2) that requires the FAA to receive “adequate compensation” for the disposal of property interests. The FAA finds that it is receiving “adequate compensation” through the minimum slot usage requirements. In addition, the slots are being given in order to promote civil aeronautics.

5. Leases That Terminate by Their Own Terms Are Not a “Taking” of Property

The ATA and the carriers argue that the proposed auctions constitute a taking by the government and that the taking is prohibited for several reasons including that it is not for a legitimate purpose, it lacks due process, and fair value is completely absent in the proposed alternative 1 (as applied to JFK and Newark) and inadequate in alternative 2 (as applied to JFK). The FAA strongly disagrees with the contention that the slot auctions contemplated in this rule are in any way an impermissible taking.
18

First and foremost, in order to be a taking, the carriers would need to have a possessory interest in the slots and they do not. For bankruptcy purposes, carriers may have acquired a property interest in slots, as discussed above, but as also cited in those cases, if that interest expires under the terms under which it was granted, then there has been no property right taken. The Orders establishing Operating Authorizations at JFK and Newark are of a fixed duration and any rights the carriers might have had in those operating authorizations will terminate when the orders end or are superseded. By virtue of today's rule superseding the Orders, the carriers holding the OAs now hold slots and have the same interests and responsibilities in the slots as they did in the OAs. Under today's rule, those carriers whose slot baselines at either Newark or JFK, or both, exceed 20 at either airport, will have a modest portion of their slots designated as Limited Slots and subsequently auctioned Unrestricted Slots. As of October 25, 2009, carriers may begin to operate the Unrestricted acquired at auction.

18
The preamble to the LaGuardia NPRM also addresses this issue and provides the Supreme Court decisions supporting the FAA's position. 73 FR 20846, 20850-20854 (April 17, 2008).

Slots transferred to carriers using cooperative agreements or leases awarded as the result of auctions will similarly have express automatic termination provisions. For slots transferred using cooperative agreements, the carriers' property interest would automatically terminate if the specified “use-or-lose” provisions are not met or one of the other conditions specified in the cooperative agreements arises. If those provisions are satisfied, then most of these slots will terminate in 10 years. A few will have varying termination dates as agreed upon by the FAA and each carrier.
19

When the termination date arrives, any property interest the carrier may have in the slot similarly automatically ends. There is no more a taking of carrier property than there would be in the eleventh year of a ten year lease of FAA real property to a carrier.

19
Perhaps more accurately, the determination of which of these slots have which of the specified termination dates will follow the process described in this rule.

The ATA and the carriers provide little support for the proposition that Operating Authorizations or slots awarded to carriers under an order with a fixed duration results in entitlement to those slots in perpetuity.
20

To the extent that these commenters allege harm (such as having made investments in airport infrastructure) based on the unreasonable assumption that the status quo would remain forever even though the Order explicitly said it would expire, that harm is the responsibility of the carriers. These carriers took a risk, for which they have received a return on their investment based on their use of the Operating Authorizations for the period specified in the Order. If these commenters do not wish to incur a significantly smaller risk
21

for a relatively small percentage of the slots that will be initially be transferred to them through cooperative agreements, and then returned to the FAA as those agreements expire in order to be auctioned, the carriers are free not to apply for these cooperative agreements.

20
U.S. Airways Group's main contention is that the slots are property of the airlines because they have held them “more or less continuously” for 40 years.

21
The slots that will be awarded as the result of an auction have a firm term of up to ten years, with little right by the FAA to terminate prior to the end of that term. Most of the cooperative agreements will similarly have a ten year firm term.

The ATA, IATA, and the carriers rely on what they perceive as a three pronged test established in
Penn Central Transp.
Co v.
New York City,
438 U.S. 104 (1978). In
Penn Central
the Court found that there was no compensable taking when the City's Landmarks Preservation Law would not allow additional stories to be added to Grand Central Station. Even using the three prong test articulated by the commenters, for the reasons stated above, the activities described in this rule would not constitute a Fifth Amendment taking.

The ATA and IATA also overstate the extent of the alleged harm. Under the alternative selected in this rule, carriers will get to keep, at a minimum, more than 90 percent of their current slots. Only seven carriers will lose any slots under this rule and only American, Delta and United will lose slots at both airports.

The Port Authority cites to
Air Pegasus of D.C., Inc.
v.
United States,
424 F.3d 1206 (Fed. Cir. 2005), for the proposition that the Federal Government's sovereignty over airspace is not ownership in fee, but rather navigational servitude.
Air Pegasus,
however, stands for the proposition that there is no private property right of access to navigable airspace. If the FAA legitimately exercises this authority to prohibit the use of a segment of navigable airspace, there is no property taken for Fifth Amendment purposes. In
Air Pegasus
a heliport operator was found to have no private property rights in its facility even though it lost all opportunity to generate revenue (and went out of business) after the FAA shut down much of the airspace around Washington, D.C. following the attacks of September 11, 2001.

6. The Draft Lease Terms Included in the NPRM Were for Illustrative Rather Than Probative Purposes

The ATA also uses the draft Lease agreement as evidence that the FAA does not have the authority to lease the slots. The ATA places far too much reliance on an early draft document that was provided to give commenters some idea of the type of lease the FAA was considering. For example, the standard clauses in the FAA's Acquisition Management System (AMS) use the word “contract” instead of “lease” because leases are a form of contract. The AMS, however, by its explicit terms applies to the acquisition and lease of property.
See,
Section 4.2 of the Acquisition Management System, and

Real Estate Guidance,
http://fast.faa.gov/realestate/index.htm
and T3.8.1 of the FAA's Procurement Guidance, also located at
http://fast.faa.gov
The FAA acknowledges that some of the terms in the sample lease that the FAA provided for illustration were not appropriate for a lease of slots, and will modify any proposed leases accordingly. An additional opportunity to comment on these terms will be provided prior to any auction. These sample terms, however correct or incorrect, have no bearing on whether the FAA has the authority to enter into leases. Similarly, because Attachment A was not included in the sample lease, the ATA and IATA argue that is evidence that there is no property the FAA can lease. Attachment A will be the particular slots each carrier receives. Each Attachment A will be unique for each particular airline. Before the slots are given or auctioned, there is no way to tell what any particular Attachment A will look like, therefore no Attachment A was provided. Instead the sample lease simply provided notice that there will be an attachment that will describe which slots the lessee (or cooperative agreement holder) will have.

7. International Obligations

In spite of the FAA's authority to lease slots and this proposal to use the WSG to award all new and returned capacity at JFK and Newark, the IATA, ATA, and numerous carriers assert that the FAA's proposal violates the international obligations of the United States. Specifically, IATA and the airlines
22

make the following assertions: that the slot auction is actually a user charge in violation of bilateral air services agreements; the slot auction is discriminatory in violation of bilateral air services agreements; and, the short comment period did not afford an opportunity for foreign governments to consult with the United States Government on this proposal.

22
Commenters supporting IATA's submission include: Association of European Airlines (AEA); KLM Royal Dutch Airlines, N.V. (KLM); Malaysia Airlines (Malaysia); Singapore Airlines; Swiss International Air Lines, Ltd.; Deutsche Lufthansa AG (Lufthansa); Air France; All Nippon Airways Co., Ltd.; and, Delta Airlines, Inc.

In support of their contention that the slot auction is a user charge
23

that is inconsistent with our bilateral obligations, IATA and the carriers cite the recent U.S.-EU air services agreement, which states (article 12) that user charges must be “equitably apportioned among categories of users.” They assert that the costs recovered by auction proceeds are not equitably apportioned. We disagree. We are maintaining the use of WSG procedures, which these commenters support, for all new and returned capacity. Only a select number of slots—the slots that are being withdrawn—will be auctioned. For that category of foreign carrier users that choose not to participate in the auction, the regime that they favor will continue unchanged—the FAA will assign slots from new and returned capacity under the procedures set out in the WSG and they will be able to buy, sell or trade slots in the secondary market. For that category of foreign carrier users that wish to participate in the slot auction, they will be making the business decision that such slots have additional value to them. We do not believe that foreign carriers choosing to participate in an auction, and thereby to have access to slots to which they would not have access under the WSG, are being treated inequitably.

23
For purposes of discussing our international obligations, we will assume
arguendo
that auction proceeds are “user charges”.

IATA and the carriers also claim that we are not following the requirement in the same bilateral section that user charges “may reflect, but shall not exceed, the full cost to the competent charging authorities or bodies of providing the appropriate airport, airport environmental, air navigation, and aviation security facilities and services at the airport or within the airport system.” To the contrary, the proceeds of these auctions will be deposited into a receipt account, and those funds will be dedicated to be used for improvements to New York's airspace and airport system. The proceeds will be used for the airport system they were derived from, and will not go to the general fund. This is not in violation of our bilateral agreements, as the costs are directly related to improving the airport system for which the slots will be used.

Singapore Airlines argues that the auction would affect its ability to exercise the “fair and equal” opportunity to compete clause in the bilateral air services agreement. All carriers are afforded fair and equal opportunity to compete, regardless of nationality, because they have the ability to bid for slots under the auction mechanism. There is no guarantee that the slots will be awarded to either a domestic or foreign carrier. Foreign carriers have the same opportunity as domestic carriers to compete for the available slots. Singapore Airlines is also free to participate in the WSG process for allocating new or returned slots, and to participate in the secondary market, just as domestic and other foreign carriers are.

Next, IATA and the carriers argue that the imposition of the slot auction will be discriminatory. The foreign carriers argue that the auction discriminates against them because the domestic carriers are permitted to keep many more slots, and will have an advantage over them. The ATA, United Airlines, and Delta argue that we are being discriminatory against domestic carriers because the foreign carriers have all of their slots preserved and will not be subject to the same withdrawal as the domestic carriers, and that domestic carriers will be forced to pay large sums of money to maintain their current international service, whereas the foreign carriers will not incur the same costs.

Both groups of carriers are incorrect—the Department is acting in a non-discriminatory manner. Because up to twenty slots for each carrier (domestic or foreign) are being preserved, no carrier (domestic or foreign) is in danger of losing access to JFK or Newark. No carrier is being forced to participate in the auction if it chooses not to participate. All new and returned capacity will be allocated by the FAA under WSG procedures. The domestic carriers similarly are not required to participate in the auction, and in most cases, only a select number of slots will be withdrawn. Domestic carriers at JFK and Newark will still have the ability, and available slots, to continue to maintain their international service without necessarily participating in the slot auction. Finally, IATA makes the argument that the comment period was too short to allow for foreign government consultation on the proposal. The proposal, like all proposed rulemakings, was published in the
Federal Register
and all interested parties had ample opportunity to review and comment, and afforded a 60-day comment period to all interested parties. We believe this is a sufficient period for foreign governments, their agencies, or Embassies to provide formal comments or request consultations. In this case, no foreign government has contacted us with either comment or a request for consultations. The consultation language in our bilateral air services agreements does not oblige the United States Government to seek out foreign government comments for every proposal. Rather, the onus is on any foreign government that wishes to consult to make such a request.

B. The FAA Has Authority To Retain the Amounts Received From the Lease and Disposal of Property and To Use Those Proceeds for Congressionally Authorized Purposes

The commenters assert that the FAA has no authority to retain the amounts received from the lease of slots, and that 31 U.S.C. 3302 requires all amounts received by an agency be deposited into the General Receipts account. The FAA, however, has an express exemption from 31 U.S.C. 3302 that it was given in section 276 of the Air Traffic Management System Performance Improvement Act of 1996, Public Law 104-264, codified at 49 U.S.C. 45303(c). Section 276 states that “Notwithstanding section 3302 of Title 31, all fees and amounts collected” by the FAA, except for a few specified exceptions such as insurance premiums, “shall be credited to a separate account established in the Treasury and made available for Administration activities; * * *” 49 U.S.C. 45303(c). These amounts are available immediately for expenditure for Congressionally authorized purposes and remain available until expended.
Id.

This paragraph of section 45303, by its unambiguous terms, applies to all amounts collected by the FAA, whether or not they are amounts from fees established under chapter 453. This is in contrast to the first paragraph of this section of law, which only applies to fees and amounts collected under chapter 453.
24

Fees collected under chapter 453 include fees for air traffic control services provided to planes that neither take off from nor land in the United States (overflight fees), and fees for airmen certificates and registration of aircraft.
25

The FAA, however, collects amounts under authorities contained in other chapters of law, such as insurance premiums and other amounts which are collected under chapter 443 of Title 49, amounts from the disposal of an interest in property for adequate consideration under chapter 401, and amounts provided from other air traffic service providers also under chapter 401, as well as federal, state and local governments and private entities under chapter 1 of Title 49.

24
Section 45303(a) directs that all fees imposed and amounts collected under chapter 453 are payable to the Administrator of the FAA.

25
Fees collected under the authority of 49 U.S.C. 45302, namely fees for issuing airmen certifications and registration of aircraft, in accordance with the express language in that section and language that historically has been in each appropriation, are credited to FAA's operations appropriation.

It is a well established principle of statutory interpretation that laws ought “to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant.”
TRW Inc.
v.
Andrews,
534 U.S. 19, 32 (2001). Interpretations of statutes should “give effect, if possible, to every clause and word of a statute.”
United States
v.
Menasche,
348 U.S. 528, 538-39 (1955) (citing
Inhabitants of Montclair Tp.
v.
Ramsdell,
107 U.S. 147, 152 (1883)). Using this principle, effect must be given, if possible, to the words “all fees and amounts” except for those specifically excluded, should be deposited into the account established by 49 U.S.C. 45303(c). The only amounts the FAA is expressly authorized under this paragraph to exclude from this account are the insurance premiums and related fees it collects and deposits into the Aviation Insurance Revolving Fund. A plain meaning interpretation which gives effect to all the words in that paragraph is that all fees and other amounts collected by the FAA under authorities contained in other chapters of Title 49 or other titles should be deposited into the account established by section 45303(c). This would include any amounts collected from the lease of FAA property under the authority of 49 U.S.C. 106(n) and 49 U.S.C. 40110(a)(2).

C. The Auction of Slots Does Not Affect the Proprietary Rights of the Port Authority

Similarly, both the Port Authority and the Airports Council International—North America (ACI-NA) as well as American believe that the NPRM impinges on the proprietary rights of the Port Authority. The ACI-NA believes that the FAA's powers under 49 U.S.C. Section 40103 do not allow us to auction slots. In support of its position, the ACI-NA also cites to
Western Air Lines
v.
Port Authority of New York and New Jersey,
658 F. Supp. 952, 956-57 (S.D.N.Y. 1986),
aff'd,
817 F.2d 222 (2nd Cir. 1987),
cert. denied,
485 U.S. 1006. The FAA maintains that
Western
supports its position more than that proffered by the ACI-NA.
Western
concluded that the perimeter rule established by the Port Authority was a valid restraint exercised in accordance with the Port Authority's proprietary interest.
Western
did not suggest that the proprietary interests of the Port Authority take precedence over FAA regulation; instead
Western
explicitly states that “[t]his Court concludes that, in the absence of conflict with FAA regulations, a perimeter rule, as imposed by the Port Authority to manage congestion in a multi-airport system, serve an equally legitimate local need and fits comfortably with that limited role, which Congress has reserved to the local proprietor.”
Id.
at 958. Therefore, even if there was a conflict between the proposed rule and the Port Authority's proprietary rights, the FAA's rule would prevail under
Western.

The establishment of slots under section 40103 is consistent with the authority that the FAA has exercised at JFK, LaGuardia, Chicago O'Hare, and other airports, for the past several decades.
Western
is easily distinguishable from the current rulemaking in that this rulemaking does not affect in any way how the Port Authority deals with its airport including use of its terminals. In fact, there will be 100 percent of the air traffic coming into JFK and Newark during the same time periods as currently exist at the respective airports.

The Port Authority's assertion is that changing the airlines that come in or the number of flights interferes with its proprietary interests. However, through its regulatory process in certifying airlines or capping arrivals and departures, the FAA can and has affected the air traffic in and out of JFK and Newark, and neither the Port Authority nor any other entity has challenged the FAA's responsibility to issue certifications or control the flow of air traffic, much less suggested it affects the proprietary rights of airport authorities. Additionally, the Port Authority has always had to accommodate carriers under the HDR by accommodating airlines that leased, purchased, or traded slots under the HDR; that received slots through FAA-run lotteries; or that were granted slot exemptions under 49 U.S.C. 47174 and 41716. Furthermore, the Port Authority is obliged to file competitive access reports to the Secretary if it denies access to a requesting carrier at JFK and Newark. With respect to Newark, the FAA must ensure that the Port Authority successfully implements its competition plan to enhance opportunities for airline competition and accommodate requesting airlines there. 49 U.S.C. 40117(k), 47106(f).
http://www.panynj.gov/CommutingTravel/airports/html/ewr_comp_plan.html
. (last visited September 6, 2008). Accordingly, the Port Authority may not claim that the fact that a slot is acquired through an auction presents any unusual accommodation issues that it has not routinely dealt with in the past.

D. The FAA Has Complied With the Administrative Procedure Act

1. The Docket Contained Adequate Information for Meaningful Comment on the Rulemaking Proposal

Several commenters also claimed the FAA failed to meet the requirements of the Administrative Procedure Act (APA) (5 U.S.C. 551,
et seq.
). The Port Authority claimed that relevant documents either were not submitted to the docket at all, or in a form and time insufficient to permit adequate analysis by interested parties. In particular, the Port Authority suggested the draft lease documents were submitted to the docket well after the initiation of the comment period, contained vague terms, and did not adequately set forth the conditions for default. The Port Authority maintained the default conditions are critical because of the impact of a default on the Port Authority's gate leasing agreements.

The ATA commented that the technical report explaining how slots would initially be allocated and designated does not adequately describe how the FAA intends to choose which Common Slots would be designated as Limited Slots.

The FAA believes the docket submissions provided interested parties with sufficient information to meaningfully comment on the proposal. The draft lease agreement for Unrestricted Slots, is directly related to the FAA's potential auctioning of the slots under its acquisition authority. The draft cooperative agreement, which would govern the lease terms of the Common and Limited Slots, is arguably more directly related to the instant rulemaking since they will initially be allocated to carriers under this rule. While the Port Authority questions the comprehensiveness of these draft leases, they are in fact, largely complete. The FAA is intentionally placing only limited constraints on the slots. The goal of this rulemaking is not to impose complicated and intrusive constraints on the slots. Rather it is to allow for a more efficient air traffic system in and around JFK and Newark while permitting some access to new entrants and stimulating the free market. In order to maximize efficiencies, the FAA must assure that the majority of the slots have a usage requirement. That requirement, which is mandated by today's rule, is the primary restriction on the Common Slots. Limited Slots are granted for a shorter period of time, but otherwise largely mimic the Common Slots. The Unrestricted Slots are even less constrained with no usage requirement.

2. The Discussion of the Auction Process Provided Sufficient Detail for Meaningful Comment on the Rulemaking Proposal

US Airways Group (US Airways) argued the FAA provided insufficient time to comment on the details of the auction process. United claimed that the NPRM should have proposed dates as to when the auctions would be conducted and should have committed to providing a certain amount of advance notice. The ATA claimed that the FAA violated the APA by failing to account for carrier's costs in participating in an auction.

In the NPRM the FAA provided only a general discussion of the procedures that would govern any future auction. This general discussion was provided only to give interested parties a context for the rulemaking. The FAA decided to provide a general description of the likely auction procedures to encourage meaningful comment on the underlying proposal, which is that after imposing a ten-year cap to address congestion, a certain number of slots would revert to the FAA for reallocation. The FAA has provided a more detailed discussion of the procedures that would be used in an auction. 73 FR 53477 (September 16, 2008). The agency provided for a 15-day comment period which closed on October 1, 2008. Based on the comment submissions, the FAA may decide to refine any final auction procedures. That refinement, however, does not impact this rule.

Some commenters claimed that because the FAA has not fully developed the auction process, the FAA cannot finalize the proposed rule. Like the ATA's comments on the draft lease documents, these commenters place far too much reliance on procedures unrelated to the rulemaking. The NPRM discussed in detail the process for providing slots at JFK and Newark: Between 80 and 90 percent of them will be provided to incumbent carriers operating at the respective airports through cooperative agreements and the remaining ones will be transferred via lease. The particulars of the auction process (
e.g.
, will it all be via the Internet or will paper bids be allowed, will the help desk be available 24/7 or only during normal business hours, the exact day when the auction will take place, whether successive rounds of bidding will be allowed, whether multiple bids from the same carrier will be permitted) are not relevant to this rule. The FAA will, in accordance with its Acquisition Management System, continue to provide adequate notice of its planned auction procedures and solicit comment on those procedures prior to conducting any auction.

The ATA's claim that not ascribing the costs of the auction to the rule violates the APA likely stems from unclear drafting on the part of the FAA. We have included the auction costs and reallocation benefits in the final regulatory evaluation for this rule.

3. The FAA Adequately Considered Alternatives

Despite the fact that the FAA has proposed two different allocation methods at JFK in this rulemaking, several commenters claimed that the agency failed to adequately explore additional alternatives in violation of the APA. An agency is not required to consider all possible alternatives when engaging in rulemaking. The fact that the commenters dislike the alternatives considered does not mean that the FAA has pre-decided the outcome by failing to recognize that there may be other alternatives. In fact, the agency proposed multiple options. In addition, it has considered many of the alternatives that the commenters recommended in response to the NPRM. As discussed later in this document, the FAA has decided against adopting these approaches in lieu of proceeding with a final rule. However, aspects of many of these recommendations have been incorporated into the rule or are being addressed elsewhere.

IV. Discussion of Final Rule

A. Allocation of Slots at JFK and Newark

The FAA believes that at least for the next several years, JFK and Newark will likely be oversubscribed in terms of their physical ability to handle aircraft. Accordingly, extending the caps on operations at the airports is necessary to provide for the efficient use of the NAS.

American argues for a lower cap at both airports, stating that “[w]hile JFK and Newark may be able to handle 81 operations per hour in ideal conditions, this limit significantly overstates both airports'
optimal
capacity. Thus, the FAA should revisit the issue of how many operations at JFK and Newark can be accommodated safely and dependably and then set a cap at that level * * *” [Emphasis in original.] Although American believes 81 operations is above optimal performance, it has failed to identify what it believes to be the appropriate number of slots per hour during restricted periods. Under no circumstances would we allow the number of operations to exceed a safe level. Beyond that, the levels as set in

this rule represent the FAA's best judgment about a reasonable balance between maximizing capacity and minimizing delays. Of course, we have made it clear that we continue to review the caps, and we may withdraw common slots if necessary, or we may increase capacity as circumstances allow.

The dispute surrounding this rulemaking revolves around the FAA's proposal to reallocate slots at the airport. Simply put, incumbents at the airport are largely satisfied with the status quo. The vast majority of carriers opposed any measure that would result in a carrier holding fewer slots under the final rule than it held under the capping Orders.

The Port Authority states in its comment “The slot retirement system has not been explained with respect to the [sic] specific criteria the FAA will use to choose slots to be withdrawn, and whether, or how, gate-leasing assignments will be taken into account in this process.” This rule does not provide for any “retirement” and we assume that the Port Authority is referring to Section 93.167 which states that the FAA may withdraw limited or common slots as necessary for operational needs. Withdrawal for airport operational needs is not a new concept, and the same idea has applied in our rules for years. The only really new principle that has been added by this rulemaking is that we have committed not to withdraw unrestricted slots. Once they are purchased at an auction, the carrier is assured that they can be used for the life of this rule. In other respects, our procedures and criteria remain the same as they have always been.

Several commenters including the carriers, their associations and the Port Authority noted that the FAA has asserted that the proposed measures were designed to address severe delays, preserve consumer choice, maintain airline competiveness and preserve the affordability of airfares. Most commenters agreed, in some form, with the Port Authority's assessment that the proposal achieved none of these objectives. Rather, most commenters noted that the reallocation mechanism did nothing to address congestion and could have the unintended consequence of harming competition and restricting passenger access because of the loss of service to small communities.

Some carriers and their associations argued that rather than encouraging a market-based allocation method with a robust secondary market, the proposal would have the opposite effect—imposing a new and more market-intrusive regulatory scheme.

Not only is the FAA required to ensure the efficient use of the NAS, but it must do so in a manner that does not penalize all potential operators at the airport by effectively shutting them out of the market. The FAA cannot simply walk away from an airport once it has imposed caps, but rather should take steps to ensure that there are, in fact, competitive market forces and actual and potential competition. Competition at an airport benefits the flying public by providing price competition and expanded service. The ability of carriers to initiate or expand service at the airports is hindered, in large part, by the imposition of the cap. Accordingly, the FAA believes it must strike a balance between (1) promoting competition and permitting access to new entrants and (2) recognizing historical investments in the airport and the need to provide continuity. It is not the role of the Government either to dictate particular business models or to constrain a market and provide no means for others to enter that limited market.

The FAA believes that it is well within the agency's authority in 49 U.S.C. 40103 to provide some mechanism for reallocation. The capping Orders at JFK and Newark provide for auctions of new and returned capacity but do not provide for the reallocation of capacity that is actively being used. The FAA believes this allocation method may be justified as a short-term measure, but it is inadequate for any cap intended to last for more than a couple of years. Indeed, Congress appears to have shared similar concerns when it allowed for slot exemptions in AIR-21. Today's proposal attempts to strike the appropriate balance by actively developing a robust secondary market that properly values the limited asset that the FAA created.

1. Proposed Alternatives

The FAA proposed two different alternatives for allocating slots in the NPRM. Under both alternatives the vast majority of slots would have been grandfathered to existing carriers at the airports, with a relatively small minority auctioned off in the free market. Both alternatives allowed for a carrier baseline operations for which up to 20 slots would be automatically allocated to the carrier as Common Slots. These slots would not count toward the calculation of slots that would revert to the FAA for retirement or reallocation.

Under alternative 1, the FAA proposed to withdraw 10 percent of the Carriers' slots above its baseline operations. The FAA would auction the reverting Limited Slots, with the FAA retaining proceeds of the sale. After recouping its costs, the FAA planned to spend the remainder of the proceeds on aviation congestion and delay management initiatives in the New York City area. Under alternative 1, any Carrier could bid on a slot in an auction blind to the participants and it would be awarded in the form of an Unrestricted Slot to the highest responsive bidder. The winning Carrier could commence operations using the newly acquired slot at the beginning of the next summer scheduling season, except that October 25, 2009, will be the commencement date for slots acquired in the first auction.

Alternative 2 proposed a different auction procedure for JFK that provided that the holder of a Limited Slot would retain the proceeds of its sale in the auction. The only deduction from the sale price would be for the FAA's costs associated with conducting the auction. Under this alternative, the FAA would withdraw 20 percent of the Carriers' slots above the baseline operations at JFK.

The FAA continues to believe that under either alternative a sufficient number of slots would be available for reallocation to permit access to the airports and establish a fair market value for slots that could then translate into a robust secondary market. Although alternative 2 allowed for an even greater number of available slots, it also had the potential to prevent the most interested carrier, i.e., the one initially allocated the slot, from bidding on it. While the FAA anticipated that a carrier could obtain a comparable slot, either through the FAA auction or on the secondary market, there was no guarantee that would happen. This concern was raised by several commenters who noted that the inability for the carrier to bid on its previously held slots is even more troubling because that carrier may have the greatest incentive to retain the slot based on established service.

As noted above, the FAA believes either approach would help stimulate a secondary market and would lead to a proper assessment of the slots' true value. The agency also believes that either approach would have a minimal impact on operations at the airport. However, the agency is persuaded that alternative 1 maximizes the efficiency of the slot because the carrier who may value it the most may be the one who held it initially.

2. Categories of Slots

Under today's rule, the FAA will lease property interests in slots to carriers for a period of up to ten years, the date the rule sunsets. There will be three categories of slots: Common Slots, Unrestricted Slots, and Limited Slots.

Common Slots are those slots grandfathered to carriers currently at the airport. They will be awarded to the carriers under a cooperative agreement for the duration of the rule. The cooperative agreement will provide carriers with a ten-year leasehold interest. Once the rule sunsets, all interests will revert to the FAA. Unlike slots allocated under the HDR at JFK, carriers will be granted clear property rights to Common Slots, which could be collateralized or subleased to another carrier for consideration. These property rights, however, will not be absolute. Common Slots will be subject to reversion to the FAA under the rule's minimum usage provision, may be temporarily withdrawn for operational reasons, should the FAA need to reduce the caps.

Those slots not categorized as Common Slots will be categorized initially as Limited Slots and then as Unrestricted Slots once they are reallocated.

Unrestricted Slots are slots that a carrier would acquire as a leasehold. Unlike slots allocated under a cooperative agreement, these slots will require monetary consideration to the FAA. Since a carrier leasing an Unrestricted Slot will be required to do so because of government action, these slots will not be withdrawn by the FAA under the use-or-lose provisions, for operational reasons or to further reduce the cap should such reductions be necessary. As with Common Slots, Unrestricted Slots will expire when the rule sunsets.

Limited Slots are slots that are identified for auction. Those Limited Slots identified for auction will be leased to the carriers under a cooperative agreement for a period of 1-4 years so that they can be reallocated after that period of time. Limited Slots will convert to Unrestricted Slots as a result of the auction. As with Common Slots, Limited Slots may be withdrawn under the proposed use-or-lose provision, or for operational reasons.

3. Initial Allocation of Slots

No later than this rule's effective date, the FAA will notify all carriers which slots they will initially be allocated under the rule. The FAA will make this determination based on the operating rights held by carriers under the Order limiting operations at JFK or the Order limiting operations at Newark as evidenced by the FAA's records. Carriers will be assigned corresponding slots in 30-minute periods consistent with the limits under § 93.163 (b) and its summer and winter season schedules as approved by the FAA.

Upon the rule's effective date, each carrier at JFK and Newark will automatically be awarded up to 20 Common Slots, which will constitute the carrier's baseline operations. The FAA believes this is a rational approach to assuring that no carrier is impacted at a level that could seriously disrupt its existing operations. Ninety percent of the remaining slots will also be grandfathered as Common Slots to the carrier holding the corresponding Operating Authorization under the JFK or Newark order. The FAA has decided to grandfather the majority of slots at the airport in order to minimize disruption and to recognize the carriers' historical investments in both the airport and the community.

As noted above, the remaining slots will be categorized as Limited Slots and will be reallocated via auction over a five-year period. The number of slots that a particular carrier will have classified as Limited Slots is based proportionally on the carrier's presence at the airport, taking into consideration each carrier's baseline operations. The FAA will inform all carriers that will be awarded Limited Slots how many Limited Slots they will have no later than the rule's effective date.

An affected carrier will have ten days to identify 50 percent of the total number of Limited Slots. During the following ten days, the FAA will determine through a randomized process the remainder of slots that will be categorized as Limited Slots, taking into account the need to have capacity available for reallocation throughout the day.

In determining which slots should be designated as Limited Slots, the FAA will initially exclude from consideration slots held during all hours where carriers have collectively determined two or more slots should be Limited Slots. This approach will assure slots will be available for auction throughout the day. The FAA will also determine in what year (0-4) each Limited Slot will revert to the FAA for reallocation, In this way, all carriers will know within 20 days of the rule's effective date what slots will become available for purchase and when.

The time windows for the Limited Slots will be evenly distributed over the day to the extent possible. The duration of each Limited Slot will be assigned by a fair allocation process such that each affected carrier's aggregate lease duration will be approximately equal to that of the other affected carriers.

British Airways asserted that it is overly burdensome to require carriers to track slots and volunteer slots for redistribution each year, and states that such a program is used nowhere else in the world. The FAA believes that the carriers using the system are sophisticated entities capable of tracking the classification of their slots. Furthermore, the requirement that carriers volunteer slots for redistribution is only required one time, at the outset of the rule. It also only affects the seven carriers that will lose slots. Initially FAA considered selecting 100% of the slots for withdrawal but later decided it would benefit carriers and their networks to allow them to select 50% of the slots themselves.

Although most commenters are opposed to any slots being reallocated by auction, Virgin America urged the FAA to expand the number of slots available via auction. The FAA recognizes that the overall number of slots that will be auctioned is relatively small, and a larger auction would not only have assured greater access to the airports, but would arguably maximize the efficiency of the system, assuming no other constraints. However, the FAA understands that the carriers would in fact face other constraints.

The ATA claimed that carriers need to know which of its slots are Limited Slots 90 days before the effective date of the rule in order to be compliant with the rule on the effective date. While the rule becomes effective on December 9, 2008, carriers can continue their operations without change until October 25, 2009, the first day of the winter scheduling season. Accordingly, the FAA believes carriers will have no problems setting a compliant schedule well in advance of the winter scheduling season.

The Port Authority, American Association of Airport Executives (AAAE) and the ATA also express concern about what they consider to be inadequate information regarding the slot auction methodology. The Port Authority says that the terms of the planned slot leases have not been set forth in any meaningful detail, which, it argues, has important effects on their management of airport gates. We agree that it is important for all interested parties to have full information about auction procedures before any auction is conducted. That information will be provided in the appropriate form. This rulemaking, which merely establishes the principles under which slots will be

leased, is not intended to incorporate the technicalities of the auction procedures, a fact that the FAA emphasized in the NPRM.

4. Market-Based Reallocation of Slots

As discussed earlier, the FAA proposed two separate alternatives for reallocating slots at JFK and Newark. The FAA has decided to adopt alternative 1. The commenters have largely combined the two goals of this rulemaking, to address congestion and to provide for a more equitable and efficient allocation of capacity, into a single goal. Many commenters, including carriers (American, British Airways, Continental, Delta, Emirates, and US Airways) and industry associations (AAAE and ATA) said that it is the cap on hourly operations and not auctions that will reduce delays at JFK and Newark. Furthermore, they contended that the cap and the auction are distinct proposals, with distinct costs and benefits; while a cap may reduce delays, an auction will merely add costs to carriers. Some carriers and the ATA claimed that the only congestion-related measure included in this proposal is the cap on operations, which is already in place under the capping orders at JFK and Newark. It also argued that the FAA has not articulated how its auctions will translate into delay mitigation or why the high costs of auctions are worth the burden and risk.

The FAA fully agrees that the reallocation method, regardless of what it is, will not have a direct impact on controlling delays. That type of control is achieved by extending the cap beyond the JFK and Newark Orders. The FAA believes that the reallocation mechanism may lead to an air transportation system that is more efficient for the traveling public, even though that mechanism does not reduce the number of aircraft flying in and out of the airport. It is possible that carriers may decide, at least on some routes, to increase the size of the aircraft they are using. While nothing in today's rule dictates this result, it is certainly at least generally foreseeable.

While most of the carriers were categorically opposed to a market-based reallocation mechanism, that opposition was not universal. The FTC argued in favor of an auction mechanism, recognizing the value associated with providing a carrier with a direct financial incentive to maximize the value of a slot.

The FAA has decided to finalize its proposal because it believes that a market-based mechanism such as an auction is the best way to assure that this scarce resource is allocated to the user who values it the most. As a steward of public property, the FAA has an obligation to strive toward getting the best value for that property. Other Federal agencies have used auctions to determine who values Federal property the highest. In addition, a number of papers regarding the societal value of allocating slots via an auction have been published over the past several years.
26

Simply put, a carrier who is required to purchase a slot, will value it more highly than a carrier who received the slot at no cost. Accordingly, the carrier will ensure the slot's best economic use, i.e., putting it to the use valued most highly by the traveling public. If the carrier cannot profitably use the slot, it will presumably sublease the slot to another carrier who can maximize its efficient use. In addition, a carrier wishing to gain a presence at an airport can purchase the lease from the government directly rather than attempting to obtain slots solely from its competitors, increasing competition at the airport.

26
Cf., DotEcon Ltd.,
Auctioning Airport Slots—a Report for HM Treasury and the Department of the Environment, Transport and the Regions,
April 2001; Whalen and Carlton,
Economic Analysis Group Discussion Paper—Proposal for a Market-Based Solution to Airport Delays,
October 2007; Brueckner,
Slot-Based Approaches to Airport Congestion Management,
May 2008.

The value associated with allocating a scarce government resource via an auction was also recognized by Congress in the telecommunications context when it passed the Licensing Improvement Act of 1993. In the section-by-section analysis of the statute, the committee report specifically references promotion of efficient and intensive use of the electromagnetic spectrum as one of the objectives the committee believed the new legislation would achieve. 1993 USCCAN at 580.

As noted earlier, the agency's own experiences with slot-controlled airports under the HDR are consistent with the observations made in the literature. Under the Buy/Sell Rule, carriers wishing to enter the market complained they were unable to gain market-share, and the underutilization of those slots allocated to the carriers at no cost forced the agency to impose a usage requirement.

The auction process contemplated by today's rule will guarantee carriers wishing to initiate or extend operations at the airport an opportunity to acquire slots. In January 2009 there will be approximately 18 slots available for auction at JFK and 18 slots available at Newark airports. Carriers typically require pairs of slots, so today's rule will provide the equivalent of approximately 9 round trips per day at both airports. In the following four years there will be at least 18 slots available, as well. Assuming a minimum competitive pattern of service is between two and three round-trips per day, the equivalent of three to four routes would be available per year. Carriers would be free to supplement their holdings in the secondary market, which the agency believes will be stimulated by this rule.

The FAA intends to auction off 20 percent of the Limited Slots annually for the first five years of the rule. Any carrier may bid on the slot, and it will be awarded to the highest responsive bidder. The winning parties may commence operations using the newly acquired slots on the first day of the subsequent summer scheduling season, except for the slots acquired in the first auction. In the unlikely event no bids are received, the FAA will retire the slot until the next auction. Allowing the carrier holding the Limited Slot to retain it, as suggested by some commenters, could encourage the carrier to simply not bid on the slot. The FAA will retain all auction proceeds. After recouping its costs, the FAA intends to spend the remainder of the proceeds on congestion and delay management initiatives in the New York City area. The FAA has already established a receipt account for these proceeds.

The FAA will not reallocate slots after the first five years (other than those returned under the rule's use-or-lose provisions) because it believes that ideally slots should transfer from one carrier to another through the secondary market. The FAA has decided to be involved in a limited number of slot transactions during the first five years of the rule to help establish that market. Not only will the auctions help create a market for slots, but all carriers will be able to assess the true market value of a slot. Armed with information on how much a given slot is likely to be worth on the open market, carriers (and their shareholders) will be in a better position to determine whether to continue operating marginally-performing flights or to sublease the corresponding slot.

The FAA believes that merely relying on the secondary market to accurately establish the value of slots, as some commenters have suggested, is problematic. A fundamental problem with the secondary market cannot be addressed without first addressing the primary market. Incumbents have significant incentives not to sell or lease out slots to airlines that will compete with their networks to a substantial

degree. Thus, incumbents rationally foreclose entry both to other incumbents and to new entrants. One of our objectives in this rule is to change those incentives and reduce the likelihood that incumbents can foreclose entry and potential competition indefinitely.

In addition, in the secondary market a carrier may rely on tangible assets that do not have the same monetary value for all carriers or even non-tangible assets, such as goodwill or a pre-existing relationship, when evaluating whether to lease a slot. Thus, while the slot may have a real value for the carriers engaged in the negotiations, that value cannot be translated into a “fair market value” that can be relied on throughout the industry as a reasonable valuation of the slot. The agency believes that it should not take more than five years for a robust secondary market to develop.

Given the carriers' ability to sublease slots if the operations associated with the slots are not financially productive, the FAA anticipates that there will be little new or returned capacity for most of the time the rule is in effect. With the advent of NextGen technology, there may be new capacity in the later years of the rule. To the extent there is any new or returned capacity, the FAA will award that capacity in keeping with the WSG.

Although a number of commenters expressed specific support for the use of WSG procedures in assigning new or returned capacity, the National Air Carrier Association (NACA) opposed that approach. It believes that the WSG procedures would not allow new entrant carriers to establish their presence at the airports. Contrary to that assertion, the WSG provides for a preference for new entrants; by providing for withdrawal and auction of additional slots, new entrants will have an even greater opportunity to establish a market presence.

Lufthansa objected to the NPRM's definition of a new entrant as a carrier that has been administratively allocated up to 8 slots during controlled hours. Lufthansa states that the WSG gives new entrant status to airlines “with less than 2 arrivals and departures” and makes no separate provision for slots acquired by auction. It argued that the proposal was “contradictory” to the WSG process. We are adopting the definition as proposed. As we discussed in the NPRM, the FAA understands that in order to maintain viable operations at JFK or Newark, a carrier would need four to six slots for domestic operations, and at least two slots for an international operation. The five slots contemplated under the WSG provide little opportunity for a new entrant carrier to establish its operations before losing new entrant status and thereafter being able to expand in the New York market only through the purchase of a lease. Setting a limit of eight slots administratively assigned by the FAA as the cut-off for new entrant status allows a carrier to maintain its operations and provides some ability to grow without jeopardizing the carrier's access to slots through the WSG. Furthermore, we note that our decision here to allow carriers with up to 8 slots to retain new entrant status is consistent with our approach at Chicago O'Hare.

a. Impact of Auctions on Competition

The NPRM assumed that auctions will lead to efficient airline behavior. The Port Authority, ACI-NA, NACA and some carriers suggest that auctions may harm competition and could lead to reduced opportunities for new entrant and limited incumbent airlines to enter the airport. They claimed that the large incumbent carriers with the majority of slots at JFK and Newark could use their relatively stronger balance sheets to outbid the smaller, non-legacy airlines that help stimulate competition. The ATA and others suggest that a carrier could obtain a slot through auction and then chose not to operate for anti-competitive purposes.

Offering a different view, American suggests that because the New York market is already sufficiently competitive as a result of the presence of three comprehensive and competing networks, hubs at JFK and Newark, presence of low-cost carriers, and presence of a greater number of foreign flag carriers serving the area than any other area of the country this rule is unnecessary.

The FAA disagrees with the assertion that the limited number of auctions contemplated in this rule will reduce competition at the airport. At JFK, the HDR was criticized for not providing sufficient opportunity for new entrant or limited incumbent carriers to enter or expand service at the airport. We believe there is merit to these criticisms. This rule will provide additional opportunities for new entry at JFK and Newark.

To encourage greater competition and expand opportunities for entry at the airport, the FAA intends to reallocate by auction a portion of existing slots from those carriers who held the majority of slots at JFK and Newark. The auction is designed to provide greater competition at the airport because it uses the market to reallocate limited resources to those who value the asset most.

We understand the concerns of some persons that carriers may attempt to use Unrestricted Slots which are not subject to a usage requirement to monopolize operations at an airport. The Department has the authority to ensure that carriers do not use their ability to permit such slots to remain idle to unlawfully restrict competition. The Department's mandate under 49 U.S.C. 41712 to prohibit unfair methods of competition authorizes it to stop carriers from engaging in conduct that can be characterized as anticompetitive under antitrust principles. If the Department is presented with clear and convincing evidence that a carrier is hoarding slots to monopolize operations at an airport it will pursue enforcement action against the carrier.

b. Impact of Auctions on Carrier Investment

The ATA, Cathay Pacific Airways, Continental, KLM and U.S. Airways noted that carriers have invested in terminal facilities, gates, servicing facilities, aircraft and promotion of flights out of JFK and Newark, with the expectation that they would continue to operate from those airports. They suggest that under this rule, their presence at the airports is threatened. KLM and U.S. Airways further state that airlines that have already significantly invested in their operations at these airports will be, in effect, penalized by having to pay for the privilege a second time.

It is our view that nothing in this rule prejudices the carrier's invested presence at the JFK and Newark. Nothing in this rule bars carriers from providing services to the New York area. To the extent that a carrier may have slots subject to withdrawal, it has equal opportunity to maintain or expand its service through the auction mechanism. We also disagree with the assertion that carriers are being asked to pay a second time for the privilege of serving JFK or Newark because the investments that carriers have made in the airport and near-by services are for the benefit of all flights they offer, not just those that may be subject to reallocation.

c. Alternatives to Reallocation

Many commenters said that the FAA should use other approaches instead of auctions to reduce delays at JFK and Newark. In particular, the FAA should focus on implementing operational procedures and investments to enhance capacity. The AAAE, ACI-NA, the Asociacion de Latinoamericano de Trasporte Aero (ALTA), and the Regional Airline Association (RAA), Boeing, and several carriers said that the FAA should proceed with implementing advanced air traffic control technologies and should focus on completing

NextGen. Similarly, the ATA suggests that the FAA continue to implement the 77 New York Aviation Rulemaking Committee improvements and continue implementing NextGen.

The IATA and the ATA and their member airlines expressed their preference for use of the IATA WSG instead of an auction approach at JFK and Newark. Delta supports WSG because it is a tested process that can be applied fairly without harming U.S. carriers in comparison to other carriers. The IATA asserts that a WSG approach because it is a “fair, transparent non-discriminatory” mechanism that is a widely recognized and accepted for distribution of slots at congested airports.

As to the suggestion that the FAA focus on the various technological and physical improvements identified by the NYARC, many of these initiatives are already underway. However, we do not believe that they will address the congestion issues at JFK and Newark sufficiently to merit lifting the caps on operations. It is the caps that create the need for reallocation and the Administration supports a market-based mechanism to soften the impact on the market created by the caps. In the process we will foster the development of a robust secondary market and ensure the opportunity for new entry into the New York area.

The commenters are correct in stating that WSG is a widely recognized and accepted mechanism for distribution of slots at congested airports. As discussed above, we will use WSG to award any new or returned capacity at JFK and Newark, to the extent it does not conflict with U.S. rules, to ensure that even carriers that do not choose to participate in the auctions have another means to access the restricted market. However, the number of slots likely to be available for reallocation from new or returned capacity would be insufficient to stimulate a secondary market or create enough opportunity for new carriers to enter the market. Withdrawal and reallocation of slots via auction ensures the opportunity for new entry and an efficient allocation of slots among all carriers at the airports, such that each slot is allocated to the user who values it the most highly.

B. Secondary Trading

All slots will have value in the secondary market. To the extent that the secondary market is not mature and the value of slots is not well-known, the auction should inform potential buyers of the value of these slots and stimulate the secondary market. The FAA believes that ultimately the best way to maximize competition is with the development of a robust secondary market. To that end, the agency did not propose a system of set-asides and exemptions that would be available to new entrants and limited incumbents.

We believe some measures must be taken to assure access to the secondary market. The system of preferences and exemptions developed under the HDR and AIR-21 at JFK may have significantly diluted the viability of the secondary market ostensibly created under the HDR's Buy/Sell Rule as several commenters claim, but we do not believe that was the sole culprit. The Buy/Sell Rule permitted transactions that were never advertised and the terms of which were never monitored for anti-competitive behavior.

We believe all carriers interested in initiating operations at JFK or Newark, or increasing their operations there, should have an opportunity to participate in any transactions. Accordingly, the FAA will permit carriers to include Common Slots for sale in the auction organized by the FAA. If a carrier wishes to include some of its Common Slots in the auction, these slots will be treated in the same manner as other slots being auctioned by the FAA. The carrier would be able to specify a minimum price for these slots so that it need not give up the slots unless they command a price that the carrier is willing to accept and it would retain the proceeds.

In addition, the FAA will establish a bulletin-board system whereby carriers seeking to sublet slots outside the auction process, or to acquire such subleases, would notify the FAA, which would then post the relevant information on its website. The FAA will post a transaction within two business days of receipt and verification of the request and post the transaction for ten business days. The FAA has decided that transactions via the bulletin-board-system do not have to be blind, and the transaction may include both cash and non-cash payments.

Some carriers noted that the secondary market should be as transparent as possible since even a hybrid system, whereby the lessor would accept the highest cash bid and then negotiate the value of non-monetary assets after the bid was accepted, would close interested lessees out of the transaction.

We continue to have reservations about the adequacy of the value associated with non-monetary assets when the leasing carrier is not a direct competitor versus when the potential lessee competes directly against the carrier offering to lease the slot. However, we also believe non-cash transactions should result in both more bidders and potentially higher bids. Since the non-cash aspect of a transaction would require direct negotiating, parties would need to be disclosed.

In order to preclude the type of collusion that appears to have been present, at least some of the time, under the Buy/Sell Rule, the Department will monitor trades on the secondary market. The Department already has the authority under 49 U.S.C. 41712 to investigate, prohibit, and impose penalties on an carrier for an unfair or deceptive practice or an unfair method of competition in air transportation or the sale of air transportation. The Department has consistently held that this authority empowers it to prohibit anticompetitive conduct (1) that violates the antitrust laws, (2) that is not yet serious enough to violate the antitrust laws but may do so in the future, or (3) that, although not a violation of the letter of the antitrust laws, is close to a violation or contrary to their spirit.
27

27

See United Airlines, Inc.
v.
Civil Aeronautics Board,
766 F. 2d 1107, 1112, 1114 (7th Cir. 1985) and cases cited therein; see also H.R. Rep. No. 98-793, 98th Cong., 2d Sess. (1984) at 4-5,
Order 2002-9-2, Complaint of the American Society of Travel Agents, Inc., and Joseph Galloway against United Air Lines, Inc, et al.
(Docket No. OST-99-6410) and
Complaint of The American Society of Travel Agents, Inc., and Hillside Travel, Inc. against Delta Air Lines, et al.
(Doc

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3AE8-24046. Public record. Not legal advice.