Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-97-01362/USCOURTS-caDC-97-01362-0/pdf.json

Parties Involved:
Air New Zealand Limited
Petitioner
Federal Aviation Administration
Respondent

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 21, 1997 Decided January 30, 1998 

No. 97-1356

ASIANA AIRLINES, ET AL.,

PETITIONERS

v.

FEDERAL AVIATION ADMINISTRATION AND 

BARRY VALENTINE, ACTING ADMINISTRATOR, FEDERAL AVIATION 

ADMINISTRATION,

RESPONDENTS

AIR NEW ZEALAND LIMITED,

INTERVENOR

-

Consolidated with 

Nos. 97-1357, 97-1358, 97-1359, 97-1360,

97-1362, 97-1363, 97-1364

-

On Petitions for Review of an Order of the 

Federal Aviation Administration

-

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Robert W. Kneisley argued the cause for petitioners, with 

whom Geoffrey P. Gitner, M. Roy Goldberg, Frederick S. 

Hird, Jr., Joseph E. Schmitz, David W. Miller, Moffett B. 

Roller, Don H. Hainbach, Paul V. Mifsud, Carl W. Vogt, 

Frederick Robinson and James S. Campbell were on the 

briefs. Jeffrey N. Shane entered an appearance.

Peter R. Maier, Attorney, United States Department of 

Justice, argued the cause for respondents, with whom Frank 

W. Hunger, Assistant Attorney General, Mary Lou Leary,

United States Attorney, and Robert S. Greenspan, Attorney, 

United States Department of Justice, were on the brief.

Before: WALD, SENTELLE and HENDERSON, Circuit Judges.

Opinion for the court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge: Petitioners challenge an FAA 

Interim Final Rule imposing annual fees totaling nearly $100 

million on flights that neither take off from nor land in the 

United States. We reject their claims that the FAA acted 

unlawfully in employing an expedited procedure which precluded a round of notice and comment before the effective 

date of the Rule, and that the regulation violated the antidiscrimination provisions of various international aviation agreements. However, the FAA's allocation of fixed and common 

costs using a value-oriented "Ramsey pricing" methodology 

did violate the statutory directive that the fees for overflights 

be directly related to the agency's cost of providing services. 

We therefore vacate the Interim Final Rule and remand for 

further proceedings.

I

Section 273 of the Federal Aviation Reauthorization Act, 49 

U.S.C. § 45301 (the "Act"), enacted October 9, 1996, directs 

the Federal Aviation Administration ("FAA") to establish a 

fee schedule and collection process to cover "[a]ir traffic 

control and related services provided to aircraft other than 

military and civilian aircraft of the United States government 

or of a foreign government that neither take off from, nor 

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land in, the United States." 49 U.S.C. § 45301(a)(1). The 

statute directs the FAA to "ensure that each of the [required] 

fees ... is directly related to the Administration's costs of 

providing the service rendered," and states that covered 

services "include the costs of air traffic control, navigation, 

weather services, training and emergency services which are 

available to facilitate safe transportation over the United 

States, and other services provided by the Administrator or 

by programs financed by the Administrator to flights that 

neither take off nor land in the United States." 49 U.S.C. 

§ 45301(b)(1)(B). The statute authorizes the FAA "to recover in fiscal year 1997 $100,000,000," 49 U.S.C. 

§ 45301(b)(1)(A). Finally, the statute directs that a special 

procedure shall apply: the FAA "shall publish in the Federal 

Register an initial fee schedule and associated collection 

process as an interim final rule, pursuant to which public 

comment will be sought and a final rule issued." 49 U.S.C. 

§ 45301(b)(2).

Acting upon this apparent message to take prompt regulatory action, the FAA issued an Interim Final Rule ("IFR") 

establishing a fee schedule and collection process, with an 

effective date of May 19, 1997. 62 Fed. Reg. 13496 (March 

20, 1997). The IFR provided that the FAA would accept 

comments until July 18, 1997, after which the FAA would 

develop a final rule.

The IFR established fees structured as follows. Based 

upon an "Analysis of Overflights: Costs and Pricing" by 

private consultant GRA, Inc. (the "GRA Study"), the FAA 

noted that its services provided to overflights required both 

incremental expenditures, increasing with the quantity of 

services provided, and fixed and common expenditures for 

facilities and other expenses that could not be attributed to 

particular flights or classes of flights. The GRA Study 

allocated fixed costs among all classes of users using a 

methodology called "Ramsey pricing." This methodology 

distributes fixed costs among classes of users based on the 

elasticity of their demand for services in an effort to minimize 

the effect of the regulation on the behavior of users. Thus, 

under this method of allocating fixed costs, classes of users 

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less sensitive to changes in price are allocated a relatively 

greater share of fixed and common costs. See M. Wohl & C. 

Hendrickson, TRANSPORTATION INVESTMENT AND PRICING PRINCIPLES 208-09 (John Wiley & Sons 1984).

The petitioners, including several foreign airlines and an 

association of Canadian airlines, ask us to vacate the IFR for 

a variety of reasons. First, they assert that, despite the 

procedures specified in 49 U.S.C. § 45301(b)(2), the FAA 

violated both the Administrative Procedure Act ("APA"), 5 

U.S.C. § 553, and the consultation provisions of several international aviation agreements, by making the new fee 

structure effective before considering their comments and 

objections. They also contend that the IFR violated the 

antidiscrimination provisions of international agreements by 

imposing fees on overflights which had a disparate impact on 

foreign airlines. Finally, they argue that the IFR's allocation of fixed and common costs using Ramsey pricing violated the statutory requirement that "each of the fees ... [be] 

directly related to the Administration's costs of providing the 

service rendered." 49 U.S.C. § 45301(b)(1)(B).

II

The petitioners first argue that the FAA unlawfully imposed the fees set forth in the IFR before allowing opportunity for affected parties to comment or consult. They base this 

claim on the notice and comment requirements of the APA, as 

well as the provisions of several international aviation agreements.

A

Section 553 of the APA requires agencies to publish "[g]eneral notice of proposed rule making," and "give interested 

persons an opportunity to participate in the rule making...." 

5 U.S.C. § 553(b)-(c). Such rule-making proceedings must 

provide both notice and meaningful opportunity to comment. 

See Home Box Office, Inc. v. FCC, 567 F.2d 9, 35-36 (D.C. 

Cir. 1977) ("[T]he opportunity to comment is meaningless 

unless the agency responds to significant points raised by the 

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public."). Section 553 provides that an agency may depart 

from normal notice and comment procedures for "good 

cause." 5 U.S.C. § 553(b)(B). The APA also recognizes that 

Congress may modify these requirements, but provides that a 

"[s]ubsequent statute may not be held to supersede or modify 

this subchapter ... except to the extent that it does so 

expressly." 5 U.S.C. § 559.

In this case, the FAA acknowledged that it issued the IFR 

"without public notice and comment" as ordinarily required 

by § 553, and did not properly invoke the "good cause" 

exception to normal APA procedures. 62 Fed. Reg. at 13502. 

Instead, the IFR expressly relied on a procedural directive 

contained within the Act as "subsequent and specific authority" that trumped the otherwise-applicable APA § 553. Id.

Within a section of the Act entitled "Limitations," Congress 

instructed the FAA to "publish in the Federal Register an 

initial fee schedule and associated collection process as an 

interim final rule, pursuant to which public comment will be 

sought and a final rule issued." 49 U.S.C. § 45301(b)(2). 

Keeping in mind Congress's goal to begin fee collection as 

soon as possible, the FAA interpreted the directive to proceed 

via "interim final rule" as obviating the usual first step of 

providing notice of a proposed rule.

We have looked askance at agencies' attempts to avoid the 

standard notice and comment procedures, holding that exceptions under § 553 must be "narrowly construed and only 

reluctantly countenanced" in order to assure that "an agency's decisions will be informed and responsive." New Jersey 

v. EPA, 626 F.2d 1038, 1045 (D.C. Cir. 1980). For example, 

in New Jersey, the EPA issued an immediately effective final 

rule with no prior notice or solicitation of comments, believing 

that the schedule for promulgation of the rule made it impracticable to engage in the notice and comment process. Id. at 

1041. We held that the "tight statutory schedule" set forth in 

the Clean Air Act for designation of "attainment" and "nonattainment" areas did not, without more, justify departure from 

ordinary APA procedures, because "under the facts of this 

case, the Administrator could have reconciled the commands 

of the two acts by publishing the designations ... as proUSCA Case #97-1362 Document #327083 Filed: 01/30/1998 Page 5 of 18
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posed rules." Id. at 1047. Similarly, in Air Transport Ass'n 

of Am. v. Department of Transportation, 900 F.2d 369 (D.C. 

Cir. 1990), vacated for mootness, 933 F.2d 1043 (D.C. Cir. 

1991), we characterized New Jersey as holding that a "statutory deadline did not constitute good cause to forgo notice 

and comment absent 'any express indication' by Congress to 

this effect." Id. at 378-79 (quoting New Jersey, 626 F.2d at 

1043). Cf. Petry v. Block, 737 F.2d 1193, 1200-02 (D.C. Cir. 

1984) (holding that "extraordinary factors" justified invocation 

of the good cause exception under § 553). However, none of 

those decisions involved statutory language similar enough to 

that in this case as to create precedent binding our construction, as none presented a specific directive to adopt procedures other than those of the APA.

Applying § 559, the Supreme Court has held that "[e]xemptions from the terms of the Administrative Procedure Act 

are not lightly to be presumed in view of the statement in 

[§ 559] that modifications must be express." Marcello v. 

Bonds, 349 U.S. 302, 310 (1955) (citation omitted). Marcello

relied upon statutory language and legislative history to hold 

that the 1952 Immigration and Nationality Act displaced the 

hearing requirements of the APA. Id.; see also Ardestani v. 

INS, 502 U.S. 129, 134 (1991) (reaffirming Marcello, holding 

that the APA does not "displace the INA in the event that 

the regulations governing immigration proceedings become 

functionally equivalent to the procedures mandated for adjudications governed by [APA] § 554."). And, as we have previously stated, "the import of the § 559 instruction is that 

Congress's intent to make a substantive change be clear." 

Ass'n of Data Processing Serv. Orgs., Inc. v. Board of Governors, 745 F.2d 677, 686 (D.C. Cir. 1984) (emphasis in original). The question here is whether Congress has established 

procedures so clearly different from those required by the 

APA that it must have intended to displace the norm.

Our closest precedent is Methodist Hospital of Sacramento 

v. Shalala, 38 F.3d 1225 (D.C. Cir. 1994). There, a statute 

directing the Secretary of Health and Human Services to 

establish new Medicare regulations expressly provided for an 

"expedited regulatory process":

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The Secretary shall cause to be published in the Federal 

Register a notice of the interim final ... rates ... no 

later than September 1, 1983, and allow for a period of 

public comment thereon. Payment on the basis of prospective rates shall become effective on October 1, 1983, 

without the necessity for consideration of comments received, but the Secretary shall, by notice published in the 

Federal Register, affirm or modify the amounts by December 31, 1983, after considering those comments.

Social Security Amendments of 1983 ("Amendments"), 97 

Stat. 65, 168 (April 20, 1983). The Secretary claimed that this 

specific required procedure displaced APA requirements, arguing in the alternative that the "good cause" exception made 

notice and comment unnecessary if the APA applied. Methodist Hospital, 38 F.3d at 1235.

We held for the Secretary but did not clearly differentiate 

between the two arguments. Citing Petry, we noted that the 

Secretary confronted a statute different from those which 

allowed the agency "a substantial period of time within which 

to propose regulations, the promulgation of which it knew was 

both necessary and forthcoming in the future." Id. at 1237 

(citations and quotation marks omitted). We concluded that 

"the strict deadlines and special procedures imposed" on the 

Secretary by the amended act under which she was operating 

"constituted sufficiently 'good cause' ... for bypassing the 

APA's notice and comment requirement." Id. (quoting 5 

U.S.C. § 553(b)(B)). Methodist Hospital clearly did not disavow reliance on the good cause exception found in § 553. We 

think that it could have. Statutory language imposing strict 

deadlines, standing alone, does not constitute sufficient good 

cause under § 553 or an express modification pursuant to 

§ 559 justifying departure from standard notice and comment. But, as we said in Methodist Hospital, when Congress 

sets forth specific procedures that "express[ ] its clear intent 

that APA notice and comment procedures need not be followed," an agency may lawfully depart from the normally 

obligatory procedures of the APA. Id.

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In the Act, Congress provided express direction to the 

FAA regarding its procedure for establishing fees for overflights: "the Administrator shall publish in the Federal Register an initial fee schedule and associated collection process 

as an interim final rule, pursuant to which public comment 

will be sought and a final rule issued." 49 U.S.C. 

§ 45301(b)(2). This language at least in part specifies procedures which differ from those of the APA: the agency was to 

issue not a proposed rule, but an "interim final rule," and 

comment was to be sought "pursuant to," not in anticipation 

of, that rule. The Act also authorized the Administrator "to 

recover in fiscal year 1997 $100,000,000." 49 U.S.C. 

§ 45301(b)(1)(A). This language, along with the statutory 

directive that the IFR specify procedures for collecting fees, 

demonstrates that the statute contemplated that the IFR 

would be issued and implemented during fiscal 1997. Given 

that the Act was not passed until after the beginning of fiscal 

1997, the agency had to move quickly to establish a fee 

schedule and collection process in order to fulfill this statutory goal. The legislative history of the Act also demonstrates 

that Congress sought rapid action from the agency to begin 

recovering costs of services provided to overflights through 

FAA-controlled airspace which heretofore had been "free 

riders." See, e.g., Report of the Committee on Commerce, 

Science, and Transportation on S. 1994, S. Rep. No. 104-333, 

at 37 (1996) ("It is envisioned that the FAA will move as 

quickly as possible to develop and impose these fees and 

systems. The sooner funds can be drawn from the proposed 

fees on international overflights ... the better off the FAA 

will be in the short-term.").

In this statutory scheme, Congress specified procedures 

under § 45301(b)(2) that cannot be reconciled with the notice 

and comment requirements of § 553. A cardinal principle of 

interpretation requires us to construe a statute "so that no 

provision is rendered inoperative or superfluous, void or 

insignificant." C.F. Communications Corp. v. FCC, 128 F.3d 

735, 739 (D.C. Cir. 1997) (internal quotation marks omitted) 

(quoting Mail Order Ass'n of America v. United States 

Postal Service, 986 F.2d 509, 515 (D.C. Cir. 1993)). The 

petitioners have not advanced any reasonable construction of 

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§ 45301(b)(2) that would harmonize with simultaneous application of § 553. Were we to hold that the FAA had to issue a 

proposed rule and allow meaningful opportunity to comment 

before issuing the IFR, the resulting process would be so 

nearly indistinguishable from normal notice and comment as 

to deprive this special procedural provision of any effect, and 

to thwart the apparent intent of Congress in enacting the 

special procedure. It is therefore not difficult to conclude 

that Congress in this case purposely and expressly created an 

exception to the otherwise-applicable APA notice and comment procedures.

Admittedly, Congress did not speak as clearly here as it 

had in Methodist Hospital. There, the Amendments not only 

specified proceeding by means of an interim final rule, but 

also established a timetable for the IFR, including the effective date of new rates and a target date for the final rule. 

Furthermore, the Amendments specifically noted that the 

rates "shall become effective ... without the necessity for 

consideration of comments received." Amendments, supra.

Even though § 45301(b)(2) does not establish a specific timetable for every step in the regulatory process, it plainly 

expresses a congressional intent to depart from normal APA 

procedures. The FAA followed that congressional intent as 

far as it went. It is probably the case that once the FAA 

issued the IFR, the APA once again became controlling for 

all subsequent proceedings, but that is not the question 

before us. For present purposes, given the "entire set of 

circumstances before us," Petry, 737 F.2d at 1203, the FAA 

has conformed to applicable law.

To summarize, we hold that, to the extent that § 45301 

specified otherwise, the FAA was not required to conform to 

APA § 553 procedures. Because the FAA complied with 

§ 45301, the process by which it implemented fees for overflights withstands the petitioners' challenge.

B

The petitioners also argue that international aviation agreements create a duty to provide "[r]easonable notice ... prior 

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to changes in user charges," to engage in "consultations," and 

to "exchange such information as may be necessary to permit 

an accurate review of the reasonableness" of charges. See, 

e.g., U.S.-Canada Air Transport Agreement, § 8(C). Because 

the FAA must "act consistently with obligations of the United 

States government under an international agreement," 49 

U.S.C. § 40105, the petitioners claim that the FAA unlawfully 

failed to receive and respond to comments before the new fee 

structure went into effect. The FAA responds that none of 

these agreements creates an enforceable duty to provide 

notice or consultation, and if they did, any obligation under 

§ 40105 to comply with these agreements is superseded by its 

more recently enacted and more specific duty to comply with 

§ 45301 in implementing fees for overflights.

We agree with the FAA that its actions did not violate any 

duties actually imposed by international aviation agreements. 

Most of the agreements relied upon by petitioners speak of 

general aims, not specific obligations. For example, the U.S.-

Canada Air Transport Agreement imposes no duty to consult 

prior to changes in user fees. It provides only that "[e]ach 

Party shall encourage consultations between the competent 

charging authorities ... and the airlines ... and shall encourage the competent charging authorities ... to exchange 

such information as may be necessary to permit an accurate 

review of the reasonableness of the charges...." U.S.-

Canada Air Transport Agreement, § 8(C) (emphasis added). 

The strongest language petitioners advance, found in the 

same agreement, says no more than that "[r]easonable notice 

shall be given prior to changes in user charges." Id. In this 

case, the FAA published the new fee structure sixty days 

before its effective date. The new regulation was not sprung 

upon any user without that user having advance knowledge 

that its activities would incur these new fees. Petitioners 

offer us no basis to conclude that this is not reasonable notice.

The petitioners have not cited any international agreement 

that comes close to imposing a duty to consult. But even if 

such a duty could be found in an agreement only to "encourage consultations," the record does not indicate that the FAA 

failed to consult with affected foreign users. Prior to the 

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effective date of the IFR, FAA staff held informal meetings 

as well as a public meeting with representatives of foreign 

airlines, provided copies of materials from the docket relevant 

to the IFR's development, and accepted forty comments on 

the rule. Although these exchanges may not have influenced 

the content of the regulations made effective on May 19, 1997, 

the terms "consultation" and "exchange of information" in the 

cited international agreements do not import the full notice 

and comment apparatus of APA § 553. The procedures 

adopted by the FAA cannot be said to have breached the 

terms of these international agreements.

III

Substantively, petitioners argue that the rule adopted by 

the FAA unlawfully discriminates against foreign air carriers 

in violation of the provisions of several international aviation 

agreements. On this point petitioners' quarrel is with Congress, not the FAA. The agency did nothing more than 

implement the express terms of the statutory mandate. But 

we need not linger long over the issue. The regulation does 

not discriminate against foreign carriers by applying fees to 

overflights. The Act directs the agency to develop a fee 

structure for services provided to aircraft that "neither take 

off from, nor land in, the United States." 49 U.S.C. 

§ 45301(a)(1). On its face, this language is completely neutral, applying to all overflights regardless of nationality. In 

fact, several U.S. carriers have already been charged fees for 

services provided to overflights.

Of course, a facially neutral statute may be no more than a 

pretext to mask discriminatory intent and effectsbut we 

find no pretext in this case. The United States has for many 

years expended tax dollars to provide air traffic control and 

other services to aircraft flying through its airspace. Before 

this enactment, the FAA collected user fees to support its 

operations via taxes imposed on carriers only at takeoff and 

landing, and further subsidized overflight services from its 

general operating budget. Thus, any flight which originated 

or terminated in U.S. territory not only paid for its share of 

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services, but to some degree cross-subsidized the provision of 

services to flights which used U.S. services without touching 

the ground in the U.S. Flights crossing through U.S. airspace require facilities and staff to manage them. Heretofore, these flights have not borne their share of the costs of 

services provided to them by the FAA. It is not discriminatory to impose fees on this group of users for services that 

they use but for which they have not previously been charged, 

regardless of whether the group is disproportionately composed of foreign carriers.

IV

Petitioners argue that the FAA exceeded the scope of its 

statutory authorization by establishing fees for providing inflight services to aircraft crossing oceanic territory served by 

the FAA. They base this argument on a single phrase 

embedded within the statute's limitations clause, namely, that 

"services" only include those "which are available to facilitate 

safe transportation over the United States." 49 U.S.C. 

§ 45301(b)(1)(B). The petitioners assert that a "plain meaning construction" of the term "over the United States" places 

a geographic limitation on the FAA's authority to impose 

overflight fees. They say this constitutes a clear statement 

by Congress addressing "the precise question at issue," Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.,

467 U.S. 837, 843 (1984), and conclude that the portion of the 

regulation addressing oceanic overflights is ultra vires.

Reading this phrase in its context demonstrates the weakness of this argument. The limitations clause defines "services" to include

the costs of air traffic control, navigation, weather services, training and emergency services which are available to facilitate safe transportation over the United 

States, and other services provided by the Administrator 

or by programs financed by the Administrator to flights 

that neither take off nor land in the United States.

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49 U.S.C. § 45301(b)(1)(B). Under the most natural reading 

of the statutory language, the phrase "which are available to 

facilitate safe transportation over the United States" modifies 

"training and emergency services," not the entire range of 

possible services. At most, the phrase modifies the list of 

items beginning with "air traffic control," and concluding with 

"training and emergency services." In no way can it sensibly 

be construed to modify "costs," the object of the verb "include" which is modified by the whole prepositional phrase 

beginning with "of" and including the words "and other 

services provided by the Administrator." That last item in 

the list, "other services provided by the Administrator," plainly expresses a congressional intent to include in the relevant 

"costs" services outside those set forth in the earlier list, no 

matter how many of the listed nouns are modified by the 

phrase including the critical term "over the United States."

Therefore, not only does the section not express a clear 

congressional intent to prevent the FAA from imposing fees 

for oceanic overflights, but the natural reading of the statutory language is that Congress has expressed its intent that the 

agency recover its costs for services provided to flights 

through U.S.-controlled airspace without regard to whether 

an aircraft crosses U.S. land territory. Under Chevron, this 

is enough; we need not address whether the FAA reasonably 

could construe the statute to allow it not to impose fees on 

such flights. Insofar as there is any ambiguity in Congress's 

intent on the question, we can only require that an agency's 

interpretation be a reasonable one. Chevron, supra. The 

statute can at least reasonably be interpreted to allow the 

FAA to charge for services provided to an aircraft that 

neither takes off nor lands in the United States, regardless of 

whether its flight path takes it "over the United States."

V

Finally, petitioners argue that the FAA exceeded its statutory authority by basing fees, at least in part, on the value to 

the recipient of services provided instead of on costs. Petitioners contend that the statutory directive to "ensure that 

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each of the fees required ... is directly related to the 

Administration's costs of providing the service rendered," 49 

U.S.C. § 45301(b)(1)(B), prohibits such value-based pricing. 

The FAA does not dispute petitioners' interpretation of the 

statute. The FAA Office of Aviation Policy and Plans expressly recognizes that "Congress has mandated the fee 

should be service based and not based on value...." Regulatory Evaluation at 7. The IFR itself states that one option 

proposed by the GRA Study, charging based on aircraft 

weight, would violate this limitation: "when viewed as a 

measure of value of the service to the user [the use of weight] 

is not consistent with the FAA's current authority." 62 Fed. 

Reg. at 13501. We agree with petitioners that, insofar as the 

FAA allocated fixed and common costs using the Ramsey 

pricing methodology, its fee structure impermissibly included 

a component based on value to the user.

The FAA estimated the total annual cost of air traffic 

control and related services to be $6.3 billion, including $2.2 

billion in incremental costs directly attributable to provision 

of in-flight services to all flights.1See FY 1995 Cost Allocation Study at 6-12, 6-19, & 6-22. Incremental costs vary 

with the quantity of service provided and include, for example, controller staff time and facility operating costs. Petitioners do not contest that a component of fees based on 

these costs is indeed "directly related to the Administration's 

costs of providing the service rendered" to each flight. The 

remaining $4.1 billion reflects the fixed and common costs of 

providing air traffic services, including, for example, radar 

installations and computer software. The FAA asserts that 

"excluding such costs from the rate base for overflights would 

effectively perpetuate a system in which operators of such 

flights do not fully reimburse the agency for the services they 

receive," and that "the exclusion of these costs from the rate 

base would conflict with Congress's directive that 'the fees 

shall be based on the direct total cost of providing the 

service.' " FAA Br. at 22 (quoting H.R. Conf. Rep. No. 

__________

1 Overflights accounted for approximately one percent of these 

totals.

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104-848, 104th Cong., 2d Sess. 110, reprinted in 1996 

U.S.C.C.A.N. 3703, 3732). Petitioners do not dispute that the 

agency may recover fixed costs; they simply argue that the 

FAA did not "allocat[e] its indirect costs in a way that ... 

met statutory standards." Pet. Repl. Br. at 14. The difficulty with determining the portion of fixed and common costs 

attributable to overflights is that by definition these costs are 

shared among a great number of users besides overflights 

and so, in a sense, do not directly relate to the quantity of 

services consumed. Thus, a method must be devised to 

apportion these costs among all the users who benefit from 

them, without violating the strictures of the statute.

The apportionment methodology adopted by the FAA involved an optimization technique called "Ramsey pricing." 

Ramsey pricing varies the share of total fixed and common 

costs allocated to a user based on the likely impact of such a 

cost change on that user's behavior. This impact is related to 

the user's elasticity of demand and to the relationship between the amount to be charged and the user's total operating costs.

In applying that method to allocate fixed costs, the GRA 

Study classified flights into "User Types," including Commercial Users, General Aviation Users, Public Users, and Overflights, with the first three further broken down into twelve 

subtypes. Each of these thirteen categories was assigned a 

demand elasticity based on a rough estimate from earlier 

studies. The GRA Study categorized 1995 flight data by 

User Type and divided them into seven flight distance categories. GRA then computed the average operating cost (including crew, oil, fuel, maintenance, and taxes) and the average 

incremental air traffic services cost for each of the 612 TypeDistance combinations. Using a "mathematical optimization 

technique," it finally determined the Ramsey prices for each 

combination. While its description of this process is, charita-

__________

2 Matching the twelve subtypes and Overflights against the seven 

distance categories yielded 91 combinations, but 30 of these had an 

insignificant number of flights and so were included in the next 

higher distance block.

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bly speaking, rather opaque, it appears that this involved 

finding the optimum total cost (including operating costs and 

incremental and fixed air traffic services costs) for each 

combination based on the demand elasticity and the difference between price and incremental cost. Subtracting out 

the operating costs yielded the "Ramsey price" for each 

category, including both incremental and fixed costs. Significantly, the study noted that "[t]he allocation of those common 

and fixed costs depends heavily on the overall flight cost. As 

the price of air traffic services becomes a smaller fraction of 

total costs, the optimization will assign a higher Ramsey price 

to higher cost flights (holding all else constant)." GRA Study 

at 51. Finally, the Ramsey prices for the overflight categories were adjusted for services not provided to oceanic overflights and for inflation and cost increases since 1995, and run 

through a regression to arrive at the per-mile cost equations 

found in the IFR.

The FAA offered good reasons for adopting this approach. 

Ramsey pricing "varies the shares of common or fixed costs 

allocated to a user type based on the likely impact of such a 

cost change on user behavior." GRA Study at 38. It results 

in pricing which theoretically ensures the most economically 

efficient use of services. (The most efficient price structure, 

in terms of forcing users to internalize the costs of their 

operations, is to set fees equal to marginal costs. Ramsey 

pricing aims to preserve incentive neutrality when adding a 

fixed cost component to marginal-cost prices.) Ramsey pricing could also have a positive impact on the FAA's primary 

mission of air traffic safety: some cost-sensitive users, if 

charged a large share of fixed costs, might in response lower 

their utilization of air traffic services to an unsafe level.

The difficulty with the FAA's justification is that not all 

good reasons are lawful reasons. See, e.g., American Petroleum Inst. v. EPA, 52 F.3d 1113, 1119 (D.C. Cir. 1995) (An 

agency "cannot rely on its general authority to make rules 

necessary to carry out its functions when a specific statutory 

directive defines [its] relevant functions ... in a particular 

area."). No matter how strong the justification, § 45301 

prohibits basing fees on the value of the service to the user 

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rather than cost. And Ramsey pricing appears to do just 

that. As described by the FAA, Ramsey pricing "takes a cost 

amount from another source and allocates that cost among 

particular users based on the value of the service to them." 

FAA Br. at 21; see also id. at 5 ("Ramsey Pricing methodology takes a given cost amount and allocates it among particular users based on the value of the service to them."). In its 

brief, the FAA insists that the petitioners wrongly suggest 

that it used Ramsey pricing to "establish costs based on the 

value of such costs to users." Id. at 21 (emphasis added). 

This distinction drawn by the FAA illuminates the very pit 

into which it has fallen: although it is true that the total cost 

figure is based on real cost data and not on a "market price" 

for services, the fact is that the FAA has distributed those 

costs among all users of the system based on the value of 

services as perceived by each group of users. The problem 

arises because the FAA chooses to understand "costs" at too 

high a level of generality. The FAA seems to think it has 

complied with Congress's mandate simply because "[t]otal 

fees assessed for using each type of airspace (domestic and 

oceanic) do not exceed the costs of providing services within 

that type of airspace." 62 Fed. Reg. 13499. But that is not 

what Congress mandated.

Statutory language requiring that "each" fee be "directly 

related to ... the costs of providing the service rendered" 

expresses a clear congressional intent that fees must be 

established in such a way that each flight pays according to 

the burden associated with servicing that flight. There may 

be methods to reasonably determine an appropriate fraction 

of the FAA's fixed costs to assign to each overflight, and if 

the FAA does not have enough information to precisely 

determine the burdens imposed by individual flights, it may 

proceed based on the best data available. See Radio Ass'n 

on Defending Airwave Rights, Inc. v. Department of Transportation, 47 F.3d 794, 806 (6th Cir.), cert. denied, 116 S. Ct. 

59 (1995). However, it may not set fees on a basis other than 

cost. In this case it attempted to do so when it apportioned 

its costs among user groups based on each group's relative 

sensitivity to the amount charged. This regulation cannot be 

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saved by the fact that the total amount recovered would equal 

the FAA's total cost of providing services, when the fees 

charged a flight are not "directly related" to the agency's cost 

of providing "each service."

CONCLUSION

Although the FAA adopted procedures consistent with the 

statutory requirements, we hold that the fee structure imposed by the IFR was impermissibly based, at least in part, 

on the value of services to users. Because the IFR and the 

underlying record material suggest no way to circumscribe a 

component of the fees based entirely on direct costs of 

services, we vacate the fee schedule in its entirety and 

remand to the FAA for further proceedings consistent with 

this opinion.

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