W02-EAST:9RGG1\200383382.1 -1- UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY Washington, D.C. ALASKA AIRLINES, INC., et al .,

v. LOS ANGELES WORLD AIRPORTS, et al . Docket No. OST-2007-27331



### COMPLAINANTS’ AND RESPONDENTS’ APRIL 15, 2011 JOINT REPORT ON THE STATUS OF SETTLEMENT DISCUSSIONS

M. Roy Goldberg SHEPPARD MULLIN RICHTER & HAMPTON LLP 1300 I Street, NW Suite 1100 East Washington, DC 20005-3314 Phone: (202) 218-0007 Fax: (202) 218-0020 rgoldberg@sheppardmullin.com Counsel for: Alaska Airlines, Inc. AirTran Airways, Inc. ATA Airlines, Inc. Frontier Airlines, Inc. Midwest Airlines, Inc. Southwest Airlines Co. US Airways Group, Inc. Steven S. Rosenthal Jeffery A. Tomasevich J.D. Taliaferro K AYE S CHOLER LLP 901 Fifteenth Street, NW Washington, DC 20005 Phone (202) 682-3500 Fax: (202) 682-3580 email: srosenthal@kayescholer.com jtomasevich@kayescholer.com jtaliaferro@kayescholer.com Carmen A. Trutanich Los Angeles City Attorney Raymond S. Ilgunas, Interim General Counsel, Los Angeles World Airports

L OS A NGELES C ITY A TTORNEY ’ S O FFICE Los Angeles World Airports One World Way Los Angeles, CA 90045 Phone: (424) 646-5010 Counsel for RespondentsCOMPLAINANTS’ AND RESPONDENTS’ APRIL 15, 2011 JOINT

REPORT ON THE STATUS OF SETTLEMENT DISCUSSIONS

W02-EAST:9RGG1\200383382.1 -2- Robert W. Kneisley Associate General Counsel Leslie Abbott Attorney SOUTHWEST AIRLINES CO. 1901 L Street, N.W. Suite 640 Washington, DC 20036 Howard Kass Vice President, Legal and Government Affairs US AIRWAYS GROUP, INC. 1401 H Street, N.W. Suite 1075 Washington, DC 20005 Kyle Levine Senior Attorney ALASKA AIRLINES, INC. 19300 International Blvd. Seattle, Washington 98188-5303 Jacqueline Peter Counsel FRONTIER AIRLINES, INC. 7001 Tower Road Denver, Colorado 80249
Steve Rossum Executive Vice President & General Counsel AIRTRAN AIRWAYS, INC. 9955 AirTran Boulevard Orlando, Florida 32827 Edward P. Faberman WILEY REIN LLP 1776 K Street, N.W. Washington, DC 20006 Counsel for Air Tran Airways, Inc.

DATED: April 15, 2011COMPLAINANTS’ AND RESPONDENTS’ APRIL 15, 2011 JOINT

REPORT ON THE STATUS OF SETTLEMENT DISCUSSIONS

W02-EAST:9RGG1\200383382.1 -1- The T1/T3 Airlines 1 and Los Angeles World Airports 2 (“LAWA”) (collectively, the “Parties”) hereby jointly file this status repo rt, in response to the DOT’s “Third Order Granting an Interim Stay of Proceedings and Extendi ng Deadline to File Procedural Comments,” Order 2010-10, January 14, 2011 (“Third Order”), regarding the efforts to settle the remanded issues set forth in DOT’s Order 2009-11-24 (“November 24 Notice”) and Order 2009-12-17 (“First Order”).

BACKGROUND On November 24, 2009, following remand of certain i ssues by the United States Court of Appeals for the District of Columbia Circu it (the “D.C. Circuit”), the DOT issued the November 24 Notice in this case. The November 24 Notice directed the T1/ T3 Airlines and LAWA “to advise the Department . . . w hether there is a possibility of settlement on the issues remanded” by the D.C. Circ uit. November 24 Notice, at 5. The November 24 Notice further directed another submiss ion on procedural issues at a later date. Id

. Following LAWA’s and the T1/T3 Airlines’ initial su bmissions on December 2, 2009 and December 4, 2009, respectively, the Partie s held a conference call with DOT on December 16, 2009. During that call, the Parties d iscussed additional procedural issues, and DOT subsequently issued the First Order, direct ing the Parties to file, no later than

1 The T1/T3 Airlines are the seven air carriers that on February 16, 2007, filed with the Office of the Secretary of the United States Depart ment of Transportation a “Joint Complaint in Opposition to New Terminal Charges at Los Angeles International Airport.” 2 Respondents in this case are the LAWA, the Los Ange les Board Of Airport Commissioners (“BOAC”), and the City Of Los Angeles , California (“City”). As used herein, LAWA refers to all Respondents.COMPLAINANTS’ AND RESPONDENTS’ APRIL 15, 2011 JOINT

REPORT ON THE STATUS OF SETTLEMENT DISCUSSIONS

W02-EAST:9RGG1\200383382.1 -2- January 18, 2010, additional comments with regard t o the five issues remanded by the D.C. Circuit as set forth in the November 24 Notice

. On January 11, 2010, the T1/T3 Airlines and LAWA fi led a joint motion to extend deadlines in this proceeding in order to att empt to reach agreement on the issues identified in the Notice. In its January 21 Order, DOT granted the Parties’ motion to extend the deadline to provide written submissions on remaining written and evidentiary issues from January 18, 2010 to October 18, 2010, b ut directed the Parties to file periodic reports regarding the status of settlement negotiat ions. The first such report was due March 18, 2010, with successive reports to be filed approximately every 60 days thereafter. By the time of DOT’s January 21 Order, the T1/T3 Ai rlines and LAWA had already reached agreement on one of the five remand ed issue identified by the November 24 Notice; namely, the “[t]imeliness of [the] T1 Ai rlines’ objection to fair market valuation” used by LAWA in setting base rent (also known as the “Base Charge”) at LAX Terminal 1. November 24 Notice at 2. The four remaining D.C.-Circuit-remanded issues from the DOT’s November 24 are:

• Airfield vs. non-airfield space. “We must therefore grant the Tl/T3 Airlines’ petition and again remand the matter to the DOT eit her to justify or to abandon its disparate treatment of airfield and non-airfield sp ace.”

• Other aeronautical uses of terminal space. “We grant the City's petition in this respect and direct the DOT on remand, either to jus tify or to abandon its objection to the City's considering non-aeronautical uses whe n setting terminal rents based upon FMV.”

• Burden of persuasion on rentable space. “We therefore grant the City's petition to the extent of directing the DOT on remand to revisi t the TllT3 Airlines’ complaint of discrimination and to apply to them the burden o f persuasion that their disparate treatment is unjust.”COMPLAINANTS’ AND RESPONDENTS’ APRIL 15, 2011 JOINT

REPORT ON THE STATUS OF SETTLEMENT DISCUSSIONS

W02-EAST:9RGG1\200383382.1 -3- • Monopoly power. “On remand the DOT must explain why this case does not present the “extraordinary situation” in which alle ged monopoly power is relevant to a fee dispute or, if it cannot, then go on to co nsider whether LAX had monopoly power in a relevant geographic market.” November 24 Notice at 2-3. In a “Second Order” dated November 18, 2010 the DO T ordered the Parties to file a written status report and invited the parties to file, by January 17, 2011, written submissions on: 1. Whether the current record evidence on the four remaining remanded issues is sufficient or requires supplementation; 2. What, if any, additional fact finding or eviden ce is contemplated and for which of the remanded issues; 3. The justification for such additional fact find ing or evidence; 4. Whether an oral evidentiary hearing is necessar y to hear the new evidence, if any; and 5. Any other procedural or evidentiary issues the parties wish to note. However, in response to a joint submission of the parties dated December 15, 2010, which described efforts being made to resolve the outstanding disputes, the DOT, in its Third Order, agreed to stay the remand proce edings until August 1, 2011 to allow the parties additional time to attempt to resolve t he remaining issues. The DOT also ordered the parties to file periodic Joint Status R eports, including this Report.COMPLAINANTS’ AND RESPONDENTS’ APRIL 15, 2011 JOINT

REPORT ON THE STATUS OF SETTLEMENT DISCUSSIONS

W02-EAST:9RGG1\200383382.1 -4- DESCRIPTION OF SETTLEMENT DISCUSSIONS SINCE THE FEBRUARY 15, 2011 JOINT STATUS REPO RT Since the last Joint Status Report was submitted on February 15, 2011, the BOAC – on April 4, 2011 – approved a new lease for Alask a Airlines at Terminal 6 and a Settlement Agreement regarding Alaska’s claims in t his proceeding. The new lease is currently before the Los Angeles City Council for a pproval. The Settlement Agreement, a condition of which is approval of the new lease b y the Los Angeles City Council, calls for Alaska to dismiss its claims in this proceeding with prejudice. After Alaska dismisses its claims, it will no longer be part of the carrie r coalition pursuing this case. The Alaska/LAWA settlement will not resolve the remaini ng issues pertaining to the other carriers that are part of the T1/T3 coalition. Regarding Terminal 1 and the other carriers remaini ng at Terminal 3, the remaining T1/T3 carriers believe there has been no tangible progress on resolving the settlement issues since the last status report. Wi th the BOAC approval of the new Alaska Airlines lease at Terminal 6, the Terminal 1 and re maining Terminal 3 carriers expect that LAWA will now focus its attention on resolving the outstanding issues facing Terminals 1 and 3, with concrete progress before th e next status report in 60 days. On the other hand, LAWA has provided the airlines' outside consultant - AvAirPros - with a significant amount of documentat ion, has recently concluded its peer review process and is currently evaluating the resu lts. LAWA maintains that progress is being made with regard to airport-wide issues that, in LAWA's belief, may render moot the terminal-specific concerns raised by the T1 Air lines.