August 26, 2009 

BEFORE THE UNITED STATES DEPARTMENT OF TRANSPORTATION 

FEDERAL AVIATION ADMINISTRATION 

 )

IN RE OVERFLIGHT FEES ) 

AVIATION RULEMAKING COMMITTEE ) 

 ) 

CONDITIONAL “RECOMMENDATION” OF THE INDUSTRY 

MEMBERS OF THE FAA AVIATION RULEMAKING 

COMMITTEE ON OVERFLIGHT FEES

The industry members of the U.S. Federal Aviation Administration (“FAA”) Aviation 

Rulemaking Committee for overflight fees (the “ARC”)1

 present this conditional 

recommendation on user fees charged by the FAA for the provision of air traffic control services

to airlines that neither take off nor land in the United States (see appendix I for a historical

background). 

The industry members of the ARC have engaged in constructive discussions with the FAA in an

attempt to reach a suitable adjustment for the increase in fees that was originally proposed by 

FAA during the first meeting of the ARC. As a result of those discussions – and conditional upon 

acceptance, representations and expectations that they have received in connection with the 

increased fees, – the industry members will not object to a change in fees as outlined below. 

2. CURRENT ECONOMIC REALITY. 

The industry ARC members urge FAA to recognize the worldwide airline industry is 

under unprecedented negative financial pressure as the result of a confluence of factors. In 2008 

and 2009 year to date alone, over 14 airlines have been forced to cease operations altogether. 

Other carriers have been forced to reorganize under bankruptcy law protections. As IATA 

Director General and CEO Giovanni Bisignani recently stated: “These are extremely challenging 

times for airlines; there are no signs of an early economic recovery. Other external risks are 

potentially great, including rising oil prices and the impact of Influenza (H1N1) on demand. 

Cash flow is threatened by weak demand, exaggerated by reduced fares; after years of cost 

reduction, the scope for further cuts is limited.” 

 

1

The industry members of the ARC are Air Canada, Air France, Air Transat, Air Transport Association of

Canada, Association of Asia Pacific Airlines, British Airways, Plc, Cathay Pacific Airways Limited, 

International Air Transport Association, KLM Royal Dutch Airlines, Lufthansa German Airlines,

Mexicana Airlines, National Airlines Council of Canada, SkyService Airlines, Inc., Sunwing Airlines,

WestJet and Virgin Atlantic Airways Ltd. 

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 August 26, 2009 

According to IATA’s most recent forecast, airlines could suffer losses of US $9 billion this year.

IATA has also adjusted its estimates for losses in 2008, from US $8.5 billion to US $10.4 billion. 

In addition to the global downturn, a number of airlines overflying the US have been hit 

extremely hard by the H1N1 pandemic; this is again forecasted to be a factor this coming fall by

the World Health Organization. As the FAA can well appreciate, in this challenging 

environment any increase in overflight fees will be materially detrimental to the finances of the 

affected carriers; exposing the industry stakeholder to further economic risk. 

We recognize the desire to update the overflight fees but, at the same time, we must remain 

diligent in our opposition to changes that would discourage already depressed traffic levels and 

the future growth of the industry and which would not be reasonably related to the cost of 

providing the underlying ATC service. Even in the current environment we the carriers 

represented by the ARC are at peril of a decline of traffic and reduced revenue. We therefore 

request FAA to review the overflight fees based on our recommendations in order to reflect the

current economic reality.

3. COST ACCOUNTING SYSTEM.

The industry members of the ARC are conditionally not challenging the use of the CAS 

at this time, with the hope and understanding that the FAA will continue ongoing efforts to 

continually improve the accuracy and integrity of the CAS. The ARC acknowledges that, for the 

purpose of this exercise, the FAA’s Cost Accounting System (“CAS”) will be the basis for the

FAA’s determination of costs for delivery of air navigation services to overflights. Although the 

industry members continue to believe that it is more accurate to remove the FAA’s overhead and 

other non-related costs for the overflight fee cost base, and therefore does not endorse this 

methodology as a whole. 

The ARC records demonstrate that FAA is seeking to recover more than the reasonably related

costs for providing ATC and related services to overflights. By contrast, costs for providing 

ATC and related services to flights that take off or land in the United States in lieu of overflight 

fees are partially recovered through a contribution from the General Fund. Accordingly, it is 

clear that the proposed overflight fees will be assessed on terms that are “less favorable” to 

foreign airlines which do not take off or land in the United States, than to their U.S. counterparts. 

4. CONDITIONAL ACCEPTANCE OF INCREASE IN OVERFLIGHT FEES.

The industry member’s acceptance of an increase in overflight fees is conditioned upon 

certain factors, including the lack of any increase until completion of the NPRM process, and a 

cap on the increase as set forth herein. The industry members have provided this consent 

pursuant to their desire to work in a collaborative effort with FAA to reach a mutually agreeable 

resolution with regard to FAA’s desire to increase the fees. However, if, for any reason, the

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 August 26, 2009 

reasonable conditions which the industry members have placed on their consent are not fulfilled,

the members would be free to return to their multi-pronged objections to the fee increase sought 

by FAA, without limitation. (See appendix II). 

Assuming that FAA would implement an equal annual increase through use of a standard noticeof-proposed rulemaking and comment period (“NPRM”), the ARC members would not object to 

an annual increase of 13.9% for Enroute fees and 8% for Oceanic fees over four consecutive 

years beginning in October 2011.Given the magnitude of the increase dictated by an update from 

1999 to 2008 data, it is critical that any such change abide by the ICAO principles of gradualism 

in implementing this fee increase over a multiple year period. This agreement is conditioned

upon the understanding that the increase would not go into effect until after the issuance of a 

final rule following the NPRM, and not before October 1, 2011, and that there would be no 

further increase until FY2016. 

The following charts show increases in overflight fees for which the ARC provides its 

conditional acceptance. 

ARC Proposed Rates

33.72

43.75

49.83

56.80

15.94 15.94 17.20 18.57 20.04 21.64

33.72

38.41

0

10

20

30

40

50

60

2009 2010 OCT 2011 OCT 2012 OCT 2013 OCT 2014 OCT

Unit Rates

Enroute unit rate Oceanic unit rate

 

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5. DEVELOPMENT OF UNIT COSTS

The FAA’s operational costs have been increasing at a steady pace between 1999 and 

2009, which partially resulted in the need to adjust the overflight fees. As a comparison, fees for 

ATC providers such as Nav Canada have only increased 5% over the period between 1999 and 

2009, 19% below inflation. The average unit rate for EUROCONTROL between 2002 and 2009 

has decreased by 1.9%. 

With a single user group paying user fees and a direct relationship between FAA’s cost base and 

a fee for the services provided, it is imperative that future focus of the FAA be directed towards 

sustained growth and measurable cost-efficiencies. 

The ARC members urge the FAA to establish a formal financial user consultation process prior 

to future adjustments of the cost base, in line with internationally accepted policy on Air

Navigation Service Charges, developed by the International Civil Aviation Organization ICAO

in Doc 9082 and to aim for a time over time reduction of the unit costs through cost containment

and traffic growth, in line with the trend with other leading ATC Providers around the world. 

 

6. CONCLUSION

We acknowledge the cooperative attitude FAA has demonstrated during this ARC 

process and the opportunity to provide our recommendations to FAA. Despite the issues that the

ARC members still have with regard to FAA’s intention to increase the overflight fees, the 

members of the ARC, in the spirit of good faith cooperation and collaboration with the FAA, will

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 August 26, 2009 

conditionally not object to the fee increase set forth above, assuming that the above stated 

conditions are fulfilled. 

We assume that FAA will reconsider their overflight fee structure as a whole if a political

decision would be made to start collecting user fees for all users while removing the existing tax 

system, in which case an equitable and truly cost related charging system would become easier to 

achieve. 

In the meantime, please feel free to contact the undersigned or any of the other ARC members if 

there are any further questions. 

 Respectfully submitted: 

Cyriel Kronenburg 

Vice Chairman, Aviation Rulemaking Committee, 

International Air Transport Association, IATA 

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APPENDIX 1: HISTORICAL BACKGROUND

In October 1996, Congress enacted section 273 of the Federal Aviation Reauthorization Act of 

1996, Pub. L. 104-264, codified at 49 U.S.C. § 45301, which, for the first time, authorized the 

FAA to impose a user fee for the provision of air traffic control and related services to aircraft

that neither takeoff nor land in the United States. In March 1997, the FAA issued an “Interim

Final Rule” which sought to impose nearly $100 million in overflight fees, fifty million of which 

was set aside by Congress to fund the Essential Air Services program in the United States. In 

January 1998, the U.S. Court of Appeals for the D.C. Circuit vacated the IFR, ruling that the fees

did not comply with the statutory directive that they be “directly related” to FAA’s costs of

providing services to overflights because of FAA’s use of “Ramsey pricing” to determine the 

fees (footnote 2). 

In June 2000 the FAA issued a new IFR which sought to recover approximately $40 million per 

year in overflight fees. In July 2001, the D.C. Circuit vacated the 2000 IFR because the FAA did 

not show that the fees were directly related to costs, in that FAA provided no basis for its 

assumption that FAA incurs the same level of costs to provide services to overflights as to nonoverflights.2 The following month (August 2001), FAA issued a final rule for overflight fees 

(the “Final Rule”) which continued to assume that the agency incurred the same level of costs to 

provide ATC and related services to overflights as to non-overflights. 

In April 2003, the D.C. Circuit vacated the Final Rule (footnote 3). The Court stated that: “For

the third time, we must review the lawfulness of a Federal Aviation Administration regulation 

establishing fees for air traffic control services for ‘overflights’ . . . . For the third time, we find 

that the FAA disregarded its statutory mandate.” The Court found that the airlines’ experts had 

made “a substantial case refuting the agency’s unexplained insistence that miles of overflights

and non-overflights in the Enroute and Oceanic airspaces are approximately equivalent in their 

per-mile generation of costs.” The Court acknowledged the FAA’s assertion that some

overflights spend some time at low altitudes, but pointed out that this did “not undermine

petitioners’ claim that they fly predominately in the high altitude sector, to a degree far greater 

than do non-overflights.” The Court also rejected FAA’s contention that fixed and common 

costs dominate, and therefore any difference in the marginal cost of servicing an additional 

overflight versus an additional non-overflight is immaterial. 

During the interim between the July 2001 and April 2003 D.C. Circuit decisions, Congress 

enacted Section 119(d) of the Aviation Transportation and Security Act of 2001 (“ATSA”). 

Section 119(d) amended the 1996 overflight fee statute to provide that (1) overflight fees must be

“reasonably related” (rather than “directly related”) to the FAA’s costs of providing services to 

overflights, and (2) the FAA’s determination of its costs for providing services to overflights is 

not subject to judicial review. Although the D.C. Circuit, in its April 2003 decision, ruled that 

 

2

Air Transport Association of Canada v. FAA, 254 F.3d 271 (D.C. Cir. 2001). 

3

Air Transport Association of Canada v. FAA, 323 F.3d 1093 (D.C. Cir. 2003). 

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 August 26, 2009 

Section 119(d) did not apply retroactively to the FAA’s final rule on overflight fees, in 

December 2003 Congress enacted certain legislative language in Section 229 of Vision 100,

which was intended to retroactively nullify the April 2003 Court ruling. Section 229 states: “The 

interim final rule and final rule referred to in subsection (a), including the fees issued pursuant to

those rules, are adopted, legalized, and confirmed as fully to all intents and purposes as if the

same had, by prior Act of Congress, been specifically adopted, authorized, and directed as of the 

date those rules were originally issued.” The new law also purported to make ATSA Section 119 

applicable to the overflight fees. 

Pursuant to a settlement reached between FAA and the parties that had successfully challenged 

the 2000 IFR and the 2001 Final Rule, FAA agreed to “make payments to the litigating [carriers] 

from previously collected fees” based on a formula agreed to by the parties “in addition to 

whatever refunds and credits” were otherwise available to the litigating carriers. Following the 

settlement, FAA resumed assessment and collection of overflight fees based on the methodology 

of the Final Rule. As a result, the carriers have been paying $33.72 per 100 nautical miles for

Enroute services, and $15.94 per 100 nautical miles for Oceanic services. 

As part of the settlement with the litigating carriers, the FAA agreed to the creation of the ARC,

which was to consist of FAA and industry representatives working to examine in depth the 

FAA’s methodology for overflight fees and to recommend whether it should be modified. 

Section 4 of the ARC Charter states that the “Committee’s primary task is to identify the services

rendered to overflights by the FAA, to determine the FAA’s costs of providing services to 

overflights, and, based upon that determination, to make recommendations to the Administrator 

regarding the level of future overflight fees that would be consistent with the provisions of the 

1996 Act, as amended.” Section 5(a) of the Charter states that the “Committee is to evaluate 

information regarding the services rendered to overflights by the FAA and the costs of providing 

those services to overflights, and, based on that evaluation, to make recommendations regarding 

future overflight fees, including possible modification to, or replacement of, the fees currently

being charged by the FAA.” Section 6(h) states that “Committee recommendations to the

Administrator must be approved by at least a two-thirds vote of the members. The Chair shall 

have the right to submit a separate report or recommendation to the Administrator.” 

The first meeting of the ARC occurred in April 2005. It was followed by a visit of the ARC to 

the Enroute center near Cleveland, Ohio, in June 2005. In December 2008, the FAA issued a 

Federal Register notice to reconstitute the ARC. The reconstituted ARC held formal meetings in 

April and July of 2009. During these meetings FAA has discussed with the industry members

possible ranges of increases in the overflight fees to be paid by affected carriers. FAA also 

provided certain items of information to the ARC industry members in connection with the 

increase in overflight fees which FAA announced it intended to seek. Also in 2009, both Houses 

of Congress proposed or otherwise considered statutory language for an update in the overflight 

fees. 

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APPENDIX II

1. The FAA is utilizing a methodology which the U.S. Court of Appeals for the D.C. Circuit 

ruled in 2003 failed to comply with the statutory standard that the fees be “directly related” to 

FAA’s costs of providing ATC and related services to overflights. The fact that the language has 

been changed to “reasonably related” from “directly related” does not change the core fact that 

the FAA incurs a lower level of costs (in terms of manpower and otherwise) to provide ATC and 

related services to overflights than to aircraft that operate at lower, transitional altitudes 

throughout the air traffic control system. This evidence was clearly placed before the FAA in 

connection with the litigation over the second IFR and the Final Rule, and there has been no 

development that has changed this fact or the import of the Court’s 2003 decision. In sum, in 

order for the fees to be truly cost based, the fee methodology would need to reflect the fact that 

the agency incurs more costs to provide service to non-overflights than to overflights. The 

members also believe that there is no basis for including the cost of overhead in the overflight

fee methodology. 

2. The industry members object to the multiple efforts to deprive airlines of the right to

obtain judicial review of FAA’s derivation of the overflight fees. Following the first two 

successful legal challenges to overflight fees, and commencing with Section 119 of ATSA in 

November 2001, and continuing with Section 229 of Vision 100 in December 2003 and language 

in proposed legislation being considered by Congress at this time, the FAA appears to have

sought and obtained language to deprive airlines subject to overflight fees of the right to seek and 

obtain judicial review with regard to certain aspects of the fees. The timing of Section 119 of 

ATSA and Section 229 of Vision 100 appears to indicate that the legislation was intended to 

change the result of independent decisions of the judiciary branch, which would not have been 

appropriate. Beyond that, it is contrary to international norms and good policy to prohibit 

airlines from being able to obtain judicial review of user fees. The fact that Article 84 of the 

Convention on International Civil Aviation (“Chicago Convention”) and various bilateral and 

multilateral air services agreement to which the United States is a party provide for independent 

review of user charges demonstrates the international consensus that no State should be 

permitted to dictate the user charges imposed on foreign airlines without having a suitable review 

process before a disinterested dispute resolution body. However, the dispute resolution remedies 

in the international air services agreements are complex and time consuming. It is incumbent on 

each State that imposes user charges on aviation to provide for independent judicial review in the 

courts of that nation, so that the dispute resolution provisions which are binding on each State do 

not need to be needlessly invoked. Stated simply, the international airline community merely 

wants the ability to have an independent national judiciary review compliance by the feecharging entity with applicable legal requirements. That should not be objectionable to FAA or 

the U.S. Congress. 

3. Finally, the proposed overflight fees are not consistent with bilateral and multilateral air 

services agreement (with which the United States is a signatory), which require, among other 

things, that foreign airlines (which are the carriers subject to overflight fees) be assessed user

charges on terms “not less favorable than the most favorable terms available” to other carriers.

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 August 26, 2009 

See, e.g., Article 12(1) of the “Air Transport Agreement” between the European Union and the 

United States (April 25, 2007) (“User charges that may be imposed by the competent charging 

authorities or bodies of each Party on the airlines of the other Party shall be just, reasonable, not 

unjustly discriminatory, and equitably apportioned among categories of users. In any event, any 

such user charges shall be assessed on the airlines of the other Party on terms not less favorable 

than the most favorable terms available to any other airline at the time the charges are 

assessed”); Article 9(1) of the “Air Transport Agreement Between The Government of the 

United States of America and The Government of Canada” (February 24, 1995) (“User charges 

that may be imposed by the competent charging authorities or bodies of each Party on the 

airlines of the other Party for the use of air navigation and air traffic control services shall be 

just, reasonable and not unjustly discriminatory. In any event, such user charges shall be 

assessed on the airlines of the other Party on terms not less favorable than the most favorable 

terms available to any other airline”); see also Article 15 of the Chicago Convention (“like 

uniform conditions shall apply to the use, by aircraft of every contracting State, of all air 

navigation facilities . . . which may be provided for public use for the safety and expedition of air 

navigation”) (“charges . . . imposed . . . for the use of air navigation facilities by the aircraft of

any other contracting State hall not be higher . . . than those that would be paid by its national 

aircraft engaged in similar international air services”). 

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