UNITED11.September15,2014DarrellB.Buchbinder,Esq.GeneralCounselPortAuthorityofNewYorkandNewJersey225ParkAvenueSouth121hFloorNewYork,NY10003DearMr.Buchbinder:BrettJ.HartExecutiveVicePresidentandGeneralCounselandSecretaryPhone:(872)825-8181brett.hart@united.comIwritetofollowupontheconversationsUnitedAirlines(United)hashadwithPortAuthorityofNewYorkandNewJersey(PortAuthority)representativesinperson,bytelephoneandinwriting,formorethanayearabouttheexcessiveandunreasonablecoststhatthePortAuthorityrequiresUnitedtopayatNewarkLibertyInternationalAirport(EWR),coststhataregrosslydisproportionatetothosepaidbycarriersservingtheNewYorkairports.AsUnitedrepresentativeshavediscussedwithPortAuthorityofficials,thePortAuthorityrequirescarriersatEWRtopaysignificantlyhigherratesandchargesthanitrequirescarriersatJohnF.KennedyInternationalAirport(JFK)andLaGuardiaAirport(LGA)inNewYorktopay.UnitedhasmanytimesrequestedthatthePortAuthorityreducethe2014EWRFlightFeeandotherchargesatEWRandeliminatethefeedisparitybetweenEWRanditsNewYorkairports.ThePort Authority,however,continuestochargeUnitedtheseexcessive,unreasonable,anddiscriminatoryfeesatEWR,whichisoneofthecountry'smostimportanthubsandacriticalgatewaytotheAtlanticforthetravelingpublic.Underfederallaw,thePortAuthorityisrequiredtooperateEWR"fortheuseandbenefitofthepublic,onfairandreasonableterms,andwithoutunjustdiscrimination."14C.F.R.Part152App.D.Infact,however,thePortAuthority,contrarytotheinterestsofthetravelingpublicandtheaeronauticalusersoftheairport,imposesexcessive,unreasonable,anddiscriminatoryfeesatEWRinordertogeneratesubstantialfinancialsurplusesthatitunlawfullydivertstofundloss-makingnon-aeronauticaloperationsandprojects.Insteadoffunctioninginaccordancewithitsgrantassurancesandasaprudentairportproprietorthatchargesusersonlywhatisnecessarytocoveritsaeronauticalcosts,theDarrellB.Buchbinder,Esq.September15,2014Page2PortAuthoritysystematicallygeneratesexcessivesurplusesatEWRthroughunreasonablefees,thenexploitsits"grandfathered"statustodivertairportrevenuesonamassivescale.UnitedandotherairlinesatEWR,andultimatelythetravelingpublic,paythepriceinhundredsofmillionsofdollarseachyear.ThePortAuthority'slimitedlegalabilitytodivertairportrevenuedoesnotgiveittheunconstrainedrighttomakeairlinespayexcessiveandunreasonablefeesfornon-airportprojects.Therate-makingstructureatEWRviolatesfederallawandresultsinunreasonableanddiscriminatoryaeronauticalchargesinatleastthefollowingways:•TheairfieldfeespaidbyUnitedshouldberelatedtorecoveringthecostsofoperatingandmaintainingtheairfieldandmustbetransparentandreasonable.See,e.g.,RatesandChargesPolicy,78Fed.Reg.55,330,55,333-35(Sep.10,2013),§§2-2.72.Yet,theEWRFlightFeeissetthroughahidden"cost-plus"formulathatcreatesamark-upofasmuchas38%aboveactualcosts.ThisformulacreatesaperverseincentiveforthePortAuthoritytoincreasetheexpensesincludedintheratebase,becausethemore"costs"thePortAuthoritypassesontotheairlines,themoreprofititearns.•Thehiddenmark-upintheEWRFlightFeecontributestoadiscriminatoryratestructurethatsignificantlyimpactsUnited.BythePortAuthority'sownreckoning,thedisparitybetweenratesatEWRandthoseatJFKcostUnitedapproximately$37millionin2013.Thatdisparitywillincreasein2014andeveryyearthereafter.•TheFederalAviationAdministration(FAA)hasrecognizedthataccumulationofsurplusrevenuesmaywarrantaninvestigationintothereasonablenessofrates.See,e.g.,78Fed.Reg.at55,335.EWRtypicallygeneratesanannualsurplusinexcessof$160million.Inthefiveyearperiod2007-2011,EWRgavethePortAuthorityastaggering$1.6billioninoperatingcashflow.ThisismoneythePortAuthoritycollectsfromUnitedandotherairlines,butthatfarexceedsthecostsofoperatingEWR.•Since2004,thePortAuthorityhasdivertedmorethan$2billionfromtheNewYorkareaairportstonon-airportuses.Atthesametime,theairfieldfeesatEWRarebyfarthehighestinthenation-59%higherthanatthenextmostexpensivenon-PortAuthorityairport(ChicagoO'Hare)andeven75%higherthanatJFK,whichisoperatedbythePortAuthority.•TheEWRratebaseincludesexcessiveandunreasonableadministrativecosts,largelytheresultofunconstrainedspendingonovertimeandotherbenefits.DarrellB.Buchbinder,Esq.September15,2014Page3UnitedpaysmillionsofdollarsmorethanitshouldeachyearbecauseofthePortAuthority'sunreasonablefailuretocontrolitsexpenses.•Securitycosts(excludingcostsoftheAircraftRescueandFireFighting(ARFF)program,discussedbelow)includedintheEWRFlightFeetotalmorethan$37million.Makingthefinancialimpactevenworse,thePortAuthorityalsochargesamark-uponthesecosts.Securitycostshaverisen40%since2010.Whilesecurityisanecessarycostatallairports,highsalariesandbenefits,aswellasexcessiveovertime,contributetounreasonablyhighexpensesatEWR.ThePortAuthority'spracticeofpassingoncostsandchargingaprofitthatisapercentageofcostsactsasadisincentivetocontrolcostsandencouragesirresponsiblefiscaldecisionsbythePortAuthority.ThemorethePortAuthoritycharges,themoreprofititmakes,andthemoreprofititmakesatEWR,themoremoneyithastospendelsewhereonprojectsunrelatedtotheairportandthepeopleitserves.Meanwhile,thefederalgovernmentpourshundredsofmillionsofdollarsofairportgrantmoneyintoEWRandairlinespayhundredsofmillionsofdollarsinfeesatEWR.Thefederalgovernmentpaysthegrantmoneywiththeexpectationthatitwillbewiselyandeffectivelyusedtoimprovethesafetyandefficiencyoftheairport.Butmuchofitisnot.ThePortAuthorityhas,ineffect,absolutemonopolisticpowerovertheairlinesastheairportsponsorandithasusedthispowertocharge excessivefeestotheairlinesinordertosubsidizenon-aeronauticalprojects.ThePortAuthority'spracticeisunfair,unreasonable,andunsoundpublicpolicy.Ataminimum,itviolatesfederalairportgrantassurances.Themostegregious,recentexampleofthePortAuthority'simpositionofexcessivecostsonUnitedandotherairlinesisthePortAuthority'simplementationoftherevisedARFFprogram.WhilethesafeandlegaloperationofPortAuthorityairportsisofthehighestconcerntoUnited,suchoperationdidnotrequiretheextremelyinefficientandcostlymeasuresthePortAuthorityhastakentoimplementthatprogram.ThePortAuthoritydeterminedtostaffARFFwithairportpolice,trainedasfirefighters,eachofwhomwillcostthePortAuthorityanaverageof$240,000annuallyincompensation,overtime,andbenefits,anamountwellinexcessofthemarketfortrainedfirefighters.ThePortAuthority'sbudgetforthe2014ARFFcostsincludesmandatoryovertimeexpense(requiredbythecollectivebargainingagreementswithitsunions)thattotals42%ofstraight-timeexpense.ThePortAuthoritywillincludetheentirecostoftheARFFintheEWRFlightFeeratebase,alongwitha$9millionmarkup.United'scostsatEWRwillincreasebymorethan$25millionannuallyandalmost510%morethanin2012asaresultoftherevisedARFFprogram.Darrell

B. Buchbinder,

Esq. September

15, 2014 Page4 While

United supports

the

Port Authority's establishing

a dedicated fire-fighting

cadre

to comply

with

FAA requirements,

the FAA

did

not mandate

the

Port Authority's

costly implementation

of the new ARFF program,

which:

(1) adds

280 dedicated firefighters, who

are also police officers,

without

a commensurate

reduction

in the number

of police officers;

and

(2) provides

for continuous

training

of non-dedicated

police officers

in ARFF

duties

even though

such officers

will

not perform

ARFF functions.

We

are

not aware

of any other

major airport

that cross-trains

police

and firefighting

personnel

in this manner.

United appreciates

the Port Authority

Police Department,

its individual

officers' work

to execute

this important

mandate

and their

daily efforts

to ensure

the safety

of the traveling

public

and airline

and airport personnel.

Our criticism

lies

with

the

Port Authority's

decision

to implement

the FAA requirements

in

a manner

that

is unnecessarily

inefficient

and costly, unreasonable,

and does

not comport

with industry practice. Given

the massive

cost increase

from ARFF

and

the overall growing

impact

of our cost burden disparity

with

New

York airport-based

carriers,

we respectfully

suggest

that

it

is appropriate

for

the

Port Authority

to consider

both

: (1) revising

the New Jersey carriers' leases

to achieve

a reasonable

and non-discriminatory

fee structure;

and

(2) reducing the unreasonable

ARFF

and other security

and administrative

costs included

in the Flight

Fee.

Doing

so would

be consistent

with federal

law;

the former

wou

l d also ensure a level competitive

playing

field

for airline operations

in New Jersey

and

New

York

. While

United

and other

New Jersey carriers

have signed

leases

in effect

for

our operations

at EWR,

the Port Authority's acknowledgement

that

the EWR rate-making formula

creates

a huge disparity

with

JFK

rates confirms

that those

leases

have

come to operate

in

a way

that creates unreasonable

rates

and charges

and

a disproportionate impact

on New Jersey's

airline operations

versus

those

of the

Port Authority's

New

York airports. Within

the past

year alone,

United

has made numerous

good

faith efforts

to informally resolve

its complaints.

Between September

2013

and

May 2014,

for example,

Nene Foxhall,

United's Executive

Vice President

for Communications

and Government

Affairs, had seven meetings

and three phone

calls

with senior

Port Authority

officials

. Our CEO Jeff Smisek

has

also

met

with

Port Authority

officials

. To date,

these

efforts

have

been fruitless.

One

Port Authority

response

has been

to suggest

that United assume

your compliance

burden

by increasing

its operations

at EWR

so that

the

Port Authority

would not

see

a loss

of revenue

if the

Port Authority

reduced

EWR charges

to

a reasonable, non-discriminatory

level.

Such

a plan

is not feasib

l e, and

it should

not

be necessary

for United

to take

on additional

burdens

to protect

the Port Authority's

unlawful

revenue stream.DarrellB.Buchbinder,Esq.September15,2014Page5ThePortAuthority'sviolationofthepublictrustandviolationoffederalgrantassurancescontinuetodirectlyandsubstantiallyaffectUnited.BecausethePortAuthorityhasrefusedtoalteritsrate-makingatEWR,despiteUnited'srepeatedrequests,UnitedispreparedtoasktheFAAtoinitiateaninvestigationintothePortAuthority'scompliancewithitsgrantassurancesandfederallaw.Beforedoingso,however,andincompliancewith14C.F.R.§16.21,UnitedrequestsonefurthereffortatinformalresolutionwiththePortAuthority.Werequestameetingwithyouoryourdesigneeatyourearliestconvenience,butnolaterthanthirtydaysfromthedateofthisletter.ThegoalofthemeetingisforthePortAuthoritytoagreetoalteritsrate-makingatEWRsoastocomplywithfederalairportgrantassurancesbychargingfeesatEWRthatarefairandreasonable,includingreducingtheunreasonableARFFandothersecurityandadministrativecostsincludedintheFlightFee.Ilookforwardtohearingfromyou.Sincerely,BrettHartGeneralCounselcc:RobertSpan,Steinbrecher&SpanLLPMarcWarren,Crowell&MoringLLP