March 5, 2012

Responses to IOUs from SJU Privatization Teleconference – APP-500

Provide a copy or a link to the most recent SJU competition plan (to ACO, who will relay it to 

the appropriate party(ies). 

Copy provided to SJU by FAA Office of Airport Compliance.

Review Part 158 and Order 5500.1 to verify our previous conclusion that airline consultation is 

required for an amendment due to a change in the financing structure. 

The FAA has reviewed this matter and verified our previous conclusion that airline consultation is 

required for an amendment due to a change in the financing structure. The reason for this is rooted 

in the statute (§40117(C)(2)), which specifically requires that “Before submitting an application, the 

eligible agency must provide reasonable notice to, and an opportunity for consultation with, air 

carriers and foreign air carriers operating at the airport.” In 14 CFR Part 158, the FAA determined 

that this requirement extends to amendments meeting certain criteria, because to do otherwise could 

allow public agencies to circumvent the spirit of the law. Changes in financing structure of a project 

represent a material change because such changes can significantly affect the period of collection 

and the overall amount of PFC revenue approved for the project. This is reflected in Order 5500.1 

(Paragraph 12-6(c)) which requires an amendment for materially altering the scope of an approved 

project. Amendments that change the scope of a project require consultation per 14 CFR Part 

158.37(b)(1)(ii)(C). Order 5500.1 (Paragraph 12-6(c)) also defines changing the method of financing 

for a project as constituting a material change in scope.

Verify our previous conclusion (from Chicago Midway) that the public agency can initiate the 

amendment process, including airline notification and consultation -- with the FAA approving 

the actual amendment only at or about the time the transfer occurs. As a reminder, in 

Chicago, the complexity was that the FAA could not approve the amendment without first 

determining that it was reasonable and necessary, which we could not do unless the transfer 

to a private entity was a virtual certainty... but the transfer couldn't happen without first 

restructuring the debt. 

Verified – the existing public agency can initiate the process including airline notification, consultation, 

and public notice prior to the transfer under 14 CFR Part 158.37 procedures. However, the FAA 

cannot approve the amendment until the transfer occurs because the financing is dependent on the 

transfer to the private entity with the Concession agreement.

Prepare response to the question of whether FAA has any concern with a use agreement 

provision that requires PFCs to be applied first to government-mandated projects. 

The statutory provisions regarding the PFC program include a specific provision (§40117(f)(1) which 

states that “A contract between an air carrier or foreign air carrier and an eligible agency made at time 

may not impair the authority of the agency to impose a passenger facility fee or to use a the 

passenger facility revenue as provided in the section.” The FAA position continues to be that any 

provision in an agreement contrary to the PFC statute, such as §40117(f)(1), would be invalid.

Verify that impose-and-use authority can be transferred from the public agency to the private 

operator as part of the overall transfer agreement. 

Verified with FAA counsel. The Statute (47134(g)) contemplates that a private entity upon receipt of 

an exemption, be allowed to impose a PFC like a public agency under the privatization pilot. 

Accordingly, once the public operator executes the transfer agreement with the private operator, the 

PFC authority transfers with that agreement.
March 5, 2012

Follow up on question about taxation of PFC revenues when remitted to a private entity.

The FAA is not in a position to render an opinion on this matter. DOT Counsel advised SJU that it 

may wish to request a ruling from the IRS on whether PFC revenues of a private operator accepted 

into the privatization pilot program is taxable.