VIA FEDERAL EXPRESS 

December 23, 2005 

Robert Span, Esq. 

Paul, Hastings, Janofsky & Walker LLP 

515 South Flower Street 

25'" Floor 

Los Angeles, CA 90071 "2228 

Dear Bob: 

Darrell Buchbinder, General Counsel 

Carlone V. Mcintyre, Chief, Opinions and Appeals Division 

RECEIVED 

DEC ;; 7 2005 

PAUl HASTINGS 

This is in response to your letter dated November 11,2005 and follow"up of December 15,2005. 

That November letter responded to my letter dated October 17, 2005, which was of course, in 

response to your initial correspondence dated October 11, 2005 on behalf of Continental in 

regard to the rates and charges at Newark Liberty International Airport ("EWR"). 

In my October 17'" letter, I indicated that the Pmt Authority was examining YO<Jrrequest for 

information and that we are prepared to provide Continental with material which we hope will 

bring Continental to an understanding that the EWR rates and charges computations are fully 

consistent with the agreement between Continental and the Port Authority. You indicate that 

you reviewed information that was to be provided by the Port Authority to the Finance 

Subcommittee of the Airline Airport Affairs Committee ("Subcommittee") on October 181

h. 

Having taken a look at this infotmation myself and understanding that it was generally well 

received at that meeting by all airline representatives, I was surprised to hear from you that the 

infom1ation provided did "not contain a11y ofthe detail requested" (my emphasis). 

You indicate that the material contains only the "highest"1evel summary of costs" related to the 

actual costs incmred in the operation and maintenance of the Public Aircraft Facilities ("P AF") 

and the actual costs related to the Airport Services Factor ("ASF"). However, it is my 

understanding that some of the more recent increases in cost components in the rate base for the 

flight fee are attributable to secmity costs- cost items which have increased substantially post" 

9/11. · EWR police homs including percentages attributable to aircraft boarding secmity, 

emergency services, administrative & clerical as well as police and traffic percentages were 

shared for 05 (January- September 30'h) with the Subcommittee. Also, EWR police labor costs 

percentages were provided. 

It also appears that at this meeting, total amounts for Fixed Charges, Operations and 

Maintenance with itemization for Snow and Ice and Other charges as well as Emergency 

Services were provided for P AF costs. As far as the Airport Service Factor (ASF), the Fixed 

Charges, Operations and Maintenance, Police and Traffic and Airp01t Management Costs were 

summarized. Reading your ]etters together, it would appear that you are requesting more detail 

for expenses and costs in these areas. We are prepared to provide you with such information 

EXHIBITVV 

225 Pa1k Avenue South, 13th Floor 

New Yor~ NY 10003 

T: 212-435-3503 
Robert Span, Esq. -2- December 23, 2005 

within the limitations outlined below. Therefore, l will work with the Pmt Authority staff that 

interface with the Subcommittee to gather such infonnation and provide it to you for 

Continental, as we11 as the other airlines that pmticipate in the Subcommittee. 

However, please know that even though we will provide some of the information you request, 

the Port Authmity docs not agree with your apparent point that Continental has a contractual 

right to any more detail than has already been provided to it. You do not indicate, nor do we 

understand that in the lease agreement, Continental negotiated any audit rights. Certainly, yom· 

indication that Continental needs additional information to determine whether the "fonnula has 

been calculated correctly" sounds like much more than a simple request for information 

supporting Continental's obligation to pay. Indeed, the information you already have gives 

Continental all the information it needs to ascertain that it has such an obligation, and, indeed, 

consistent with that proposition, Continental has been making these payments for years under the 

fonnula you now question. 

However, before I move to the areas of your request, which arc outside the bounds of reasonable 

inq~1iry related to Continental's obligations related to flight fees, let me revisit briefly the issue of 

U.S. Department of Transportation Rates and Charges Policy. While we will endeavor to 

provide Continental with some additional information, I find quite puzzling your continued 

assertion that a rate and charges formula which Continental negotiated should be governed by the 

same standards applicable to rates and charges which are not the subject of agreement. That 

proposition q~rite frmik:ly is simply incorrect. You state that "requirements of federal law cannot 

be waived or abrogated by contract." Certainly that isolated proposition is generally correct, but 

when Continental and the Port AuUrority negotiated the agreement, which underlies your request, 

they did so under principles fully consistent with federal law. Certainly, the current rates and 

charges policy did not abrogate any portion of Continental's flight fee agreement. Moreover, tire 

entire premise of your point is faulty since the requirements of federal law you reference do not 

apply to rates and charges established by agreement. 

Indeed, while you quote that portion of the preamble to the DOT policy stating that DOT does 

not interpret the animating statute to preclude an investigation of fees set by agreement, I am 

sure you realize that in the very same paragraph, DOT indicated tlrat it had decided "not to 

consider complaints about the reasonableness of fees set by agreement if filed by parties to the 

agreement." (my emphasis). DOT also inilicated that it agreed with airports that the statute, 

which led to the policy "was enacted to preclude carriers from improving on their bargain by 

bringing an administrative complaint after they have reached agreement with an airport 

proprietor". Significantly, they noted - "[t]hat outcome would be unfair to airport proprietors 

who bargain in good faith." Therefore, the Port Authority believes that tmder federal law (as 

well as state law), Continental is now bound by the agreement it struck with the Port Authority 
p THE i?OifiT A!ffi\I!'IRIIV OF NY & NJ 

Robert Span, Esq. -3- December 23, 2005 

and its recent protestations about the level of the fommla do not change that fact. Nonetheless, 

as indicated, with the following limitations, we are prepared to provide Continental with 

additional infonnation giving more detail as to the various cost components that make up the 

flight activity fee. 

However, while costs associated with the P AF formula will be outlined, the information 

provided will not include any infonnation about nonaeronautical revenue received for EWR, nor 

will it include any information about how Port Authority revenues generated on the airpmt are 

expended, including net revenues fi·om the entire airport. As explained in my October 171

h 

letter, the DOT has plainly indicated that aeronautical users, absent agreement, are not entitled to 

share in revenues generated by non-aeronautical users. Fmiher, most recently, even in the 

Terminal B proceeding, in which a unilaterally imposed rate was in issue, DOT made clear that 

the level of overall revenues generated at EWR, including a comparison of those rates to others 

charged at other airports, is simply not a relevant subject of inquiry. I submit to you, therefore, 

that such considerations plainly l1lay not be raised as appropriate constraints on the results of a 

flight fee fommla, which an airline such as Continental negotiated for itself. 

In closing, it is hoped that the information we will provide will answer any concem that 

Continental may have about the components of the flight fee, including questions you may have 

about how the flight fee calculations work. For example, you have indicated that yon have been 

informed that the Pmt Authority applies a 60 percent fixed charge cover factor as part of the 

flight fee activity fee calculation, even though such a cover factor is nowhere mentioned in the 

lease agreement. It is my 1mderstanding that there is no such 60 percent fixed charge cover 

factor. You may be referring to the ASF calculations, which, in effect, produces a coverage 

factor that is imbedded in the base year rates, which make up that formula. However, the ASF 

was specifically negotiated between the Port Authority and Continental. Hopefully, questions 

such as these will be addressed by the infmmation we will provide to you so that Continental 

may be assured that the EWR rates and charges computations are fully consistent with the 

agreement it signed, 

Sincerely, 

t f:;b Lffi'4' ?< mr 

Chief 

Opinions & Appeals Division 

Law Department