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 andAppeals Division 

# RECEIVED DEC ;; 7 2005 

# PAUl HASTINGS

This is in response to your letter dated November 11,2005 and follow"up ofDecember 15,2005. That November letter responded to my letter dated October 17, 2005, which was ofcourse, in response to your initial correspondence dated October 11, 2005 on behalf ofContinental in regard to the rates and charges at NewarkLibertyInternational 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 wehopewill bring Continental 

### to an understanding that the EWRrates and charges computations are fully consistent with the agreement between Continental and the Port Authority. Youindicate that youreviewed information that was to beprovidedbythePort Authorityto the Finance Subcommittee ofthe Airline Airport Affairs Committee ("Subcommittee") on October 181 h. Having taken a look at this infotmation myselfand understanding that it was generallywell received atthatmeetingby all airline representatives, I was surprised to hear from you that the infom1ationprovided did "not contain a11yofthe detail requested" (my emphasis).
You indicate that the material contains only the "highest"1evel summary ofcosts" related to the actual costs incmred in the operation and maintenance ofthePublic AircraftFacilities ("P AF") and the actual costs related to the Airport Services Factor ("ASF"). However, itis my understanding that some ofthe morerecent increases in cost components in the rate base for the flight fee are attributable to secmity costs- cost items whichhave increased substantiallypost" 9/11. ·EWRpolicehoms includingpercentages attributable to aircraft boarding secmity, emergencyservices, administrative & clerical as well as police and traffic percentages were shared for 

### 05 (January- September 30'h) with the Subcommittee. Also, EWRpolice laborcosts 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 wereprovided for PAF 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 Pa1kAvenue South, 13th Floor New

**Yor~** NY 10003 T: 212-435-3503Robert Span, Esq. -2- December 23, 2005

within the limitations outlined below. Therefore, l will work with the Pmt Authority staffthat 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 ofthe information you request, the Port Authmity docs not agree with your apparent point that Continental has a contractual right to anymore 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 "fonnulahas been calculated correctly" sounds like much more than a simple request for information supporting Continental's obligation to pay. Indeed, the information you alreadyhave gives Continental all the information it needs to ascertain that it has such an obligation, and, indeed, consistent with that proposition, Continental has been makingthese payments for years under the fonnula you now question. However, before I move to the areas ofyour request, which arc outside the bounds ofreasonable

**inq~1iry** related to Continental's obligations related to flight fees, let me revisit briefly theissue of U.S. Department ofTransportation 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 shouldbe governedby the
same standards applicable to rates and charges which are not the subject ofagreement. That proposition

**q~rite** frmik:ly is simplyincorrect. You state that "requirements offederal law cannot be waived or abrogated by contract." Certainly that isolatedproposition is generally correct, but when Continental and thePort AuUroritynegotiated the agreement, which underlies yourrequest, they did so underprinciples fully consistent with federal law. Certainly, the currentrates and charges policy did not abrogate anyportion ofContinental's flight fee agreement. Moreover,tire entirepremise ofyourpointis faulty since the requirements offederal law youreference do not apply to rates and charges establishedby agreement. Indeed, while you quote that portion ofthepreamble to the DOTpolicy stating that DOT does not interpret the animating statute to preclude an investigation offees setby agreement, I am sure you realize that in the very sameparagraph, DOTindicatedtlrat it had decided 

### "not to consider complaints about the reasonableness offees set by agreement iffiled byparties to the agreement." (my emphasis). DOT also inilicated that it agreed with airports that the statute, which led to the policy "was enactedto preclude carriers from improving on their bargain by bringing an administrative complaint after they have reached agreement with an airport proprietor". Significantly, theynoted

- "[t]hat outcome would be unfair to airport proprietors who bargain in good faith." Therefore, thePort Authoritybelieves that tmderfederal law (as well as state law), Continental is nowbound by the agreement it struck with the PortAuthority

# 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 ofthe 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 PAF 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 onthe airpmt are expended, including net revenues fi·om the entire airport. As explained in my October 17 1 h letter, the DOT has plainly indicated that aeronautical users, absent agreement, are not entitled to share inrevenues generated bynon-aeronautical users. Fmiher, most recently, even in the Terminal B proceeding, inwhich a unilaterally imposed rate was in issue, DOT made clear that the level ofoverall revenues generated at EWR, including a comparison ofthose rates to others charged at other airports, is simply not a relevant subject ofinquiry. I submit to you, therefore, that such considerations plainlyl1lay not be raised as appropriate constraints on the results ofa flight fee fommla, which an airline such as Continental negotiated for itself.
In closing, it ishoped that the information wewill provide will answer any concem that Continental may have about the components ofthe flight fee, including questions you mayhave about how the flight fee calculations work. For example, you have indicated that yon havebeen informed that thePmtAuthority applies a 60percent fixed charge cover factor as part ofthe flight fee activity fee calculation, even though such a cover factor isnowherementioned in the lease agreement. 

### Itis my 1mderstanding that there is no such 60 percent fixed charge cover factor. You maybereferring to the ASF calculations, which, in effect, produces a coverage factor that is imbedded in the base yearrates, which make up that formula. However, the ASF was specificallynegotiated between the Port Authority and Continental. Hopefully, questions such as these will be addressed bythe infmmation we will provide to you so that Continental maybe assured that the EWRrates and charges computations are fully consistent with the agreement it signed, Sincerely, 

# t

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# Lffi'4' ?< 

# mr Chief Opinions 

### & Appeals Division Law Department