U.S. Department of Transportation Federal Aviation Administration

September 1, 2015

VIA FEDERAL EXPRESS

Konrad Kuczak 130 West Second Street, Suite 1010 Dayton, OH 45402 Rachel Owlsey Bethany A. Breetz Stites & Harbison, PLLC 400 West Market Street, Suite 1800 Louisville, KY 40202 Dear Mr. Kuczak and Ms. Owlsey: Office of Airport Compliance and Management Analysis 800 Independence Ave., SW. Washington, DC 20591

Re: SPA Rental, LLC, 

### d/b/a/ MSI Aviation, v. Somerset- Pulaski County Airport Board, FAA DocketNo. 16-13-02 Enclosed is a copy ofthe determination ofthe Federal Aviation Administration (FAA) with respect to the above-referenced matter finding Somerset- Pulaski County Airport Board not in violation ofits Federal obligations withrespect to this complaint. The reasons for the finding of compliance are set forth inthe enclosed Director's Determination. The Director's Determination does not constitute a Final Agency Decision and order subjectto judicialreview. [14 CFR 

### § 16.247(b)(2)] A party adversely affected bythe Director's Determinationonce issued may appeal the initial determination to the FAA Associate Administrator for Airports pursuant to 14 CFR § 16.33(c) within 30 days after the service ofthe Director's Determination. Sincerely,

Randall S. Fiertz Director ofAirport Compliance

and ManagementAnalysis EnclosureCERTIFICATE OF SERVICE



### I HEREBY CERTIFYthat on September

# _j_, 2015, I caused to be placed in the United States mail (first class mail, postage paid) a true copy ofthe Director's Determination, addressed to: For Complainant Konrad Kuczak 130 West Second Street, Suite 1010 Dayton, OH 45402

For Respondent Rachel Owsley Bethany A. Breetz Stites & 

### Harbison, PLLC 400 West Market Street, Suite 1800 Louisville, KY 40202
Copy to: FAAPart 16 Airport Proceedings Docket FAA Airport Compliance and Management Analysis, AC0-100



# ~ **-~**



# efo~r?a~~- Office ofAirport omphance and Management AnalysisUNITED STATES DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, DC

SPA Rental, LLC, DBA MSI Aviation Complainant v. Somerset- Pulaski County Airport Board Respondent

DIRECTOR'S DETERMINATION I. INTRODUCTION FAA Docket 16-13-02

This matter is before the Federal Aviation Administration (FAA) based on a formal complaint filed in accordance withthe FAA Rules ofPractice for Federally Assisted Airport Enforcement Proceedings (FAA Rules ofPractice), Title 14 Code ofFederal Regulations (CFR), Part 16. 1
SPA Rental, LLC, d/b/a MSI Aviation (Complainant, SPA, orMSI) has filed a formal complaint pursuantto Title 14 CFR, Part 16 against the Somerset- Pulaski County Airport Board (Respondent orAirport Board) owner and operator ofthe Lake CumberlandRegional Airport in Somerset, Kentucky (SME or Airport). The Complainant alleges that the Airport Board is in violation ofGrant Assurance 24, Fee andRentalStructure. [FAA Item 1, p. 6] SPA is alleging thatRespondent is unfairly discriminating against itby demanding it to enter into the newproposed Limited Fixed Base Operator (LFBO) lease with objectionable conditions. SPA further alleges thatRespondent is demanding that SPAperform a minimum of ten (10) third party aunual inspections per annum. SPA alleges that Respondent is forcing SPA to alter its fundamental business by engaging in a business which it has notheretofore engaged. Finally, SPA alleges that Respondent is failing to credit the number ofarrnual inspections performed by SPA'smanaging member Walter Iversen on aircraft owned by himself, his spouse or SPA against the I0 third party minimum. [FAA Item I, pp. 4-5] The Respondent, in denying the allegations in the Complaint states, that it solicited LFBO proposals from aircraft maintenance service providers. The Respondent awarded an agreement to SomersetRegional Aviation, LLC, which included incentives inthe form ofa waiver of certainrental fees and reimbursement ofcertain insurance costs. The Respondent states that the incentives are available to all providers ofmeaningful maintenance services atthe Airport.

1Enforcement procedures regarding airport compliance matters may be found at FAA Rules of PracticefOr FederallyAssistedAirvortEnforcement Proceedings (14 CFR, Part 16).The Respondent states that it offered the arrangement to SPA but SPA failed to accept the terms and responded by filing this complaint. [FAA Item 5, pp 1-2] Further, the Respondent claims that SPA and Somerset Regional Aviation, LLC, the new aircraft repair and maintenance business, are not similarly situated and that the Airport maintains uniformly applicable minimum standards. [FAA Item I0, p.l] The Respondent emphasizes that "[T]he minimum standards ofwhich SPA complains apply only to LFBOs providing 'aircraft engine and accessory maintenance services at the Airport." The Respondent clarifies that a different section ofthe minimum standards applies to those businesses selling aircraft from the Airport. [FAA Item I0, p.3] The Respondent contends that SPA "has no maintenance customers and has not for many years." [FAA Item 6, Exhibit G, p. 3] Additionally, SPA, in its Complaint and Reply, asserts that the Respondent violated Grant Assurance 22, Unjust Discrimination, and SPA in its Reply asserts a violation ofGrant Assurance 23, Exclusive Rights. [FAA Item I, pp. 4-5, Item 9, pp. 8-10] The Respondent denies the allegations, and states the "factthat SPA declines this offer (opportunity to obtainthe same incentives as Somerset Regional Aviation onthe exact same terms and conditions) does not amount to unjust discrimination, the grant ofexclusive rights, or any other violation ofFederal grant assurance." [FAA Item 10, pp. 3 and 6] Withrespect to the allegations presented inthis Complaint, underthe specific circumstances at the Airport as discussed below and based onthe evidence ofrecord inthis proceeding, the Director fmds the Respondent is currently not in violation ofits Federal obligations with respect to Grant Assurance 22, EconomicNondiscrimination, Grant Assurance 23, Exclusive Rights, and Grant Assurance 24, Fee andRentalStructure. The FAA's decision inthis matter is based on applicable Federal law and FAApolicy, review ofthe pleadings and supporting documentation submittedby the parties and reviewed by the FAA, which comprises the administrative record reflected inthe attached FAA Index. 

### II. THE PARTIES Airport The Lake Cumberland Regional Airport (SME or Airport) is a federally-funded, public access, general aviation airport owned and operated by Somerset-Pulaski County, Kentucky. The facility is locatedthree miles south ofSomerset, Kentucky. The development ofthe Airport has been financed, inpart, with funds providedto the County as the Airport sponsor under the Airport Improvement Program (AlP), authorized by the Airport and Airway Improvement Act of 1982, as amended, 49 U.S.C., § 47101, etseq. As a result, the County is obligatedto comply withthe FAA sponsor assurances and related Federal law, 49 U.S.C. 

### § 47101. The mostrecent grants awarded include $82,875 in 2012 and $99,423 in 2014, both for obstructionremoval. [FAA Item 19]

2Complainant The Complainant, SPA Rental, LLC, d/b/a! MSI Aviation (SPA or MSI), was a Limited Fixed Base Operator (LFBO) under a prior agreement with the Airport. The company has been engaged inpurchasing, refurbishing and reselling aircraft from two privately built hangars that have since reverted to the Airport. [FAA Item 1, page 1] Operating from SME since 1986, the Complainant is currently classified as a holdover tenantunder the hangar leases that expired on December 31, 2012. [FAA Item 6, Exhibits C and E] III. BACKGROUND AND PROCEDURAL HISTORY Background SPA describes itselfas "engaged inthe business ofpurchasing, refurbishing, and re-selling aircraft" from two leased hangars at the Lake Cumberland Regional Airport. [FAA Item I,p. 1] SPA constructed both hangars, sharing one common wall, at its own expense. Hanger B-3 is a 2,400 square foot structure completed in 1988. Hanger B-4, completed in 1992, is 3,200 square feet. The hangars becametheproperty ofthe Airport Board on January I, 2009, upon expiration ofthe ground leases between SPA and the Airport Board. [FAA Item 5, pp. 4-5] Walter Iversen is an FAA aircraft maintenance technicianholding an Airframe and/or Powerplant (A & P) certificate accredited with anInspection Authorization. He has provided mechanical repairs, including airworthiness inspections, to aircraft owned by SPA, himself, and his spouse, from the leased hangars. Three aircraft, ownedbymanaging member ofSPA, Mr. Iversen, and his spouse, are stored inthe two hangars. During its history at SME, SPA mechanics have never performed, in any 12-monthperiod, more thanthree I00-hour or annual inspections for aircraftbeing refurbished and held for resale. SPA did not provide details ofthe number ofaircraft ithas purchased, refurbished and then sold from its hangar facilities at SME. SPA has not conducted airworthiness inspections ofaircraft to the general public. [FAA Items 1 and 5] SPA's last 'Limited Fixed Base Operator' (LFBO) agreementbecame effective onJune 30, 2009. As stated inthe LFBO Agreement, automatic renewal required that SPA continue to meet all ofthe required qualifications contained inthe Agreement. The Agreement states that SPA "shall operate a limited fixed base operation (aircraft, engine and accessories maintenance) in a 40 x 142 foot airplane hangar know as Hangar B3 and Hangar B4."2 The Agreement also specifies that SPA "may also store two (2) non-owned aircrafts and manage said aircraft[s] for another by providing pilots, light maintenance and upkeep." In addition, the Agreement states that SPA "shall comply with all ofthe Minimum Standards for Fixed Base Operations at the Lake Cumberland Regional Airport as they are amended from time to time." [FAA Item I, Exhibit A]

2 Hangars B-3 and B-4 share a common wall. Hangar B-3 occupies approximately 2,400 square feet, and Hangar B4 comprises approximately 3,200 square feet. The LFBO Agreement lists the total square footage ofthe Hangars B3 and B-4 as 5,680 square feet.[FAA Item I, Exhibits A and C]
3By letter dated November 29,2012, the Respondent provided SPA notice that all three agreements (LFBO and two hangar lease agreements) terminated on December 31,2012. [FAA Item 6, Exhibit E] Since January I, 2013, SPAhas continued to occupy Hangar B-3 and Hangar B-4 at the Lake CumberlandRegional Airport as a hold overtenant under the expiredhangar lease agreements. [FAA Item I, ExhibitA] Effective March24, 2012, the Board approved Somerset Regional Aviation, LLC, (Somerset) to establish an LFBO atthe airport, operating from a 4,800 square foot hangar (Hangar I0), for the purposes ofperforming aircraft repairs, maintenance, and airworthiness inspections ofaircraft. [FAA Item I, pp. 2-3] The one-year LFBO and Hangar I0 lease agreements bothinclude a provision allowing Somersetto extend the LFBO Agreement and HangarLease for two successive periods ofone year each. The fee for each year ofthe LFBO Agreement is one dollar. For the Hangar I0 Lease, the Airport Board waived rental fees in consideration for the on-site maintenance services that Somerset agreedto provide to the public under the terms ofthe LFBO Agreement. In addition, the Airport Board agreedto reimburse Somerset for the lease-mandated public liability insurance premiums in an amount notto exceed $8,000 pertwelve monthperiod. [FAA Item 5, p. 5 and FAA Item 6, Exhibit F] On April4, 2012, Mr. James H. Williams, FAA Memphis ADO, wrote to Ms. Kellie Baker, AirportManager, Somerset-Pulaski County Airport, seeking clarificationregarding the new LFBO Agreement with Somerset. Specifically, Mr. Williams sought clarification ofthe following:

• Has anexisting FBO at the airport expressed a desire to exercise a contract continuation clause? Ifnot, specify the reasons for notrenewing the contract.

• Why clid the newspaper advertisement seeking an FBO not mentionthe availability of a less than market rate incentive package?

• Giventhatthe Airport Boardreceived two proposals inresponse to the ad, explain why the continuedpresence ofSPAinconjunction with the interest oftwo potential FBO's clid not negate the need for incentives?
Mr. Williams cautioned Ms. Bakerthat "fees andhangar rental well belowfair market value3 violates the grant assurances and could be considered as 'Revenue Diversion.'" Mr. Williams further explained that "theseterms would make it unreasonably costly or impractical for the airport to have more than one fixed-based operator because they would be subject to the same rates, fees, rentals as the other tenants making same or similar uses ofthe airport." [FAA Item 6, Exhibit G] On April 19, 2012, SPAfiled aninformal complaintin the form ofa letter from Winter Huff, an attorney representing Complainant, to James H. Williams, FAA, citing refusal ofthe Boardto renewthe LFBO agreement with SPA while providing incentives to Somerset. In its informal complaint, SPA alleges that: (I) the Sponsorhadrefused to renewthe LFBO Agreement with SPA; and (2) the Sponsor had offered "discriminatory incentives to Somersetto the detriment of SPA." [FAA Item I p. 3, and ExhibitE]

3 See footnote 13 addressing fair market value under Issue 3. 4OnApril23, 2012, John T. Mandt, an attorney representing the Somerset-Pulaski County Airport Board, replied to Mr. Williams' letter ofApril4, 2012, answering the questions posed inthe April 4 letter, detailing the rationale for the new LFBO Agreement, and providing background onthe incentive plan. In reply to Mr. Williams' first question, Mr. Mandt explainedthatthe Airport Board notified SPA that it's LFBO Agreement and Hangar Lease, set to expire on December 31, 2011, "would expire as written." Mr. Mandt also maintained that SPA "has no maintenance customers and has not for many years." Responding to the second question, Mr. Mandt stated that therequirement for incentives originated withthe bidders, rather thanthe Airport Board. Addressing the third question, Mr. Mandtreiterated that the need for incentives originated withthe bidders. He also clarified that SPA "did not submit a bid and to the Board's knowledge none ofthe presentusers ofthe Airport do business withhim." [FAA Item 6, Exhibit G] OnMay 9, 2012, the FAA SouthernRegion Memphis Airports District Office (Memphis ADO) issued a finding addressing the allegations raised inthe informal complaint. The Memphis ADO determined that "this lease agreement fails to meetthe Terms and Conditions ofAccepting AlP Grants as stated in Grant Assurances 24." [FAA Item 1, Exhibit D] The Memphis ADO further wrote that "inits opinion, the incentives included inthe lease agreement make it unreasonably costly or impractical for the airportto have more than one fixed based operator. Therefore, we request that youterminate this lease agreement or modified (sic) itto show compensationbased onfair market value." [FAA Item 1, Exhibit D] The FAA specifiedthat the Airport Board shouldrespond with a course ofcorrective action to the Memphis ADO no later thanMay 31, 2012. [FAA Item 1, Exhibit D] OnMay 18,2012, Mr. Tom Halbleib, counsel for the Airport Board, replied to FAA's correspondence from May 9, 2012, and agreed to respond with a plan ofcorrective action. [FAA Item 6, Exhibit H] On July 23,2012, Mr. Richard VanHook, Chairman ofthe Airport Board's Maintenance Committee wrote to FAA's Mr. James Williams, outlining a corrective action planto address FAA concerns. The letter explainedthe proposed incentive program was developed to ensure availability ofmaintenance services at the Airport, and describing the source offunding from the local occupational license fee. Mr. Van Hook describedthe subsidy incentive as consisting of'the deferral ofrent for no more than one hangar leased from the Airport Board and the reimbursement ofcertain insurance costs (up to $8,000 toward the cost ofa general commercial liability policythatnames the Airport Board as an additional insured with limits in an amount not less than $1,000,000)." The funding source ofthe incentive program Mr. VanHook advised was viaPulaski County assessing an occupational license fee on all people working in the county. He confirmed that the fee is not related to the use ofthe Airport, nor would it be subjectto FAA's Revenue Use Policy. [FAA Item 6, Exhibit B] Additionally, Mr. Van Hookexplained that given the Airport Board's interest in establishing and maintaining a meaningful volume ofthird party paid maintenance onthe Airport, the Board would annually confirm that any recipient ofincentives had completed no fewer than ten (10) thirdparty annual inspections. He fnrther advised that any incentive recipient failing to meet the

5inspection volume threshold, would be required to pay the rent as well as reimburse the Airport Board for the insurance. [FAA Item 6, Exhibit B] Mr. Van Hook also stated that iftheproposed corrective action plan satisfactorily addressed FAA concerns then, pending Airport Board approval, amendments to the Hangar 10 Lease, the LFBO Agreement, andMinimum Standards would be forwarded to Somerset for execution. Mr. Van Hook clarified that SPA and any othermaintenance service provider onthe Airport would be offered the same arrangement. Finally, Mr. Van Hooknoted thatthe Airport Boardwould truncate the LFBO Agreement to one year, allowingthe Airport Boardto solicitbids, including the incentivepackage, for a maintenance provider at the end ofone year. [FAA Item 6, Exhibit B] On August 7, 2012, Tom Halbleib forwarded to FAA's James Williamsjustification ofthe proposed threshold ofcompleting ten annual aircraft inspections in order to qualify for the incentive. Mr. Halbleib explained that the development ofmeaningful third party maintenance services would facilitate growth and development at Lake Cumberland Regional Airport by attracting more users and allowing the Airport to generate additional revenue streams. [FAA Item 6, Exhibit I] Mr. Halbleib emphasized thatbased on the Airport Board's Maintenance Committee analysis setting the thresholdbelowten annual inspections wouldrisk the incentive exceeding the revenues generatedbythe incentive. [FAA Item 6, Exhibit I] On August 21, 2012, Mr. Phillip J. Braden, FAA Manager, Memphis ADO, in a letter to Mr. Van Hook, Chairman Somerset-Pulaski County Airport Board Maintenance Committee concurred withthe Airport Board's "conceptofproviding incentives to promote additional commercial activities leading to additional airport revenue

...providedthat these incentives are not funded with airport revenue." Mr. Braden advised that FAA does not object to the Airport Board using non-airport revenue as the source offunding for the incentives. Finally, Mr. Braden stressed that the incentive program would have to "be applied on an equal basis to all involved parties. [FAA Item 6, Exhibit A] On September 21,2012, the Airport Board and Somerset agreed to anamendment ofthe LFBO Agreement, as well as corresponding Minimum Standards, and the Hangar Lease Agreement. Modifications to the LFBO Agreementinclude:

• a provisionthatthe Airport Board would advance payment to Somerset for the cost of public liability insurance "inan amount not to exceed $8,000."

• a reporting requirementthat Somersetreport to the Airport Board "thenumber ofF AA Annual Inspection the SecondParty [SRA] performed at the Airport, and for which the Second Party collected a reasonable fee, for umelated third parties ("Paid Third Party Annuals") during the immediatelypreceding year."

6• a confirmed report indicating that Somersetperformed ten or more Paid Third Party Annuals during the preceding year will result inthe Airport Board forgiving Somerset's obligationto repay the insurance advance.

• failure to meet or exceed the annual inspectionthreshold will require Somersetto immediatelyrepay the insurance advance withinten days ofnotice. [FAA Item 6, ExhibitF] The Amendmentto the accompanying Minimum Standards detailed the newreporting requirements in addition to a new section describing the incentive as follows:

• "Section 10. MAINTENANCE SUBSIDY INCENTIVE. The Airport Board in its sole discretion may from time to time determine that there exists insufficient availability of aircraftmaintenance services at the Airport and, to incentivize the provision ofsuch services, grant subsidyincentives on the terms and subject to the conditions set forth in the attachedJuly 23, 2012, letter from the Chairman ofthe Airport Board's Maintenance Committeeto the Federal AviationAdministration."

• "During any period when such subsidy incentives are offered, they will be offered to all similarly situated providers ofmaintenance services at the airport."

• The corresponding amendment to the Hangar Lease at Section 7 addresses the insurance premiumprovisions covered in the amended LFBO Agreement.

• In addition, Section 2 ofthe amended Hangar Lease is modified to include the provision ofrent abatement inthe amount of$400 eachmonthprovided that Somerset is able to meet or exceed the ten Third Party Annual thresholds detailed above. [FAA Item 6, ExhibitF] On October 2, 2012, Mr. Halbleib sent to Winter Huffa form ofhangar lease (for Hangar B-3 only) and a form ofLFBO agreement includingproposed modifications to minimum standards. Mr. Halbleib confirmedthatthe forwarded agreements "are substantially identical to those under which SomersetRegional Aviation will operate, upon completion ofamendments to its Lease and FBO Agreementto conform to the Airport Board's recent actions." Mr. Halbleib further stipulates "[I]fothermaintenanceproviders come onto the Airportbefore the Board modifies its actions, they too will be operatingpursuantto Leases and FBO Agreements substantiallythe same as these." [FAA Item 6, Exhibit M] OnNovember 29, 2012, Mr. Halbleib, via email to Winter Huff, stated thatthis letter constitutes notice ofthe Airport Board's intentto not renew the LFBO Agreement, the Hangar B-3 Lease and the Hangar B-4 Lease. Mr. Halbleib clarified "[T]o the extent any ofthe Agreements have notpreviously been effectively terminated, all three will terminate onDecember 31, 2012." Mr. Halbleib reiterates "Ihave submitted to youproposed amendments for SPARental, LLC's consideration. I understandthat you continue to assist SPARental, LLC, with its consideration ofthese documents. Although the Boardremains willing to discuss those amendments until December 31, 2012, ifSPARental, LLC, has not reached an agreement with the Boardbythat

7date, the Board will expect it to vacate Hangars B-3 and B-4 in accordance withthe terms ofthe leases and to discontinue any operations as a fixed base operator at the Airport." [FAA Item 6, ExhibitE] On January 27, 2013, a number ofemail communications occurredbetween Winter Huffand Tom Halbleib. Ms. Huffclaims "Since SPA has no ownership interest in any airplanes, and since the Boardis apparently unwilling to include Hangar B-3 in the LFBO arrangement otherwise, ourrequest to change the identification ofthe Lessee is appropriate and reasonable, and would have no substantive effect onyour client." [FAA Item 6, ExhibitN] Mr. Halbleib repliedthat he had not been aware that MSI (SPA) hadno interest in aircraft, emphasizing 'Thepre-existing B-3 lease already limits the use ofthe space to the housing of aircraft owned or leased byMSI. Should I inferthatMSI has beenhousing the Iverson's aircraft in violation ofthe pre-existing leases?" Mr. Halbleib clarifies "The Iverson's canthen request thatthe Airport Boardlease B-3 to them inthe ordinary course ofbusiness, but I'm in no position to provide any assurance that it would be offered to them or upon what terms it might be offered. IfMSI wants to continue negotiating other arrangements, it will first need to vacate the premises it currently occupies." [FAA Item 6, ExhibitN] Ms. Huffcountered in a responding email, "Itis my understanding that the prior usages ofthe B-3 hangarwere in accordance with the terms and provisions ofthe 2009lease[s], the last one offered by your client." Ms. Huffstressed "thatthe B-3 and B-4 hangars were bothbuilt by my client at great expense, and we advised you early onthat any new arrangementhad to encompass bothhangars." Ms. Huffconcludes "It is not our fault that these issues concerning B-3 have arisen this month- we didn't get a timely lease proposal for B-3 at all, and when we finally did it was neither consistentwiththe old terms or the new, nor, as I understand it, consistent withthe square footage ofhangar space being made available to the other LFBO." [FAA Item 6, ExhibitN] On February 7, 2013, Mr. Walter Iverson submittedto Kellie Baker, Airport Manager, an open record request, seeking copies ofspecific current and expiredhangar leases, as well as Somerset's LFBO Agreement. [FAA Item 6, ExhibitL] OnFebruary 13, 2013, Mr. Halbleib replied to Mr. Iverson confirming the Airport Board would provide to Mr. Iverson, byFebruary 14,2013, its public records that are responsive to his request under Kentucky's Open Records Act, KRS 61.870-84. [FAA Item 6, Exhibit L] OnApril25, 2013, Mr. Iverson submittedto Somerset-Pulaski County Airport Board a proposal to enter into an LFBO agreement. SPA proposed to continue to occupy Hangars B3 and B4 for an initial lease term ofthree years with an optionto renew for seven additional one year terms. SPA wouldpay $400 per month inrent for the facilities ifthe Airport Board would provide "incentives consisting ofrental abatement and forgivable advance up to $8,000 as indicated in invitationfor proposals published onApril20, 2013. [FAA Item 9, Exhibit I] OnJune 18,2013, Mr. Halbleib replied to Konrad Kuczak, counsel for the Complainant, explaining thatprotracted discussions and negotiations with the Complainant ended when MSI

8"advised the AirportBoardthat itwouldproceed only ifthe Airport Board allowed Mr. Iverson, individually, to lease one ofthe two hangars previously leasedto MSI." Mr. Halbleib added, "the Complaint MSI filed with the FAA indicates that MSI intends to use Hangars B-3 and B-4 for maintenance and restoration ofaircraft it owns. MSI has shown no willingness to remedy it's [sic] past failures or comply with generally applicable Airport Board policies. Underthe totality ofthe circumstances, the Airport Board declines MSI's proposal." [FAA Item 9, Exhibit 2]
ProceduralHistory
The Complainantfiled a Part 16 Formal Complaint dated March27, 2013, allegingthe Respondent violated49U.S.C., §40101 etseq., §47101 etseq.,andGrantAssurance24. [FAAItem 1] OnApril8, 2013, the FAAissuedthe Notice ofDocketing. [FAA Item2]
OnApril29, 2013, the Respondentfiled anAgreed Motionfor Additional Timeto Respondto Complaint and a Notice ofAgreementto File Electronically. [FAAItem 3 OnMay 30, 2013, FAAgranted the Respondent's motionfor anextensionto file. [FAA Item 4] OnMay 30, 2013, Respondentfiled a Motionto Dismiss andAnswerthe Complaint. [FAA Item 5] OnMay 30,2013,Respondent filed a Supporting Memorandum ofPoints andAuthorities for the AirportBoard'sMotionto Dismiss. [FAA Item 6]
OnJune 5, 2013, Respondent and Complainantfiled a Joint Applicationto EstablishResponsive Pleading Schedule. [FAAItem 7]
OnJune 7, 2013, FAAgrantedthe Responsive Pleading Schedule Request. [FAA Item 8] On, July 1, 2013, Complainantfiled a Memorandum Opposing Dismissal. [FAA Item 9] OnJuly 18, 2013, Respondentfiled a Rebuttal and Replyin Support oftheAirportBoard'sMotionto Dismiss. [FAA Item 1 

## OJ
OnJanuary 16, 2014, FAAissued a Notice ofExtensionofTime. [FAA Item 11] OnApril17, 2014, FAAissued aNotice ofExtension ofTime. [FAA Item 12] On September 5, 2014, FAAissued aNotice ofExtensionofTime. [FAA Item 13] On December 8, 2014, FAAissued aNotice ofExtension ofTime. [FAAItem 14] OnMarch 10, 2015, FAA issued a Notice ofExtensionofTime. [FAA Item 15] OnApri117, 2015, FAAissued a Notice ofExtensionofTime. [FAA Item 16]

9OnMay 12,2015, FAAissued aNotice ofExtension ofTime to June 30,2015. [FAA Item 17] OnJune 25,2015, FAAissued aNotice ofExtension ofTime to August28, 2015. [FAA Item 18] 

### IV. APPLICABLE FEDERAL LAW AND FAA POLICY The Federal role in civil aviation has been augmented by various legislative actions that authorize programs for providing Federal funds and other assistance to local communities for the development ofairport facilities. 

### In each such program, the airport sponsor assumes certain obligations, either by contract or by restrictive covenants in property deeds and conveyance instruments, to maintain and operate its airport facilities safely and efficiently and in accordance with specified conditions. Commitments assumed by airport sponsors in property conveyance or grant agreements are important factors in maintaining a high degree of safety and efficiency 

### in airport design, construction, operation and maintenance, as well as ensuring the public fair and reasonable access to the airport. The following is a discussionpertainingto the AIP, Airport SponsorAssurances, the FAA Airport Compliance Program, and enforcement ofAirport SponsorAssurances. 

### The Airport Improvement Program Title 49 U.S.C., § 47101, etseq., provides for Federal airport financial assistance forthe development ofpublic-use airports underthe AIP established by the Airport and Airway Improvement Act of 1982, (AAIA) as amended. Title 49 U.S.C., § 47107, et seq., sets forth assurances to which an airport sponsor agrees as a condition ofreceiving Federal financial assistance. Upon acceptance ofan AIP grant, the assurances become a binding contractual obligationbetweenthe airport sponsor and the Federal Government. The assurances made by airport sponsors in AIP grant agreements are importantfactors in maintaining a viable national airport system. 

### Airport Sponsor Assurances As a conditionprecedent to providing airport development assistance under AIP, 49 U.S.C., § 47107, et seq., the Secretary ofTransportation and, by extension, the FAAmust receive certain assurances from the airport sponsor. Title 49 U.S.C.,§ 47107(a) sets forth the statutory sponsorship requirements to which an airport sponsor receiving Federal financial assistance must agree. The FAA has a statutory mandate to ensure that airport owners comply withthese sponsor assurances.4 FAA Order 5190.6B, FAA Airport Compliance Manual (Order), issued on September 30, 2009, provides the policies and procedures to be followed by the FAA in carrying out its legislatively mandated functions related to compliance with Federal obligations ofairport sponsors. The FAA considers it inappropriate to provide Federal assistance for improvements to

4 See, e.g., the Federal Aviation Act of 1958, as amended and recodified, Title 49 U.S.C., §§ 40101, 40113, 40114, 46101, 46104, 46105, 46106, 46110; and the Airport and Airway Improvement Act of 1982, as amended and recodified, Title 49 U.S.C.,§§ 47105(d), 47106(d), 47107(k), 47107(1), 47111(d), 47122. 10airports where the benefits ofsuch improvements will notbe fully realized due to inherent restrictions on aeronautical activities. The FAA grant assurances that applyto the circumstances set forth inthis Complaint include: (I) Grant Assurance 22, EconomicNondiscrimination; (2) Grant Assurance 23, Exclusive Rights; and (3) Grant Assurance 24, Fee andRentalStructure. Grant Assurance 22,EconomicNondiscrimination Grant Assurance 22, EconomicNondiscrimination, requires the owner ofany airport developed with Federal grant assistance to operate the airport for the use and benefit ofthe public and to make it available to all types, kinds, and classes ofaeronautical activity onfair and reasonable terms, and without unjust discrimination. Grant Assurance 22 deals with boththe reasonableness ofairport access and the prohibition ofadopting unjustly discriminatory conditions as a potential for limiting access. Grant Assurance 22 implements the provisions of49 U.S.C., 

### § 47107(a) (1) through (6), and requires, inpertinent part, that the sponsor ofa federally obligated airport:

...will make its airportavailable as an airport forpublic use on reasonable terms, andwithout unjustdiscrimination, to all types, kinds, andclasses of aeronauticalactivities, including commercialaeronautical activities offering services to thepublic at the airport. [Grant Assurance 22(a)]

...may establish such fair, equal, andnot unjustly discriminatory conditions to be met by all users of the airport as may be necessary for the safe andefficient operation of the airport. [Grant Assurance 22(h)]

...may ...limit anygiven type, kind, or class of aeronautical use of the airport 

## if such action is necessary for the safe operation of the airport or necessary to serve the civil aviation needs of thepublic. [Grant Assurance 22(i)] Subsection (h) qualifies subsection (a), and subsection (i) represents an exception to subsection (a) to permitthe sponsor to exercise control ofthe airport sufficient to preclude unsafe and inefficient conditions that wouldbe detrimental to the civil aviation needs ofthepublic. In all cases involving restrictions on airport use imposedby airport owners for safety and efficiency reasons, the FAA will make the final determination onthe reasonableness of suchrestrictions whenthose restrictions deny or limit access to, oruse of, the airport. [See FAA Order 5190.6B,

**~14.3]** FAA Order 5190.6B describes the responsibilities under Grant Assurance 22 assumed bythe owners or sponsor ofpublic use airports developed withFederal assistance. Among these is the obligationto treat in a uniform manner those users making the same or similaruse ofthe airport andto make all airport facilities and services available on reasonable terms without unjust discrimination. [See FAA Order 5190.6B, Chapter 9]

11The owner ofan airport developed with Federal assistance is required to operate the airport for the use and benefit ofthe public and to make it availableto all types, kinds, and classes of aeronautical activities on reasonable terms and without unjust discrimination. [See FAA Order 5190.6B,

**~9.l.a]** GrantAssurance 23,ExclusiveRights Grant Assurance 23, Exclusive Rights, implements theprovisions of49 U.S.C.,§§ 40103(e) and 47107(a)( 4), andrequires, inpertinent part, thatthe owner or sponsor ofa federally obligated airport: willpermitno exclusive right for the use of the airport by anypersons providing, or intending toprovide, aeronautical services to thepublic. will not, either directly or indirectly, grant orpermitanyperson,firm, or corporation, the exclusive right at the airport to conduct any aeronautical activities

... In FAA Order 5190.6B, FAA Airport Compliance Manual, the FAA discusses its exclusive rights policy and broadly identifies aeronautical activities as subjectto the statutoryprohibition against exclusive rights. While public-use airports may impose qualifications andminimum standards uponthose who engage in aeronautical activities, FAAhas takenthe positionthat the application ofany umeasonab1e requirement or any standardthat is applied in anunjustly discriminatory mannermay constitute the constructive grant ofan exclusive right. Courts have found the grant of an exclusive right where a significantburdenhas beenplaced onone competitor that is not placed on another. [See e.g. Pompano Beach v FAA, 774 F2d 1529 

### (lith Cir, 1985)] Leasing all available airport land and improvements planned for aeronautical activities to one enterprise will be construed as evidence ofintentto exclude others unless it canbe demonstratedthat the entire leased area is presently required and will be immediatelyusedto conductthe activities contemplated bythe lease. [See Order, Sec. 8.9.d Space Limitation] FAA Order 5190.6B provides additional guidance onthe application ofthe statutory prohibition against exclusive rights and FAA policy regarding exclusive rights atpublic-use airports. [See Order, Chapter 8.] Grant Assurance 24, Fee andRentalStructure Grant Assurance 24, Fee andRentalStructure, implements the provisions ofthe AAIA, 49 U.S.C., § 47107(a)(l3), and requires, inpertinentpart, that the sponsor ofa federally obligated airport assure that:
Itwill maintain afee andrental structurefor thefacilities andservices atthe airport which will make the airport as self-sustainingaspossible under the circumstances existingat theparticular airport, taking into account such.factors as the volume of traffic andeconomy of collection. [Assurance 24]

12Grant Assurance 24 addresses fees the owner or sponsor levies on airport users in exchange for the services the airport provides and satisfies the requirements of47107(a) (13) by addressing self-sustainability. The intent ofthe assurance is for the airport operator to charge fees that are sufficient to cover as much ofthe airport's costs as is feasible while maintaining a fee and rental structure consistent withthe sponsor's other Federal obligations. In addition, FAA Order 5190.6B states: To aidin establishing uniform rates andcharges appliedto aeronautical activities on the airport, the sponsor shouldestablish minimum standards to be met as a condition for the right to conductan aeronautical activity on the airport. [FAA Order 5190.6B at Section 9.6.e.] The FAA Airport Compliance Program The FAA discharges its responsibilities for ensuring airport owners' compliance with their Federal obligations through its Airport Compliance Program. The FAA's airport compliance efforts are based onthe contractual obligations an airport owner accepts when receiving Federal grant funds or the transfer ofFederal property for airport purposes. These obligations are incorporated in grant agreements and instruments ofconveyance in orderto protectthe public's interest in civil aviation and to ensure compliance withFederal laws. The FAA Airport Compliance Program is designed to ensure the availability ofa national system ofsafe and properly maintained public-use airports operated in a manner consistent with the airport owners' Federal obligations and the public's investment in civil aviation. The Airport Compliance Program does not control or direct the operation ofairports. Rather, it monitors the administration ofthe valuable rights pledged by airport sponsors to the people of the United States inexchange for monetary grants and donations ofFederal property to ensure that the public interest is being served. FAA Order 5190.6B sets forth policies andprocedures for the FAAAirport Compliance Program. The Order establishes the policies andprocedures to be followed byFAApersonnel in carrying out the FAA's responsibilities for ensuring airport compliance. Itprovides basic guidance for FAApersonnel in interpreting and administering the various continuing commitments made to the United States by airport owners as a condition of receiving a grant ofFederal funds or the conveyance ofFederalproperty for airport purposes. The Order analyzes the various obligations set forth in the standard airport sponsor assurances, addresses the nature ofthose assurances, addresses the application ofthose assurances inthe operation ofpublic-use airports, and facilitates interpretation ofthe assurances byFAA personnel. The FAA Compliance program is designed to achieve voluntary compliance withFederal obligations accepted by owners and/or operators ofpublic-use airports developed with FAAadministered assistance. Therefore, in addressing allegations ofnoncompliance, the FAA will make a determination as to whether an airport sponsor is currently in compliance with the applicable Federal obligations. Consequently, the FAAwill considerthe successful action by the airport to cure any alleged or potential past violation ofapplicable Federal obligationto be

13grounds for dismissal ofsuch allegations. [See e.g. Wilson Air Center v. Memphis andShelby CountyAirportAuthority, FAA DocketNo. 16-99-10, (8/30/01) Wilson Air Center, LLCv FAA, 372 F.3d 807 (6th Cir. 2004)] FAA Enforcement Responsibilities The Federal Aviation Act of 1958, as amended (FAAct), 49 U.S.C., 

### §40101, et seq., assigns the FAAAdministratorbroadresponsibilities for the regulation ofair commerce in the interests of safety, security, and development ofcivil aeronautics. The Federal role in encouraging and developing civil aviation has been augmented byvarious legislative actions, which authorize programs for providing fimds and other assistance to local communities for the development of airport facilities. Ineach such program, the airport owner or sponsor assumes certain obligations, either by contract or byrestrictive covenants inproperty deeds and conveyance instruments, to maintain and operate its airport facilities safely, efficiently, and in accordance with specified conditions. Commitments assumed by airport owners or sponsors inproperty conveyance or grant agreements are important factors in maintaining a high degree ofsafety and efficiency in airport design, construction, operation and maintenance, as well as ensuring the public reasonable access to the airport. Pursuant to 49 U.S.C., 

### § 47122, the FAA has a statutory mandate to ensure that airport owners comply withtheir Federal grant assurances. The Complaint Process
Pursuantto 14 CFR, Part 16, 

### § 16.23, a person directly and substantially affected by any alleged noncompliance may file a complaint withthe FAA. The complainant shall provide a concise but complete statement ofthe facts relied upon to substantiate each allegation. The complaint shall also describe how the complainant was directly and substantially affected by thethings done or omitted by the respondents. [14 CFR, Part 16, 

### § 16.23(b) (3, 4)] If, based onthe pleadings, there appears to be a reasonable basis for further investigation, the FAAwill investigate the subject matter ofthe complaint. Inrendering its initial determination, the FAA may rely entirely onthe complaint andthe responsive pleadings provided. Eachparty shall file documents it considers sufficientto present all relevant facts and arguments necessary for the FAAto determine whether the sponsor is in compliance. [14 CFR, Part 16, 

### § 16.23] The proponent ofa motion, request, or order has the burden ofproof. A party who has asserted an affirmative defense has the burden ofproving the affirmative defense. This standardburden ofproofis consistent with the Administrative Procedure Act (APA) and Federal case law. The APA provision states, "[e]xcept as otherwiseprovided by statute, the proponent ofa rule or orderhas the burden ofproof." [5 U.S.C., 

### § 556(d).] [See also, Director, Office ofWorker's Compensation Programs, Department of Labor v. Greenwich Collieries, 512 US 267, 272 (1994); Air Canada et al. v. Department of Transportation, 148 F3d 1142, 1155 (DC Cir, 1998).} Title 14 CFR, § 16.229(b) is consistent with 14 CFR, § 16.23, which requires that the complainant must submit all documents then available to supporthis orher complaint.

14Similarly, 14 CFR, § 16.29 states that"[e]achparty shall file documents that it considers sufficientto present all relevant facts and argument necessary for the FAAto determine whether the sponsor is in compliance." Title 14 CFR, 

### § 16.31(b-d), inpertinent parts, provides that "(t)he Director's Determinationwill set forth a concise explanation ofthe factual and legal basis for the Director's Determination on each claim made bythe complainant. A party adversely affected bythe Director's Determination may appeal the initial determination to the Associate Administrator as provided in §16.33." In accordance with 14 CFR, § 16.33(b) and (e), upon issuance ofa Director's Determination, "a party adversely affected by the Director's Determination may file an appeal withthe Associate Administrator within 30 days afterthe date ofservice ofthe initial determination;" however, "(i)f no appeal is filed within the time period specified in paragraph (b) ofthis section, the Director's Determinationbecomes the final decision and order ofthe FAA without further action. A Director's Determination that becomes final because there is no administrative appeal is not judiciallyreviewable." Title 14 CFR, § 16.247(a) defines procedural recourse forjudicial review ofthe Associate Administrator's fmal decision and order, as provided in 49 U.S.C.,§ 46110 or section 519(b)(4) ofthe Airport and Airway Improvement Act of 1982, as amended, (AAIA), 49 U.S.C., §§ 47106(d) and47lll(d). Minimum Standards Advisory CircularAC 150/5190-7, Minimum Standards for Commercial Aeronautical Activities (August 28, 2006) provides basic information pertaining to the FAA'srecommendations on commercial minimum standards andrelated policies. Although minimum standards are optional, the FAA highlyrecommends their adoption as a means ofminimizing the potential for violations ofFederal obligations at federally obligated airports.
In accordance with the Airport and Airway Improvement Act of 1982, 49 United States Code (U.S.C.) §47101, et seq., and the AlP Sponsor Assurances, the owner or operator ofany airport (airport sponsor) that has been developed or improved with Federal grant assistance or conveyances ofFederalproperty assistance is required to operate the airport for the use andbenefit ofthe public andto make it available for all types, kinds, and classes ofaeronautical activity. These Federal obligations involve several distinctrequirements. Most important is thatthe airport and its facilities must be available for public use as anairport. The terms imposed onthose who use the airport andits services mustbe reasonable and applied without unjust discrimination, whetherbythe airport sponsor orbya contractor or licensee who has been granted a right bythe airport sponsor to offer services or commodities normally required to serve aeronautical users of the airport. The FAA'spolicyrecommending minimum standards stems from the airport sponsor's grant assurances to makethe airport available for public use on reasonable conditions and without unjust discrimination. The FAA suggests that airport sponsors establish reasonable minimum standards that are relevant to the proposed aeronautical activity with the goal ofprotecting the level and

15quality ofservices offered to the public. Once the airport sponsor has established minimum standards, it should apply them objectively and uniformlyto all similarly situated on-airport aeronautical serviceproviders. The failure to do so mayresult in a violation ofthe prohibition against exclusive rights and/or a finding ofunjust economic discrimination for imposing unreasonable terms and conditions for airportuse. The FAA objective in recommending the development ofminimum standards serves to promote safety in all airport activities, protect airport users from unlicensed and unauthorized products and services, maintain and enhance the availability ofadequate services for all airport users, promote the orderly development ofairport land, and ensure efficiency ofoperations. Therefore, airport sponsors should strive to develop minimum standards that are fair and reasonable to all on-airport aeronautical service providers and relevantto the aeronautical activity to which it is applied. Any use ofminimum standards to protectthe interests ofan exclusive business operationmay be interpreted as the grant ofanexclusiveright and a potential violation of the airport sponsor's grant assurances and the FAA'spolicy on exclusive rights. Minimum standards canbe amended periodically over time; however, a constantjuggling of minimum standards is not encouraged. The FAA expects airport sponsors to apply their minimum standards consistently throughtheir interactions with aeronautical users and service providers. Withthat said, the standard ofcompliance does notrequire that airport sponsors enforce minimum standards so rigidly as to require identical tone and pcsturetoward all airport users thathave different records and history withthe sponsor. [See FAAAdvisory Circular 150/5190-7 Minimum Standards for CommercialAeronautical Activities] 

### V. ANALYSIS AND DISCUSSION The Complainant alleges that the Respondent violated Grant Assurance 24, Fee andRental Structure. In addition, the Complainantraised allegations inboththe initial Complaint and the Memorandum OpposingDismissal, alleging violations ofGrant Assurance 22, Economic Nondiscrimination and Grant Assurance 23, Exclusive Rights. Thus, it has been determined that the following issues require analysis to provide a complete review ofthe Respondent's compliance with applicable Federal lawand policy: 1. Whetherthe Respondent is inviolation ofGrant Assurance 22, Economic Nondiscrimination, byrequiring that Complainant (SPA) agree to a set of newMinimum Standards for Fixed Base Operationthat would require changes to SPA's business model. [FAA Item 1, pp. 4-5, and Item 7, pp. 1, 

### 1

0-11]
2. Whetherthe Respondent is inviolation ofGrant Assurance 23, Exclusive Rights, byrequiring that Complainantmeet the terms ofrevised Minimum Standards in orderto receive incentives and subsidies. [FAAItem 7, p. 7]

163. Whether the Respondent is in violation ofGrant Assurance 24, Fee and RentalStructure, by offering a financial incentiveprogramto increase business at the airport. [FAA Item I] Preliminary Issues Respondent's Motion to Dismiss OnMay 30, 2013, the Respondent filed a Motion to Dismiss the Complaint. [FAA Item 5] The Respondent, in support ofits Motion to Dismiss the Complaint, states that the Complainant failed to comply withthe provisions of 14 CFR 

### § 16.21 5 because the Complainant did not include a certificationthat SPA engaged in substantial and reasonable good faith efforts to resolve the disputed matterinformally with the Airport Board. In addition, the Respondent claims thatthe Complainant lacks standing because SPA is not directly and substantially affected bythe incentive program, as required by 14 CFR 

### § 16.23 6 Finally, the Respondent maintains thatthe Complainant failed to state a claim that warrants investigation orfurther actionby the FAA, as required by 14 CFR 

### § 16.26. [FAA Item 5, p. 13] Inthe Complainant'sMemorandum OpposingDismissal, SPA alleges grant assurance violations not covered in its informal Complaint, expanding its claims beyond Grant Assurance 24, Fee and RentalStructure, to also encompass, via direct or indirect allegations, violations ofGrant Assurance 22, EconomicNondiscrimination, as well as Grant Assurance 23,ExclusiveRights. In response to the Airport Board's claimthat SPAhad not engaged in efforts to resolve the matter informally, the Complainant details public meeting attendance by Walter Iverson, the exchange ofmultiple letters between the Complainant and the Airport Board, and the filing ofan informal Complaint with FAA. The Complainant claims that it is adversely affected by Airport Board actions, maintaining that SPA faces evictionunless it enters into a newLFBO Agreement that includes new Minimum Standards. [FAA Item 9, pp. 2-3] The Director disagrees withthe Respondent. Initially, the FAA investigatedthis matter under informal agency procedures, followed by acceptance ofthe Complainant's formal Part 16 Complaint. The Complainantinthe Complaint lists the informal efforts it tookto resolve the dispute with the Respondent, including filing the Part 13 complaint. The Part 13 complaint process is recognized as a good faith effort under 14 CFR 

### § 16.21(a) as a means to assist the parties with informal resolution. Complainant's counsel closes out the Complaintby certifying thathe believes thatthere is no reasonable prospect for timelyresolution ofthe dispute by informal means. The Director finds that the Complainanthas satisfied the requirements of 14 CFR 

### § 16.21. Additionally, the scope ofthe issues raised related to the Respondent's obligations under its Federal grant assurances warrants further investigation, and the Motionto Dismiss is denied.

5 16.21 states in pertinent part, "

...prior to filing a complaint nnder this part, a person directly and substantially affected by the alleged noncompliance shall initiate and engage in good faith efforts to resolve the disputed matter informally with those individuals or entities believed responsible for the noncompliance."

6 16.23 states in pertinent part,"

...a person directly and substantially affected by any allegednoncompliance

...may file a complaint under this part.''

17Part 13 Informal Complaint OnAprill9, 2012, SPA filed a complaintunder 14 CPR, Part 13 with the Memphis Airport District Office (ADO), alleging that: (1) the Sponsor had refused to renewthe LFBO Agreement with SPA; and (2) the Sponsorhad offered "discriminatory incentives to Somersetto the detriment ofSPA." [FAA Item 1, p. 3 and Item 1, Exhibit E.] The ADO issued a fmding addressing the allegations raised inthe informal complaint on May 9, 2012. The ADO determined that the lease with Somerset failed to meetthe "[T]erms and Conditions ofAccepting Airport Improvement Program Grants" as stated in Grant Assurance 24 and concluding that the incentives included inthe lease agreement would make itunreasonably costly or impractical for the Airport Boardto have more than one fixed based operator. The FAA specifiedthat the Airport Boardmustinitiate corrective action regarding the LFBO Agreementby either terminating the lease with Somerset or modifying it to incorporate compensationbased on fair market value. 7 [FAA Item 1, Exhibit D] As stated above, inthe Background Section, the Airport Board initiated corrective action by proposingto amendthe LFBO Agreement with Somerset. The amendment was found acceptable by the ADO, subjectto thatthe "proposed incentive program must be applied on an equal basis to all involvedparties." Mr. Braden adds that "[P]ending the Somerset-Pulaski County Airport Board's approval, the FAA concurs withyour recommendationprovidedthat these incentives are not funded with airport revenue (AlP GrantAssuranceNo. 25). In addition, FAA does not object to the board's use ofoutside revenue, as stated in yourproposal, to fund these incentives."8 [FAA Item 5, pp. 1-2 and Item 6, Exhibit A] The Respondent amended its LFBO Agreement, corresponding Minimum Standards, and its Hangar Lease Agreement consistent with its proposed corrective action. The Respondent confirmedthat during any period in which subsidy incentives are offered, the incentives will be offeredto all similarly situated providers ofmaintenance services at the airport. [FAA Item 1, page 9] Issues Issue 1 - Whether the Respondent is in violation ofGrant Assurance 22,Economic Nondiscrimination, by requiring that Complainant (SPA) agree to a set ofnew Minimum Standards for Fixed Base Operation that would require changes to SPA's business model. The Complainant alleges that in order to maintain its leasehold on the airport, the Airport Board required it to agree to newminimum standards that would significantly change its business model. Specifically, the Complainant alleges that the following Airport Board actions constitute violations ofGrant Assurance 22, Economic Nondiscrimination:

7 See footnote 13 under Issue 3 addressing fair market value. 8 In a July 23, 2012, letter to Mr. James Williams, FAA Memphis ADO, Airport Board Chairman Mr. Richard Van Hook provides a detailed description ofthe proposed incentive plan and the Pulaski County occupational license fee that would serve as the funding source for the financial incentives to similarly situated LFBOs. [FAA Item 6, Exhibit B] 18o Demanding that SPA alter its fundamental business;
o Forcing SPAto abandon its traditional business model in favor ofa model dictated by the AirportBoard; • Requiring SPA to perform, from a smaller hangar paid for by SPA, the same number ofthird party annual inspections as Somerset, a new LFBO; • Not allowing SPA to apply annual inspections performed onpersonally-owned aircraft to the third party arrnual inspection minimum; and • Offering incentives to Somerset that are dramatically disproportionate to those offered to the Complainant. [FAA Item 1, pp. 4-5 and Item 9 pp. 1, 8, 9, and 12] The Respondent denies that SPA, during the period in question, has been a limited fixed based operator (LFBO) at the airport, arguing that "to the extent that SPA's business model consists of purchasing, then reconditioning and reselling aircraft, these activities would appear to constitute self-maintenance," and as a result would not require a LFBO agreement. [FAA Item 5, p. 10] Grant Assurance 22, Economic Nondiscrimination, requires, in pertinentpart, that the sponsor of a federally-obligated airport: willmake the airport available as an airport forpublic use on reasonable terms and without unjust discrimination to all types, kinds andclasses of aeronautical activities, including commercial aeronautical activities offeringservices to thepublic atthe airport.[

..] Eachfixed-base operator atthe airportshall be subject to the same rates, fees, rentals, and other charges as are uniformly applicable to all other fixed-base operators making the same or similar uses of such airport and utilizing the same or similar facilities." [Grant Assurance 22] New Minimum Standards The Complainant asserts that conforming to the newMinimum Standards imposedby the Respondent "wouldrequire SPAto change its entire business model which ithas employed since 1988." [FAA Item 9, p.1] Complainant states that the newMinimum Standards require SPAto perform a minimum oftenthird party annual inspections eachyear with no credit given for inspections performed on aircraft ownedby SPA, Iverson or his spouse. Complainant argues that it would have to conductthese inspections from a smallerhangar, paid for by SPA9

, while Somerset couldperformthe same minimum number ofinspections from a larger hangar for which Somerset did not pay to build. [FAA Item 1, p. 4] Complainant stresses that in order to perform ten third party inspections, it "wouldhave to remove a considerable amount ofits operation from the hangers [sicJit occupies and devote this space to aircraft in various stages of disassembly necessary for arrnual inspection." [FAA Item 9, p. 

### !OJ The Complainant further alleges that "the Board's failure to offer renewal ofSPA's lease onthe same terms until at least 2018 is contrary to FAA's minimum guidelines for leases where the provider constructs its own facilities. SPA maintains that "by arbitrarily demanding SPA change its business model as a condition for SPA to renew its lease, the Board has failed to accord SPA

9 The Respondent acknowledges that SPA builttwo hangars, B-3 and B-4, which share a common wall. Following expiration ofground leases in effect at the time SPA built the hangars, bofhhangars became the property ofthe Sponsor. [FAA Item 5, p. 4] 19the opportunityto occupy the premises for what the FAA deems to be the reasonable minimum term for providers who develop major facilities with their own funds." [FAA Item 9, p.l2] Complainant claims that "at no time has SPA offered or conducted airworthiness inspections of aircraft mandated by FAAregulations to the general public." [FAA Item 9, p.3] Complainant inexplicably attempts to differentiate between SPA and Walt Iverson, explaining that "the applicable Federal Aviation Regulations (FAR's) do not authorize SPA to offer or perform such services." [FAA Item 9, p.4] Complainant contends "that SPA itself, as a corporation, did not unlawfully perform annual inspections does not establishthat SPA, through its employees, failed to provide aeronautical services, including annual inspections, to the public." [FAA Item 9, p. 5] Complainant continues that Iverson, an FAA certified A&P mechanic accredited with an Inspection Authorization and a principal ofSPA, "has provided mechanical repairs to aircraft owned by SPA, himselfand his spouse andhas conducted air worthiness inspections ofaircraft mandated by FAAregulations to certify said aircraft as airworthy at the leased facilities. At no time has Iverson or any other mechanic associated with SPA performedmore than three 100-hour or annual inspections for aircraft being refurbished and held for resale in any twelve monthperiod." [FAA Item 1, p.2] The Respondent denies that SPA, during the period in question, has been a limited fixed based operator (LFBO). The Respondent refers to the FAA's Airport Compliance Manualthat defines a fixed based operator as "acommercial entityproviding aeronautical services such as fueling, maintenance, storage, ground and flight instruction, etc., to the public. FAA Order 5190.6B, p. 9-3 9 (emphasis added)," yet "SPAnever alleges that it provides aeronautical services to the public." The Respondent emphasizes that SPA admits that it has at no time offered or conducted airworthiness inspections to the general public. [FAA Item 5, p. 3] The Respondent contends that it "is not required to treat an entity thatprovides needed maintenance services, such as annual aircraft inspections, to the public the same as an entity that admits it does notprovide such services to the public." [FAA Item 6, page 5] The Respondent contends that "although SPA continued to occupy during 2012 (and still occupies) Hangars B-3 and B-4, to the best ofthe Airport Board's knowledge, SPA has not provided aircraft maintenance services to the public during thatperiod." The Respondent claims that "[A]s ofMarch, 2012, no party was providing aircraft maintenance services to the public at the Airport." [FAA Item 5, p. 5] The Respondent argues that "to the extent that SPA'sbusiness model consists ofpurchasing, then reconditioning and reselling aircraft, these activities would appear to constitute self-maintenance," and as aresult would not require a LFBO agreement. [FAA Item 5, p. 1 

## OJ
The Respondent denies that it has required SPA to alter its business by requiring the Complainantto perform any third party annual inspections. Given thatpromoting available aircraft maintenance services to the public and increasing airport usage and revenue are the objectives ofthe incentive program, the Respondent admits that it will not credit inspections performed by SPA on its own aircraft, orthose ofIverson orhis spouse, toward meeting the ten annual inspection threshold for earning incentives. The Respondent emphasizes that although self-maintenance is permitted, the Respondent has no interest in subsidizing self-maintenance activities. [FAA Item 5, p. 11]



### 20The Complainant alleges the Respondentimproperly altered SPA's minimum standards by failing "to impose the same minimum standards on SRA (Somerset) as had been inplace for SPA [and] instead, the Board concocted a newminimum standard for SRArequiring the ten annual inspections and then refused to renegotiate SPA's lease unless it complied with the standard it set for SPA [SRA]." [FAA Item 9, p.7] Advisory Circulars, such as the one addressing Minimum Standards, are advisory innature, rather thanbinding Orders issuedbythe FAA upon Airport Sponsors. As such, Airport Sponsors are encouragedto develop and apply Minimum Standards, but are not required to do so either by law orbythe grant assurances. The FAA'spolicy recommending minimum standards stems from the airport sponsor's grant assurances to make the airport available for public use on reasonable conditions and without unjust discrimination. Once the airport sponsor has established minimum standards, it should apply them objectively and uniformlyto all similarly situated on-airport aeronautical serviceproviders. [See FAA Advisory Circular, 150/5190-7, Minimum Standards for Commercial Aeronautical Activities, Section 1.1; Flightline v. Shreveport, 10 FAA DocketNo. 16-07-05 (March 7, 2008) (Director's Determination) page 26.]
Inprevious cases, the Directorhas found that minimum standards canbe modifiedto reflect the airport's desire to learn from experience and to be watchful for improvements in the way it does business in order to protectthe public interest. [See RoyalAir, Inc. v. City of Shreveport through the ShreveportAirportAuthority, FAA DocketNo. 16-02-06 (January 9, 2004) (Director's Determination) (pages 19-20.)] 11 In the present case, the Respondentjustified changes to the minimum standards, explainingthat attracting, developing, and sustaining meaningful third party maintenance services would facilitate growth at Lake Cumberland Regional Airport by attracting more users and allowing the Airport to generate additional revenue streams. This is consistent withthe FAA's objective inrecommending the development ofminimum standards as a means to maintain and enhance the availability ofadequate services for all airport users, to promote the orderlydevelopment ofairport land, and to ensure efficiency ofoperations. [FAA Advisory Circular, 150/5190-7, Minimum Standards for Commercial Aeronautical Activities, Section 1.2] Grant Assurance 22, EconomicNondiscrimination, prohibits only unjust economic discrimination, not all economic discrimination. The principle ofunjust economic discriminationrequires a party who has been allegedly discriminated against to be "similarly situated" to an alleged preferred party in order to establish unjust economic discrimination under Assurance 22. [See R/T-182, LLCv. Portage County RegionalAirportAuthority, FAA Docket No. 16-05-14, (March 29, 2007) (Final Agency Decision), page 12]

10 Respondent Flightline amended its Minllnnm Standards as part ofits corrective action plan ordered in an earlier 14 CFRPart case. The amended Minimum Standards included specific requirements for applicants seeking an FBO Agreement to conduct commercial aeronautical services on the Airport. 11 "The FAA encourages airport sponsors to establish reasonable minimum standards that are relevant to the proposed aeronautical activity with the goal ofprotecting the level and quality ofservices offered to the public. Minimum standards can be modified to reflect the airport's desire to learn from experience and to be watchful for improvements in the way it does business in orderto protect the public interest." 21Inthis case, the Complainant self-identifies as engaging inthe business ofpurchasing, refurbishing, and re-selling aircraft. The Complainant claims that in orderto performten third party inspections, it "wouldhave to remove a considerable amount ofits operation from the hangers [sic] it occupies and devote this space to aircraft in various stages ofdisassembly necessary for annual inspection." [FAA Item I and Item 9, p. 10] The Complainant also admits that "at no time has SPA offered or conducted airworthiness inspections ofaircraft mandatedby FAA regulations to the general public." [FAA Item 9, p.3] By its own statements and descriptions, the Complainant appears notto be similarly situated to Somerset Regional Aviation. Based on a review ofthe Record, the Director agrees that the Airport Board has established that it is seeking to attract a "meaningful" maintenance service providerto Lake Cumberland Regional Airport. Working with FAA's Memphis ADO, the Respondentjustified its definition ofmeaningful maintenance service provider. The Respondent alsojustifiedits rationale for establishing a minimum standards threshold ofannual third party inspections that a maintenance service providermust complete within a designated twelve monthperiod. SPArepresented inthe record that ithas not conducted airworthiness inspections ofaircraft mandatedby FAA regulations to the general public, butrather it is in the business as a re-furbisher and reseller of aircraft. SPA does contend thatthrough its employees it performs aeronautical services. As the principal actingin his individual capacity after hours, Mr. Iversen, it was briefly mentioned that fee-based services provided for significantly less than ten (10) clients over a period of approximately 25 years. [FAA Item 9, pp.S-6] SPA, has not provided evidence confirming thatthe Respondent (I) failed to make the Airport available to SPA onreasonable terms, and (2) failed to negotiate in good faith with SPA. Consequently, SPA failed to establish that it is similarly situatedto Somerset and engaged in maintenance services to the public, but rather is only self-servicing its own aircraft. [FAA Item 9, pp.S-6] Accordingly, the Director finds the facts presented in the record do not support a finding thatthe Respondent is inviolation ofGrant Assurance 22, EconomicNondiscrimination. Issue 2 - Whether the Respondent is in violation ofGrant Assurance 23, ExclusiveRights, by changing the Minimum Standards for Fixed Based Operators. Grant Assurance 23, Exclusive Rights, implements the provisions of49 U.S.C., §§ 40103(e) and 47107(a)( 4), and requires, in pertinentpart, thatthe sponsor ofa federally-obligated airport: willpermit no exclusive right for the use of the airport by anypersons providing, or intending toprovide, aeronauticalservices to thepublic. will not, either directly or indirectly, grant orpermit anyperson, .firm, or corporation, the exclusive right at the airport to conduct any aeronautical activities

...



### 22

### Alleging a violation ofGrant Assurance 23, the Complainant claims the Respondent "failed to impose the same minimum standard on [Somerset] as had been in place for SPA." The Complainant contends that the Respondent "concocted a new minimum standard for Somerset requiring ten annual inspections and then refused to negotiate SPA's lease unless it complied with the standard it set for SPA." The Complainant further argues that the Respondent's "attempting to impose the new Minimum Standard(s) on SPA

...violated the underlying consideration that the new Minimum Standards addressed the needs ofboth SPA and [Somerset] and thus imposed a patently unreasonable standard on SPA." [FAA Item 9, p. 

### 7] In addition, the Complainant claims that the Respondent has been unable to demonstrate that performing ten annual inspections is attainable. The Complainant questions how such an inspection requirement would protect SPA from unreasonable competition, given that the requirement often annuals "unfairly pits SPA into direct competition with SRA (Somerset) for the lion's share ofa very limited market. Is SPA expected to offer annual inspectionsas loss leaders or engage in a price war.. .in order to preserve its presence on the field?" [FAA Item 9, pp.9-10] The Complainant also argues that "FAA's 

### Guidance on Developing Minimum Standards. JdAppendix C, § 

### 2.1(e), do not deem the volume ofa particular service as an appropriate area for the minimum standards." [FAA Item 9, p. I0] The Respondent reiterates that SPA and Somerset are not similarly situated and that the Airport Board maintains uniformly applicable minimum standards. [FAA Item I0, p.l] The Respondent emphasizes that "[T]he minimum standards ofwhich SPA complains apply only to LFBOs providing aircraft engine and accessory maintenance services at the Airport. A different section ofthe minimum standards applies to those businesses selling aircraft from the Airport." [FAA Item 8, p.3] The Respondent contends that "the Airport Board's minimum standard for maintenance service providers relating to annual inspections is reasonable and applies equally. In fact, it is the equal application ofthe minimum standard ofwhich SPA complains." [FAA Item I0, p 4] The Respondent further maintains that given the annual inspection requirement is new is irrelevant, claiming "[t]he Airport Board developed the annual inspection requirement to address a current need. In developing the requirement, the Airport Board ensured that it allowed for multiple providers ofthe same service while at the same time promoting the revenue enhancement purposes ofthe incentive program. The FAA specifically referenced and concurred with (subject to certain conditions) the Airport Board's proposals in its August 21,2012, letter to the Airport Board." [FAA Item 10, pp. 4-5] SPA further argues that "the business ofpurchasing, refurbishing, and re-selling aircraft from facilities leased to it at the Lake Cumberland Regional Airport as alleged in paragraph 1 of the Complaint constitute aeronautical activities offered to the public. The Board makes no attempt to identify from whom SPA purchases and to whom SPA re-sells refurbished aircraft ifnotto the public." [FAA Item 9, p. 4] The record was reviewed. SPA submitted that the FARs do not authorize SPA to offer or perform such services. Complainants cite 14 CFR § 91.409, which states the requirements

23

### for mandatory periodic inspections. Complainants also cite 14 CFR § 43.7, which they state provides the list ofpersons authorized to conduct annual inspections. The Complainants cite that mandatory periodic inspections must be performed by human mechanics holding inspection authorizations, certified repair stations, manufacturers, or air carriers. SPA further states that it has never been any ofthe above; indeed it would have been unlawful for SPA to have performed periodic inspections." [FAA Item 9, p. 4] SPA further contends "that SPA itself, as a corporation, did not unlawfully perform annual inspections does not establish that SPA, through its employees, failed to provide aeronautical services, including annual inspections to the public." [FAA Item 9, p. 5] SPA counters that Mr. Iversen, as an FAA certified A & 

### P mechanic with an Inspection Authorization has performed after hour repairs on aircraft. SPA further suggests an example ofa previous maintenance customer, Mr. Bill Newell, former Chairman ofthe Airport Board, has his twin Comanche maintained and serviced byMr. Iversen. [FAA Item 9, p. 6] SPA also suggests another example of"former Board member Delyn Gibson ofDiversicare's aircraft were inspected andre licensed by Mr. Iversen at FAA mandated periodic intervals." [FAA Item 9, p. 

### 6] The record has been reviewed, and indicates that the Complaint in paragraph 5, SPA asserts: 

### Mr. Iversen is aprincipal of SPA. Mr. Walter Iversen is an FAA certifiedA & 

### P mechanic accreditedwith an Inspection Authorization hasprovided mechanical repairs, including airworthiness inspections, to aircraft owned by SPA, himself andhis spouse, andhas conductedairworthiness inspections of aircraft mandated by FAA regulations to certifY saidaircraft as airworthy at the leased facilities. Atno time has Iversen or any other mechanic associated with SPAperformedmore than three 100 hour or annual inspectionsfor aircraft being refurbishedandheld for resale in any twelve monthperiod. [FAA Item 1, p. 2] Immediately following inparagraph 6 ofthe Complaint, SPA claims: 

### At no time has SPA offered or conductedairworthiness inspections of aircraft mandatedby FAA regulations to the generalpublic. [FAA Item 1, p. 2] Based on the record, SPA itselfis not a certificated aircraft repair station or has the ability to conduct annual inspections. Thus, it cannot hold itselfout to the public to conduct annual inspections. Thus, it is reasonable that the SPA is not a traditional FBO but an aircraft refurbisher and reseller. The airport lease is with SPA; not Mr. Iversen or other employees who perform aircraft maintenance repairs. Grant Assurance 23, 

### Exclusive Rights, does not preclude a sponsor from modifying minimum standards to reflect changing needs and to protect the public interest. 12 

### As stated in the analysis oflssue 1, the grant assurances do not require sponsors to develop and implement

12 See, Royal Air, Inc. v. City ofShreveport through the Shreveport Airport Authority, FAA DocketNo. 16-02-06 (January 9, 2004) (Director's Determination) (Pages 19-20). 24minimum standards. However, FAA policy specifies that sponsors choosing to establish minimum standards should applythem objectively and uniformlyto all similarly situated onairport aeronautical service providers. The Director finds that the Complainant's interpretation ofthe sample questions listed in Section 2.1 (e) ofAdvisory Circular 150/5190-7 inaccurate. The Complainantmaintains that "Minimum Standards setting the volume ofa particular service are not authorized." [FAA Item 9, p.lO] Contrary to SPA's assessment, this sample question section serves merely as a reference guide to assist an airport sponsor in formulating effective minimum standards that address some ofthe types ofcommercial aeronautical services or activities frequently offeredto the public. The AC explains that the sample questions are provided to address some ofthe various types ofspecific services or activities frequently offered to the public, and is not a limitation on what canbe covered inthe minimum standards. Accordingly, consistent with the ADO's August 21, 2012 letter, an airport sponsor may establish a minimum standardprovision based onthe volume ofa particular service if justified. The Complainant did not provide evidence that demonstrated SPA and Somerset are similarly-situated entities. Eachprovides different services. The Complainant did not provide evidence demonstrating that the Sponsor had not universally applied uniform Minimum Standards to similarly situated commercial aeronautical tenants onthe airport. Furthermore, the Complainant did not articulate how modification to the Minimum Standards created an exclusive right for Somerset or howthe new Minimum Standards would preclude SPA from continuing to engage in its business ofpurchasing, refurbishing, and re-selling aircraft from facilities leased to it atthe Lake Cumberland Regional Airport. Accordingly, the Director finds the facts presented inthe record do not support a finding that the Respondent is in violation ofGrant Assurance 23, Exclusive Rights. Issue 3 -Whetherthe Respondent is in violation ofGrant Assurance 24, Fee and Rental Structure, by offering a financial incentive program to increase business at the airport. The Complainant argues that the incentives the Airport Boardprovides to Somerset are dramatically disproportionate to those offered to SPA. The Complainant explains that there is an insurance rebate incentive and a rent rebate incentive, both ofwhich may be earned upon proofof collection oftenpaid third party annual inspections during a 12 monthperiod. The Complainant maintains that the Respondent failed to provide to SPA "any credit/adjustmentinthe incentives for the fact that SPA built andpaid for the hang[a]rs it occupies." SPA contends that "by giving the identical incentive to Somerset that itproposes to give to SPA, the Boardhas provided a disequal [sic] incentive because SPA has paid for its ownhang[a]r construction." [FAA Item 9, pp.ll-12] The Respondent asserts that the Complainant fails to state how SPA "is directly and substantially affected by the incentives provided to SomersetRegional Aviation or by the alleged violation of Grant Assurance 24." [FAA Item 6, p. 2] The Respondent maintains that "SPA has not alleged that its rents are unreasonable or that it is similarly situated with Somerset Regional Aviation such that itmerits the same incentives. SPA admits in its complaint that it is different from Somerset

25Regional Aviation and claims that it would have to 'alter its fundamental business' and 'abandon its traditional business model' to become similarly situated with Somerset Regional Aviation." [FAA Item 6, p. 2 citing FAA Item 1, pp. 4-5] The Respondent stresses that the Airport Board designed its incentiveprogram withthe intentto promote self-sufficiency. The Airport Board solicited proposals from aircraft maintenance service providers, explaining that Lake Cumberland Airport users had complained to the Airport Board regarding the lack ofaircraft maintenance services. [FAA Item 6, p.3] The Respondent contends that "the competitive proposal process demonstrates that market conditions are such that the Airport Board cannot demand the payment offees atthis time." 13 The Respondent attributes this to the fact thatthe Board received only two proposals inresponse to the RFP, neither of which was from SPA. In recognition ofmarket conditions, the Respondent explains that "the Airport Board designed the incentiveprogram and modified it in consultation withthe FAA to meetits need for aircraft maintenance services." [FAA Item 6, p. 3] The Respondent claims that "SPA demands the opportunity to participate inthe program without meeting the program's requirements, which were specifically designed to promote increased Airport usage and the Airport's self-sustainability." [FAA Item 6, p. 4] Contrary to the Complainant's assertions, the Respondent maintains that "[T]he Airport Board is not required to treat an entity thatprovides needed maintenance services, such as annual aircraft inspections[,] to the public[,] the same as an entity that admits it does notprovide such services to the public. The FAA's Compliance Manual provides that 'ifthe services are not similar, sponsors are notrequired to charge the FBOs the same rates.' FAA Order 5190.6B, p. 9-7." [FAA Item 6, p. 5] Therefore, the Respondent summarizes that it has not unjustly discriminated against SPA, because SPA is not similarly situatedto SomersetRegional Aviation. Moreover, the Respondent explains that SPA, initially leased only ground from the Airport Board, and ownedthe hangars itconstructed, and thus did not lease the hangars. Upon expiration ofthe ground leases, ownership ofthe hangars vested inthe Airport Board, and SPA executed leases for the hangars in addition to the ground. The Respondent contends that "SPAcannot now attempt to renegotiate the deal pursuant to which it constructed the hangars, whichthe Airport Board now owns." [FAA Item 10, p.3] As previously set out, the Respondent amended its lease with Somersetper guidance from the Memphis Airport District Office. [FAA Item 5, and Item 6, Exhibit A

## J The ADO concurred with "the concept ofproviding incentives to promote additional commercial activities leading to additional revenue at the airport. However, this proposed incentive program must be applied on an equal basis to all involved parties... providedthat these incentives are not funded with airport revenue." [FAA Item 5, pp. 1-2 and Item 6, Exhibit A]

13 "At some airports, market conditions may not permit an airport proprietor to establish fees that are sufficiently high to recover aeronautical costs and sufficiently low to attract and retain commercial aeronautical services. In such circumstances, an airport proprietor's decision to charge rates that are below those needed to achieve aselfsustaining income in order to assure that services are provided to the public is not inherently inconsistent with the obligation to makethe airport as self-sustaining as possible in the circumstances." See Section VII, B.3. ofFAA's Policy andProcedures Concerning the Use of AirportRevenue, 64 FR7696 (February 16, 1999). 26The Airport Board also confirmed that during any period in which subsidy incentives are offered, the incentives will be offered to all similarly situated providers ofmaintenance services atthe airport. [FAA Item 5, page 9] A review ofthe Record affirms that SPA is not similarly situated to Somerset. SPA has expressed a preference for maintaining a business model which it purports to include the purchasing, refurbishing, and reselling ofaircraft. [FAAItem I, p. I] SPA further contends "that SPA itself, as a corporation, did not unlawfullyperform annual inspections does not establish that SPA, through its employees, failed to provide aeronautical services, including annual inspections to the public." [FAA Item 9, p. 5] SPA is the lessee ofthe airport property, and not Mr. Iversen in his capacity as a principal. Consequently, SPA cannot provide the necessary ten (I0) annual inspections per year to increase airport business. That is the purpose ofthe Respondent's incentive program, whichis allowed under FAApolicy. Furthermore, SPA constructed bothhangars, sharing one common wall, at its own expense. Hanger B-3 is a 2,400 square foot structure completed in 1988. Hanger B-4, completedin 1992, is 3,200 square feet. [FAA Item I, p. 2] The record shows the hangars became the property of the Airport Board onJanuary I, 2009, upon expiration ofthe ground leases between SPA andthe Airport Board. [FAAItem 5, p. 4] SPA entered new one year leases with Respondent beginning in 2009 [FAA Item I, Exhibit A and Item 6, Exhibit C] Respondent decided not to renew the lease in 2012 in order to issue a RFP for an aircraft maintenance repair business opento the public. SPA negotiated and entered into the different leases over the years. Respondent did not force the terms and conditions on SPA. No evidence has beenprovided by the Complainantthatthe Respondent is requiring SPAto change its business model. Norwas their sufficient evidence to support Complainant's claim that the Respondent offered incentives to Somerset, that were dramatically disproportionate or different to those offered to the Complainantto sustain a Grant Assurance 24 violation Accordingly, under the specific facts ofthis case, the Director finds that the Respondent, is not in violation ofGrant Assurance 24, Fee andRentalStructure. Findings and Conclusions Upon consideration ofthe submissions ofthe parties, the entire record herein, the applicable law and policy and for the reasons stated above, the Director, Airport Compliance and Management Analysis, finds and concludes:

• The Respondent is not in violation ofGrant Assurance 22, Economic Nondiscrimination. • The Respondent is not in violation ofGrant Assurance 23, Exclusive Rights.

• The Respondent is not in violation ofGrant Assurance 24, Fee andRentalStructure.

27ORDER ACCORDINGLY, the Director finds that the Respondent Somerset-Pulaski County Airport Board is not in violation ofFederallawand the Federal grant obligations. All Motions not expressly granted inthis Determination are denied. RIGHT OF APPEAL This Director's Determination is aninitial agency determination and does not constitute final agency action and order subjecttojudicialreview. [14 CPR§ l6.247(b)(2)] A party to this Complaint adversely affected bythe Director's Determination may appeal the initial determination to the FAA Associate Administrator for Airports pursuant to 14 CPR § 16.33( c) within thirty (30) days after service ofthe Director's Determination. Signed,

lttndall S. Fiertz Director ofAirport Compliance

and Management Analysis 

# Je,:l. 

# I 2o1> Date

28SPA Rental, LLC, d/b/a/ MSI Aviation V. Somerset-Pulaski CountyAirport Director's Determination FAADocketNo.l6-13-02 INDEX OF ADMINISTRATIVE RECORD

Item 1- Part 16 Complaint dated March 27,2013, alleging the Respondent violated Grant Assurance 24 and including Exhibits A-F. 

### Exhibit A- Limited Fixed Based Operator Agreement dated June 30, 2009, between the Somerset-Pulaski CountyAirport Board and SPA Rental, LLC d/b/a MSI Aviation. 

### Exhibit B

- Somerset-Pulaski County AirportBoard Hangar Lease dated January 1, 2013, betweenthe Somerset-Pulaski County Airport Board and SPA Rental, LLC d/b/a MSI Aviation, unsigned. 

### Exhibit C -LimitedFixed Base Operator Agreement, including Exhibit A- Minimum Standards, undated and unsigned. 

### Exhibit D- Correspondence dated May 9, 2012, from Phillip J. Braden, FAAManager, Memphis ADO to Don Bandy, Chairman Somerset-Pulaski CountyAirport Board. 

### Exhibit E- Informal Complaint Correspondence, dated Aprill9, 2012, from Winter R. Huff, Attorney for SPA Rental, LLC, to James H. Williams, FAA Program Manager, Memphis ADO, including Exhibits A-K. 

### Exhibit F- Sworn Affidavit ofWinter R. Huffdated March 21,2013, detailing events prior to the filing ofa formal complaint. Item 2 -Notice ofDocketing, dated April 8, 2013. Item 3- Agreed Motion for Additional Time to Respond to Complaint, dated April29, 2013. Item 

### 4- FAA letter granting the request for an extension oftime to file Respondent's Answer, dated May 30, 2013. Item 

### 5- Motionto Dismiss andAnswer, dated May 30,2013. Item 6- Supporting Memorandum ofPoints and Authorities for the Airport Board's Motion to Dismiss, dated May 30, 2013, and including Exhibits A-N. 

### Exhibit A- Correspondence dated August 21,2012, from Phillip J. Braden, FAAManager, Memphis ADO to Richard Van Hook, Chairman Somerset-Pulaski County Airport Board Maintenance Committee. 

### Exhibit B- Correspondence dated July 23,2012, from Richard VanHook to James H. Williams. 

### Exhibit C - Somerset-Pulaski County Airport Board Hangar Lease signed and dated June 30, 2009, betweenthe Somerset-Pulaski County Airport Board and SPARental, LLC



### 29d/b/a MSIAviation for HangarNumber B-3 for a one year term commencing January 1, 2009 and terminating on December 31, 2009. Exhibit D

- Somerset-Pulaski County Airport Board Hangar Lease unsigned and incomplete, betweenthe Somerset-Pulaski County Airport Board and SPA Rental, LLC d/b/a MSI Aviation for Hangar Number B-4 for a one year term commencing January 1, 2009 andterminating on December 31, 2009. Exhibit E

- Correspondence from Torn Halbleib, Stites & Harbison, PLLC, via email dated November 29, 2012, to Winter R. Huff. Exhibit F

- Limited FixedBase OperatorAgreement and separate lease for Hangar 10, both signed and dated March 24, 2012, for a one year term, renewable for two successive one year terms, between the Somerset-Pulaski County Airport Board and Somerset Regional Aviation, LLC, including associated amendment(s) and Minimum Standards for Fixed Base Operation. Exhibit G- Correspondence dated April4, 2012, from James H. Williams, Memphis ADO, to Kellie Baker, Airport Manager, Somerset-Pulaski County Airport, and reply dated April23, 2012, from John T. Mandt, Attorneyrepresenting Somerset-Pulaski County Airport Boardto James H. Williams. Exhibit H- Correspondence dated May 18,2012, from Torn Halbleib, Stites & Harbison, PLLC, to Phillip Braden (FAA). Exhibit I- Correspondence dated August 7, 2012, from Torn Halbleib, Stites & Harbison, PLLC, to James Williams (FAA). Exhibit J- Pulaski CountyFiscal Court Ordinance No: 220.30, amendment to Section 1.08 Collection ofTax-Records, adopted June 8, 2010, and published June 13,2010. Exhibit K- Somerset-Pulaski County Airport Board Minutes from Special Called Meeting, September 10, 2012, and correspondence dated July 23, 2012 from Richard Van Hook, Chairman, Somerset-Pulaski County Airport Board to James H. Williams, explaining the subsidy incentive and amendment to minimum standards for fixed based operation. Exhibit L- Correspondence from Walter Iverson to Kellie Baker, dated February 7, 2013, regarding a request for public record, and aresponse from Tom Halbleib to Walter Iverson dated February 13, 2013. Exhibit M- Correspondence dated October 2, 2012, from Tom Halbleib, Stites & Harbison, PLLC, to Winter Huff, including proposed modifications to the Hangar Lease and LFBO Agreement, and Minimum Standards. ExhibitN- A series ofemail correspondence, dated January 27, 2013, between Torn Halbleib and Winter Huff. Item 7- Joint Application to Establish a Responsive Pleading Schedule, dated June 5, 2013. Item 8- FAA letter granting the request ofa Responsive Pleading Schedule, dated June 7, 2013. Item 9- Complainant'sMemorandum Opposing Dismissal, dated July, 1, 2013, and includes Exhibits 1and 2. Exhibit 1- Correspondence, dated April25, 2013, unsigned from Walter P. Iversen to Somerset-Pulaski County Boardproposing to enter into an LFBO agreement in which SPA

30Rental, LLC, d/b/a MSI Aviation, would continue to rent Hangars B3 and B4 and qualify for incentives. Exhibit 2- Reply from Tom Halbleib to Komad Kuczak, dated June 18, 2013, in which the Somerset-Pulaski County Airport Board declines MSI Aviation's proposal. Item 

### 10- Rebuttal and Reply in Support ofthe Airport Board's Motion to Dismiss, dated July 18, 2013. Item 

### 11- Notice ofExtension ofTime, dated January 16,2013 (sic- 2014). Item 

### 12- Notice ofExtension ofTime, dated Aprill7, 2014. Item 

### 13- Notice ofExtension ofTime, dated September 5, 2014. Item 

### 14- Notice ofExtension ofTime, dated December 8, 2014. Item 

### 15- Notice ofExtension ofTime, dated March l0, 2015. Item 

### 16- Notice ofExtension ofTime, dated Aprill7, 2015. Item 17-Notice ofExtension ofTime dated May 12, 2015, to June 30, 2015. Item 18 -Notice ofExtension ofTime dated June 25, 2015, to August 28, 2015. Item 

### 19- Grant History Report for Somerset, KY dated 08/26/2015.

31