UNITED STATES DEPARTMENT OF TRANSPORTATION

FEDERAL AVIATION ADMINISTRATION

Washington, D.C.

SPA RENTAL, LLC D/B/A MSI AVIATION,

Complainant,

v.

Docket No.: AGC-16-13-02

SOMERSET - PULASKI COUNTY AIRPORT BOARD,

Respondent.

RESPONSE TO SPA’S APPEAL OF THE DIRECTOR’S DETERMINATION

I. INTRODUCTION

This appeal represents another effort by SPA Rental, LLC d/b/a MSI Aviation (“SPA”) to 

obtain preferential treatment—to receive performance-based incentives without performing. 

SPA asks the Federal Aviation Administration (“FAA”) to reconsider its determination that the 

Somerset-Pulaski County Airport Board (the “Airport Board”) is not in violation of Grant 

Assurance 22, Economic Nondiscrimination (the “Director’s Determination”). Grant Assurance 

22 requires the Airport Board to make the Lake Cumberland Regional Airport (the “Airport”) 

available for public use “on reasonable terms” and “without unjust discrimination.” 

Following consultation with the FAA’s ADO, the Airport Board developed minimum 

standards that require aircraft maintenance limited fixed based operators (“LFBOs”) to perform 

at least ten annual inspections each year and permit the Airport Board to offer incentives in 

exchange (the “Incentive Program”). Although the Incentive Program applies only to aircraft 

maintenance LFBOs, which SPA consistently confirms it is not, the Incentive Program continues 

to be the focus of SPA’s ire. 
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SPA asserts that the FAA incorrectly determined that: (a) the Incentive Program has 

“reasonable terms” and (b) there has been no “unjust discrimination” against SPA under the 

Incentive Program. SPA mischaracterizes the Incentive Program in an effort to cast it as 

unreasonable and, at the same time, to bring itself within its scope. SPA’s mischaracterization of 

the Incentive Program is not supported by evidence contained in the record—undisputed 

documentation of the Incentive Program terms and its application. Similarly, in spite of clear 

law, precedent, and policy, SPA argues it “is not required to prove that it was similarly situated 

to any other operator” to show unjust discrimination. [SPA Appeal p. 12.] The FAA correctly 

identified these factual and legal errors in SPA’s arguments and, accordingly, appropriately 

determined that the Airport Board did not violate Grant Assurance 22. The Airport Board 

requests that the final decision issued in these proceedings adopt the Director’s Determination. 

II. STATEMENT OF FACTS

A. SPA admits it is not an LFBO offering maintenance services to the public. 

Although SPA began its tenure on the Airport as an aircraft maintenance LFBO, it has 

not performed such services for years. Pursuant to previous ground leases with the Airport 

Board, SPA built two hangars (B-3 and B-4) at the Airport. In 2009, the hangars became Airport 

Board property and, accordingly, the parties entered into two hangar leases (the “SPA Leases”). 

[FAA Item 5, Exhibits C and D.] The parties also entered into a limited fixed base operator 

agreement (the “SPA LFBO Agreement”), granting SPA the right to provide certain aircraft 

maintenance services at the Airport. [FAA Item 1, Exhibit A.] Rent under the SPA Leases 

totaled $1,000 per month ($400 for Hangar B-3 and $600 for Hangar B-4), and LFBO fees 

totaled an additional $100 per month. The SPA agreements expired at the end of 2011, and the 

Airport Board declined to renew them. [See FAA Item 5, Exhibit E.] 
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SPA, however, continues to occupy both hangars as a holdover tenant and pays the 

Airport Board $500 per month. SPA characterizes the payment as $400 of hangar rent and $100 

of LFBO fees, thus attempting to unilaterally “waive” its own requirement to pay rent for one of 

the hangars under the Incentive Program. [See Appeal p. 8 and Walter Iverson Affidavit.] The 

Airport Board, however, applies the full payment toward SPA’s rent, given that SPA admittedly

does not offer maintenance services to the public and does not qualify for the Incentive Program. 

[See Appeal p. 8.] Instead, SPA describes itself as “engaged in the business of purchasing, 

refurbishing, and re-selling aircraft.” [FAA Item 1, p. 1; see also Appeal p. 2 (“SPA eventually 

became an aircraft refurbisher and re-seller.”).] 

B. The Airport Board developed the Incentive Program to include reasonable 

terms applicable to maintenance service providers at the Airport.

After struggling to obtain aircraft maintenance services, effective March 24, 2012, the 

Airport Board began leasing its Hangar 10 to Somerset Regional Aviation, LLC (“Somerset”) 

and entered into an LFBO agreement with Somerset. [FAA Item 5, Exhibit F.] The original 

agreements with Somerset waived rent payments, provided for payment of an LFBO fee of $1 

per year, and included up to $8,000 per year in incentives to reimburse Somerset for insurance 

costs. [Id.] On April 19, 2012, SPA initiated an informal compliant with the FAA and, on May 

9, 2012, the FAA issued a finding requiring the Airport Board to develop a corrective action plan 

to address Grant Assurance 24, Fee and Rental Structure, concerns. [FAA Item 1, Exhibits DE.] 

Accordingly, by letter dated July 23, 2012, the Airport Board outlined a corrective action 

plan, which set forth the terms of the Incentive Program, explained its justifications and its 

funding source, and called for amendment of the agreements with Somerset. [FAA Item 5, 

Exhibit B.] Specifically, the Airport Board clarified that: (1) the up to $8,000 payment for 
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insurance and deferred rent would be subject to reimbursement to the Airport Board if the LFBO 

did not provide meaningful maintenance services, which must include at least ten annual paid 

inspections for third parties annually, (2) the Incentive Program was funded through a Pulaski 

County occupational license fee, which does not relate to use of the Airport, (3) the Incentive 

Program was designed to promote the availability of maintenance services at the Airport, (4) the 

Airport Board would monitor compliance with the terms of the Incentive Program, and (5) the 

Incentive Program would be made available to similar providers of maintenance services at the 

Airport. [Id.] 

By letter dated August 7, 2012, the Airport Board’s counsel followed up with the FAA to 

further detail the purposes of the Incentive Program and how the ten annual inspection minimum 

was selected. [FAA Item 5, Exhibit I.] Specifically, counsel explained that the Airport Board 

had received complaints relating to the lack of maintenance services at the Airport and that “the 

development of meaningful commercial maintenance services will facilitate the continued 

growth and development of the Airport.” [Id.] In developing the Incentive Program, the Airport 

Board wanted to incentivize the provision of meaningful third party maintenance services and 

needed to define “meaningful.” [Id.] It considered a number of questions, including: 

1. What level of demand for maintenance services presently exists at the 

Airport? 

2. What are the reasonably anticipated revenues from the maintenance 

services to be provided? 

3. How many mechanics would be required? 

4. How does the required performance compare to the incentive? 

Considering these factors, the Airport Board’s analysis showed that setting the threshold below 

ten annual inspections “would risk granting incentives whose value exceeds the value of work 

generated by the incentives.” [Id.] 
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Based on this reasoning and the revised terms, the FAA concurred with the Incentive 

Program on August 21, 2012. [FAA Item 5, Exhibit A.] On September 10, 2012, the Airport 

Board formally adopted the revised Incentive Program as part of its minimum standards 

applicable to “aircraft engine an[d] maintenance facilities.” [FAA Item 5, Exhibit K.] Then, the 

Airport Board and Somerset amended the lease and LFBO agreement between them (as 

amended, the “Somerset Agreements”) effective September 21, 2012, to comply with the revised 

Incentive Program. [FAA Item 5, Exhibit F.] 

C. The Airport Board offered SPA the opportunity to participate in the 

Incentive Program on the same terms as Somerset. 

On October 2, 2012, the Airport Board offered SPA lease agreements and an FBO 

agreement substantially the same as the Somerset Agreements. [FAA Item 5, Exhibit M.] 

Following various correspondence, SPA ultimately failed to agree to the terms of the proposed 

agreements that would have given it equal rights and obligations as Somerset. [FAA Item 5, 

Exhibit N.] Instead, SPA initiated these Part 16 proceedings on March 27, 2013, insisting it 

should receive benefits under the Incentive Program without compliance with its requirements. 

[FAA Item 1.] 

D. The FAA determined that the Airport Board is not in violation of Grant 

Assurances. 

Despite SPA’s acknowledgement that it is not similarly situated with Somerset and its 

failure to accept an offer to participate in the Incentive Program, SPA initiated Part 16 

proceedings claiming entitlement to benefits under the Incentive Program. [FAA Item 1.] SPA 

claimed that the Airport Board violated Grant Assurance 22, Unjust Discrimination, Grant 

Assurance 23, Exclusive Rights, and Grant Assurance 24, Fee and Rental Structure. Based on a 

thorough review of applicable law, the pleadings, and supporting documentation provided by
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both parties, the FAA determined that the Airport Board was not in violation of these Grant 

Assurances. [Director’s Determination p. 27.] 

The Director’s Determination explained that: “in addressing allegations of 

noncompliance, the FAA will make a determination as to whether an airport sponsor is currently

in compliance with the applicable Federal obligations.” [Director’s Determination p. 13 

(emphasis in original).] SPA’s reiteration of the FAA’s initial concerns with the Incentive 

Program are not relevant to the current situation, especially after “successful action . . . to cure 

any alleged or potential past violation.” [Director’s Determination p. 13.] Accordingly, the FAA 

analyzed the current Incentive Program and its application. 

With regard to the reasonableness of the Incentive Program, the FAA determined:

[that the Airport Board] justified changes to the minimum standards, explaining 

that attracting, developing, and sustaining meaningful third party maintenance 

services would facilitate growth at [the Airport] by attracting more users and 

allowing the Airport to generate additional revenue streams. 

This is consistent with the FAA’s objective in recommending the development of 

minimum standards as a means to maintain and enhance the availability of 

adequate services for all airport users, to promote the orderly development of 

airport land, and to ensure efficiency of operations. 

[Director’s Determination p. 21.] The FAA also addressed SPA’s concerns that the Airport 

Board’s reasons for the Incentive Program were not permitted by FAA guidance or policy. It 

explained: 

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 of the types of commercial aeronautical services or 

activities frequently offered to the public. The AC explains that the sample 

questions are provided to address some of the various types of specific services or 

activities frequently offered to the public, and is not a limitation on what can be 

covered in the minimum standards. Accordingly, consistent with the ADO’s 

August 21, 2012 letter, an airport sponsor may establish a minimum standard 

provision based on the volume of a particular service if justified. 

[Director’s Determination p. 25.] 
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SPA also failed to substantiate its claims that it suffered unjust discrimination. The FAA 

reiterated that: “The principle of unjust economic discrimination requires 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.” [Director’s Determination p. 21.] 

Somerset is an aviation maintenance service provider. [See, e.g., FAA Item 5, Exhibit F.] On 

the other hand, SPA “[b]y its own statements and descriptions, appears not to be similarly

situated to Somerset Regional Aviation.” [Director’s Determination p. 22.] Rather, throughout 

these Part 16 proceedings, SPA consistently maintains that it is not a maintenance service 

provider—it is in the business of refurbishing and reselling aircraft. [See, e.g., SPA Appeal p. 2.] 

SPA’s continued demands for the same benefits as Somerset are unfounded. 

E. Facts arising during these Part 16 proceedings have no effect on the 

Director’s Determination or the Airport Board’s continued compliance with 

Grant Assurance 22. 

SPA supports its appeal with reference to two situations that have arisen since the 

issuance of the Director’s Determination. First, since the Director’s Determination, Somerset 

has ceased operations at the Airport. SPA makes unsupported allegations that Somerset’s 

departure related to the Incentive Program. [SPA Appeal p. 16.] In reality, as set forth in the 

attached letter, Somerset ceased operations in connection with personal reasons of its owners. 

[See Baker Affidavit.] The Airport Board has since publicly proposals for an aircraft 

maintenance service provider for the Airport. [See Baker Affidavit.]

Second, SPA similarly makes unsupported claims that the Airport Board failed to apply

the Incentive Program requirements to Somerset. [SPA Appeal p. 17-18.] Pursuant to a request 

under the Kentucky Open Records Act, KRS 61.870 et seq., SPA’s legal counsel requested 

documentation identifying annual inspections performed by Somerset from 2013-2015. The 

Airport Board provided to SPA lists of aircraft on which Somerset had performed annual 
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inspections. In accordance with specific exceptions included in the Open Records Act, the 

Airport Board redacted certain information from the lists. [See KRS 61.878(1)(a), (1)(c)(1).] 

Based on these redactions and the consistency between the lists for each year, SPA speculates 

that the lists must not be accurate and, therefore, the Airport Board must be waiving compliance 

with the Incentive Program terms. [SPA Appeal 17-18.] In reality, the lists given to SPA are 

accurate lists, the unredacted versions of which Somerset provided to the Airport Board in 

response to the Airport Board’s continued monitoring and enforcement of the Incentive Program 

terms. Likewise, although not requested by SPA in its Open Records request but also the subject 

of SPA conjecture, the Airport Board maintains records confirming that Somerset also complied 

with the insurance requirement of the Incentive Program. [See Baker Affidavit.] Simply stated, 

SPA’s theory amounts to speculation that it has not supported and cannot support with credible 

evidence. 

III. ARGUMENT

The basis of SPA’s appeal is that the FAA erred in determining that the Airport Board did 

not violate Grant Assurance 22. Essentially, SPA makes two claims: (1) the terms of the 

Incentive Program are unreasonable and, therefore, the Airport Board failed to make the Airport

reasonably available to SPA and (2) SPA suffered unjust discrimination. Neither of these claims 

is supported by the facts, the law, or FAA policy. 

A. The Incentive Program developed in cooperation with the FAA is reasonable.

1. SPA mischaracterizes the terms of the Incentive Program in an 

attempt to take advantage of incentives offered. 

To support its contention that the Airport Board did not make the Airport available on 

reasonable terms and to cast the Incentive Program as unreasonable in violation of Grant 

Assurance 22, SPA repeatedly mischaracterizes the Incentive Program’s terms. SPA states that 
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the Incentive Program requires “all operators to perform ten (10) paid third party annual 

inspections per annum” to maintain operations at the Airport. [See, e.g., SPA Appeal p. 2 

(emphasis in original); id. p. 10 (“the new Minimum Standards were applicable to ALL operators 

on the airport”); id. p. 14 (“every prospective operator”).] Without any support, it similarly

argues that the Airport Board intended to “indiscriminately [apply] this standard to all operators, 

regardless of the character of their business.” [SPA Appeal p. 12.] In SPA’s own words, such an 

interpretation would be “ludicrous” and would constitute a violation of Grant Assurance 22 by 

failing to offer to make the Airport available on reasonable terms. [Id.]

The Airport Board has never applied the Incentive Program in such a manner, and SPA’s 

claims are wholly unsupported by the terms of the Incentive Program itself. Rather, Section 6 of 

the Minimum Standards sets out “Standards for Specific Aeronautical Services.” Then, Section 

6(b), titled “Aircraft, Engine and Accessory Maintenance,” sets out the requirements for aircraft 

maintenance service providers. The language of the section then clarifies twice that the ten 

annual inspection requirement applies only to aircraft maintenance service providers: 

(b) All persons operating aircraft engine an[d] accessory maintenance 

facilities shall provide: . . . 

(8) Promptly . . . following each anniversary of the date of the 

agreement with the Airport Board permitting such entity to perform aircraft 

engine and accessory maintenance at the Airport . . . . 

[FAA Item 5, Exhibit M (emphasis added).] 

The minimum standards regarding the subsidies also applies only when “there exists 

insufficient availability of aircraft maintenance services at the Airport and, to incentivize the 

provision of such services, grant subsidy incentives” as set forth in correspondence with the 

FAA. [Id. (emphasis added).] Again reiterating the applicability of the Incentive Program, the 
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standards state the incentives “will be offered to all similarly situated providers of maintenance 

services at the airport.” [Id. (emphasis added).] 

SPA repeatedly acknowledges it is not a maintenance service provider but claims 

entitlement to the incentives available under the Incentive Program. [See, e.g., SPA Appeal p. 

13.] Thus, SPA would require that the Airport Board offer the incentives to SPA without SPA’s 

compliance with the Incentive Program requirements. This is not permissible under the terms of 

the Incentive Program developed in cooperation with the FAA, the purpose of which is to 

enhance the availability of maintenance services to the public at the Airport. Rather, the ten 

annual inspection requirement and the incentives simply do not apply to SPA and are not meant 

to apply to all operators at the Airport.

1

 A different section of the minimum standards applies to 

those businesses selling aircraft from the Airport. [See FAA Item 5, Exhibit M.] 

2. The terms of the Incentive Program are reasonable minimum 

standards intended to attract users to the Airport. 

With respect to aircraft maintenance LFBOs who are subject to the requirements of the 

Incentive Program, including the ten-inspection requirement, the Incentive Program is 

reasonable. As previously explained by the FAA in the Director’s Determination, SPA 

misinterprets FAA guidance on the development of minimum standards by arguing that the 

volume of service may not be considered because it is not specifically identified as an acceptable 

consideration. [Director’s Determination p. 25; SPA Appeal p. 18-19.] In fact, minimum 

standards may take into account the volume of services provided. [Director’s Determination p. 

25.] 

 

1

SPA also at one point refers to a requirement that it maintain certain square footage of space at the 

Airport. [SPA Appeal p. 11.] Again, this requirement only applies to general FBOs, which SPA is not. 

[FAA Item 5, Exhibit M.] 
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Section 1.2(c) of Advisory Circular AC 150/5190-7, Minimum Standards for Commercial 

Aeronautical Activities (August 28, 2006), states: 

. . . in Section 2 of this document, the FAA has provided guidance in the form of 

questions and examples to illustrate an approach to the development and 

implementation of minimum standards. It is important that the reader understand 

that what follows does not constitute a complete model for minimum standards, 

but rather a source of ideas to which the airport sponsor can turn when developing 

minimum standards. 

Section 1.2(f) similarly states: “It is impossible for the FAA to present every possible factor 

necessary for a task, mostly because of the vast differences that exist between individual 

airports.” Accordingly, based on this, the Airport Board provided the FAA a detailed description 

of how the ten annual inspection requirement was determined, concluding that essentially

“setting the threshold below ten annual inspections would risk the incentive exceeding the 

revenues generated by the incentive.” The FAA has twice concurred with this reasoning.2 [FAA 

Item 5, Exhibit A; Director’s Determination p. 25.] 

B. SPA did not suffer unjust discrimination. 

1. SPA is not similarly situated with Somerset, and the Airport Board 

did not unjustly discriminate in favor of Somerset. 

In SPA’s own words, “Admittedly, SPA and Somerset did not provide the same or 

similar services.” [SPA Appeal p. 13.] Despite this, SPA argues that the Airport Board is not in 

compliance with Grant Assurance 22 by allowing Somerset, and not SPA, to participate in the 

Incentive Program. [SPA Appeal p. 17.] Grant Assurance 22, however, “prohibits only unjust 

economic discrimination, not all discrimination.” [Director’s Determination p. 21.] As the 

Director’s Determination explains: “The principle of unjust economic discrimination requires 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.” 

 

2 Also, contrary to SPA’s insinuations, Somerset met this requirement. 
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[Director’s Determination p. 21 (citing R/T-182, LLC v. Portage County Regional Airport 

Authority, FAA Docket No. 16-05-14, (March 29, 2007) (Final Agency Decision), p. 12).] 

Similarly, the FAA’s Compliance Manual provides that “if the services are not similar, sponsors 

are not required to charge the FBOs the same rates.” [FAA Order 5190.6B, p. 9-7.] Comparable 

rates are required only if the parties have “similar obligations, use similar facilities, and make 

similar use of the airport.” [Id. p. 9-2.] Although, SPA dislikes the law and FAA policy, it 

cannot change the fact that it did not suffer unjust discrimination. 

2. The Airport Board did not waive compliance with the Incentive 

Program requirements. 

The Airport Board did not unjustly discriminate in favor of Somerset under the Incentive 

Program. SPA’s insinuations that the Airport Board waived compliance with Incentive Program 

are unsupported. The Airport Board did in fact take appropriate measures to verify Somerset’s 

compliance. Specifically, the Airport Board required Somerset to provide information regarding 

annual inspections performed each year. [See Kuczak Affidavit, Exhibit C-D.] The Airport 

Board also required Somerset to provide proof that it procured insurance. [See Baker Affidavit.] 

There is no basis for SPA to claim that Somerset did not comply with the Incentive Program 

requirements, and the Airport Board has provided evidence showing that it took appropriate steps 

to confirm compliance. 

3. The Airport Board offered SPA substantially the same arrangement 

as Somerset. 

As shown in the letter dated October 2, 2012, the Airport Board has offered SPA the 

opportunity to enter into an LFBO agreement on terms and conditions identical to those of 

Somerset for the use of Hangar B-3 and to enter into a hangar lease agreement for the use of 

Hangar B-4. [FAA Item 5, Exhibit M.] SPA indicated that it would enter into the lease for 

Hangar B-3 and the LFBO Agreement, provided that the Airport Board allow it to assign the 
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lease for Hangar B-4 to its owner, Mr. Iverson, and his spouse. [FAA Item 5, Exhibit N.] The 

Airport Board declined, offering SPA several choices: (a) sign the Hangar B-3 and B-4 leases, as 

well as the limited fixed base operator agreement, (b) sign only the Hangar B-4 lease and the 

limited fixed base operator agreement and vacate Hangar B-3, allowing Mr. & Mrs. Iverson to 

request that the Airport Board lease Hangar B-3 to them in the ordinary course of business, or (c) 

vacate Hangars B-3 and B-4 and continue discussions.3 [Id.] SPA declined all of these 

alternatives and currently continues to occupy Hangars B-3 and B-4 month-to-month on a 

holdover basis.

SPA also claims that the Airport Board did not offer to provide for an “unconditional” 

incentive for insurance procurement like provided to Somerset. [SPA Appeal p. 11.] But, 

neither the Somerset Agreements nor the Incentive Program provide for an “unconditional” 

payment of an incentive to cover insurance costs. [FAA Item 5, Exhibit F.] Rather, both the 

Somerset Agreements and the Incentive Program require repayment of any incentive paid with 

12% interest if Incentive Program requirements are not met. [Id.] These are the same terms 

offered to SPA. [FAA Item 5, Exhibit M.] 

IV. CONCLUSION

Based on the evidence presented by both parties and the law, the Airport Board did not 

fail to comply with Grant Assurance 22. It offered to make the Airport available to SPA on 

reasonable terms and did not unjustly discriminate against SPA. SPA’s claims are wholly 

unsupported and represent another effort to obtain unearned incentives. Accordingly, the Airport 

 

3

SPA refers to the space leased by Somerset being larger than that leased by SPA and alleges that the 

Airport Board only offered to rent one hangar to SPA. [SPA Appeal p. 11.] While it is true that the 

hangar occupied by Somerset is modestly larger than either of those occupied by SPA, it is important to 

note that SPA never sought to rent the hangar occupied by Somerset. Also, as shown in the October 2, 

2012, letter and subsequent correspondence, the Airport Board offered to rent two hangars to SPA. [FAA 

Item 5, Exhibits M-N.]
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Board requests that the FAA issue its final decision confirming that it did not violate Grant 

Assurance 22. 

By: /s/ Rachel Owsley

Bethany A. Breetz

bbreetz@stites.com

Rachel L. Owsley

rowsley@stites.com

STITES & HARBISON, PLLC

400 West Market Street, Suite 1800

Louisville, KY 40202-3352

Telephone: (502) 587-3400

Attorneys for Respondent, Somerset -

Pulaski County Airport Board

CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing was sent by electronic mail this 18th day of 

December, 2015 to:

Konrad Kuczak

130 West Second Street

Suite 1010

Dayton, OH 45402

your_lawyer@sbcglobal.net

FAA Docket Clerk

9-AWA-AGC-PART-16@faa.gov

/s/ Rachel Owsley

Rachel Owsley

1061367:1:LOUISVILLE