**UNITED STATES DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION** 

**Washington, D.C.** SPA RENTAL , LLC D /B /A MSI A VIATION ,

Complainant , v. Docket No
. : AGC
- 16
- 13
- 02
S OMERSET - P ULASKI C OUNTY A IRPORT B OARD ,

Respondent
. 

### R**ESPONSE TO** 

### SPA’ **S** 

### A **PPEAL OF THE** 

### D **IRECTOR** 

### ’ **S** 

### D **ETERMINATION I.**  **I NTRODUCTION**  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 i n 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 pe rmit 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.- 2
-

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 In centive Program. SPA mischaracterizes the Incentive Program in an eff ort 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 correctl y identified these fa ctual and legal errors in SPA’s arguments and, accordingl y, appropriatel y 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 Determinati on. **II. S**  **TATEMENT O**  **F F**  **ACTS 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 ye ars. 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 propert y and, accordingl y, 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 L eases 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
. ]- 3
-

SPA, however, continues to oc cup y both hangars as a holdover tenant and pays the Airport Board $500 per month. SPA characterizes the pay ment as $400 of hangar rent and $100 of LFBO fees, thus attempting to unilaterall y “waiv e ” its own requirement to pay rent for one of the hangars un der the Incentive Program. [ See Appeal p. 8 and Walter Iverson Affidavit .] The Airport Board, however, applies the full pay ment toward SPA’s rent, given that SPA admittedly does not offer maintenance services to the public and does not qualify for the In centive 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 eventuall y 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, e ffective March 24, 2012, the Airport Board began leas ing 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 pay ments, provided for pay

ment of an LFBO fee of $1 per year, and included up to $8,000 per y ear 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 co rrective action plan to address Grant Assurance 24, Fee and Rental Structure , concerns. [FAA Item 1 , Exhibit s D
E .] Accordingl y, b y letter dated July 23, 2012, the Airport Board outlined a corrective action plan, which set forth the terms of the Incenti ve 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 pay ment for- 4
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insurance and deferred re nt 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 annuall y, (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 o f the Incentive Program, and (5) the In centive 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 In centive 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 part y 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 reasonabl y anticipated revenues f rom the maintenance services to be provided? 3. How man y mechanics would be required? 4. How does the required performance compare to the incentive? Considering these factors, the Airport Board’s analy sis showed that setting the threshold below ten annual inspections “would risk granting incentives whose value exceeds the value of work generated b y the incentives.” [Id. ]- 5
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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 , Ex hibit A .] On September 10, 2012, the Airport Board formall y 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 Somerse t amended the lease and LFBO agreement between them (as amended, the “Somerset Agreements”) effective September 21, 2012, to comply with the revised In centive 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 correspondenc e, SPA ultimately failed to agree to the terms of the proposed agreements that would have given it equal right s and obligations as Somerset. [FAA Item 5 , Exhibit N
. ] In stead, 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 It em 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 suppo rting documentation provided by- 6
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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 noncompl iance, the FAA will make a determination as to whether an airport sponsor is currently in compliance with the applicable Federal obligatio ns.” [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
. ] Accordingl y, the FAA anal yz ed 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 maintenanc e 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 m aintain and enhance the availability of adequate services for all airport users, to promote the orderl y 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 merel y as a reference guide to assist an airport sponsor in formulating effect ive minimum standards that address some of the ty pes of commercial aeronautical services or activities frequentl y offered to the public. The AC explains that the sample questions are provided to address some of the various ty pes of specific services or ac tivities frequentl y offered to the public, and is not a limitation on what can be covered in the minimum standards. Accordingl y, consistent with the ADO’s August 21, 2012 letter, an airport sponsor may establish a minimum standard provision based on the v olume of a p articular service if justified. [Director’s Determination p. 25
. ]- 7
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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 allegedl y discriminated against to be ‘similarl y 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 pro ceedings, 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. Fact**  **s 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 se t forth in the attached letter, Somerset ceased operations in connection with personal reasons of its owners. [ See Baker Affidavit .] The Airport Board has since publicl y 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 Kentuck y 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 list s of aircraft on which Somerset had performed annual- 8
-

inspections. Inaccordance with specific except ions inc luded in the Open Records Act, the Airport Board redacted certain information from the list s . [ See KRS 61.878(1)(a), (1)(c)(1).] Based on these redactions and the consistency between the lists for each ye ar, 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 resp onse to the Airport Board’s continued monitoring and enforcement of the Incentive Program terms. L ikewise, 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. A**  **RGUMENT** The basis of SPA’s appeal is that the FAA erred in determining that the Airport Board did not violate Grant Assurance 22. Essentiall y, SPA makes two claims: (1) the terms of the In centive Program are unreasonable and, therefore, the Airport Board failed to make the Airport reasonabl y 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- 9
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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 b y 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 wholl y 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 Mai ntenance,” 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 re garding the subsidies also applies only when “there exists insufficient availability

of aircraft maintenance services at the Airport and, to incentivize the provisi on 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- 10
-

standards state the incentives “will be offered to all similarly situate d providers of maintenance services at the airport.” [ Id. (emphasis added). ] SPA repeatedl y 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 Bo ard 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 wi th 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 sel ling 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 In centive Program, including the ten
- inspection requireme nt, 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 n ot 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 .]- 11
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Section 1.2(c) of Adv isory 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 dev elopment 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 m inimum 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 exis t between individual airports.” Accordingl y, based on this, the Airp ort 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 b y 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 discri minate 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 b y allowing S omerset, and not SPA, to participate in the In centive 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 e xplains: “The principle of unjust economic discrimination requires a party who has been allegedly

discriminated against to be ‘similarly situated’ to an alleged preferred part y in order to establish unjust economic discrimination under Assurance 22.”

2 Also, contrary to SPA ’s insinuations, Somerset met this requirement.- 12
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[Dir ector’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 onl y if the parties have “similar obligations, use similar facilities, and make similar use of the airport.” [Id. p. 9
- 2.] Altho ugh, SPA dis likes 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 fav or of Somerset under the Incentive Program. SPA’s insinuations that the Airport Board waived compliance with Incentive Program are unsupported. T he Airport Board did in fact take appropriate measures to verify Somerset’s compliance. Specificall y, the Airport Board required Somerset to provide information regarding annual inspections performed each ye ar. [ See Kuczak Affidavit, Exhibit C
- D .] The Airport Board also required Somerset to provid e 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 conf irm 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 identi cal 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 Ai rport Board allow it to assign the- 13
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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 bas e operator agreement , (b) sign onl y 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 occup y 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 f or 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” pay ment of an incentive to cover insurance costs. [ FAA It em 5 , Exhibit F .] Rather, both the Somerset Agreements and the Incentive Program require repay ment 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. C**  **ONCLUSION** Based on the evi dence 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 d iscriminate against SPA. SPA’s claims are wholl y unsupported and represent another effort to obtain unearned incentives. Accordingl y, 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 subsequ ent correspondence, the Airport Board offered to rent two hangars to SPA. [FAA It em 5, Exhibits M
-N.]- 14
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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 Bethan y A. Breetz bbreetz@stites.com Rachel L. Owsley rowsley @stites.com S T ITES & H ARBISON , P LLC 400 West Market Street , Suite 1800 Louisville, KY 40202
- 3352 Telephone: (502) 587
- 3400 Attorneys for Respondent, Somerset

- Pulaski County Airport Board

**CERTIFICATE OF SERVI CE**  I hereby c ertify that a copy

o f the foregoing was sent by e lectronic mail this 18th day o f December, 2015 to : Konrad Kucz ak 130 West Second Street Suite 1010 Day ton, OH 45402 yo ur _lawy er@sbcglobal.net FAA Docket Clerk 9
- AWA
- AGC
- PART
- 16@faa.gov

/s/ Rachel Owsley Rachel Owsley

1061367:1:LOUISVILLE