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 MEMORANDUM

Eastern Research Group, Inc. 

110 Hartwell Avenue

Lexington, MA 02421

Date: June 18, 2007 

To: James Covington, EPA 

From: Cal Franz, ERG 

Re: Industry Response to Draft Economic Impact Methodology for EPA Airport Deicing ELG 

EPA held a meeting with industry representatives to discuss the draft economic impact methodology for 

the Airport Deicing Operations effluent limitations guidelines on May 31, 2007 in Washington, DC. 

Prior to the meeting EPA circulated a copy of the draft methodology to industry trade organizations: 

Airports Council International – North America (ACI-NA), the Air Transport Association (ATA), and the 

American Association of Airport Executives (AAAE) for review and comment. In addition, at the 

meeting EPA extended an invitation to industry representatives to provide further comments or 

suggestions for analytic methodologies, especially concerning the setting of appropriate thresholds for 

determining impacts to industry since typical profit maximization benchmarks are not applicable to 

airports. This memorandum summarizes industry’s comments on EPA’s draft methodology. 

The most significant comments by industry centered on differences in airport access to capital and ability 

to fund capital expenditures for airports of different size. Industry representatives stated that EPA’s 

methodology used a “one size fits all” approach that does not adequately reflect the financial realities of 

the industry accurately. 

Airport Size and Access to Capital 

A major difference between large and small airports is their access to capital: 

 The approximately 35 largest airports have significant ability to access capital markets by issuing 

general revenue bonds (GARBs). 

 Smaller airport are not able to rely on issuing GARBs to fund capital expenditures. These 

airports place much greater reliance on Airport Improvement Program (AIP) grants. 

 The AIP program is over-subscribed; even if AIP grants can legally be used to fund expenditures 

associated with the deicing ELG, they are unlikely to be available for such expenditures. 

 Ownership approval to issue GARBs varies by airport and region 

Industry recommends that EPA find a means of stratifying airports according to their financial structure 

that reflects these differences in access to capital markets and ability to fund capital expenditures. Each 

breakpoint identified in the stratification will require a different financial model. While Congress 

recognizes certain breakpoints by the way in which they have structured financial support to industry (i.e., 

the AIP program and Subsidized Air Service program), these may not be the most appropriate breakpoints 

for EPA’s purposes. One industry representative suggested that airport gross revenues might be a suitable 
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variable for airport stratification. 

Airport Financial Structure and Fees to Pay for ELG Expenditures 

A second way in which the proposed methodology does not reflect the financial reality of the industry is 

that it over simplifies the complexity of the internal financial structure of airports. 

 Airports are operated on a cost center basis; where costs are incurred at the airport determines the 

cost center to which those costs will be assigned. Cost centers vary in the sources of the revenue 

streams used to support each cost center, how those different revenue streams are legally 

determined, and the airport’s ability to pass costs from that center through to customers. 

For example, a cost incurred on the landside – or assigned to the landside cost center – cannot be passed 

through to airlines in the form of higher landing fees; landing fees are used to pay for airside costs. Thus, 

a treatment technology that affects only the airside would be assigned to the airside cost center, and can 

be figured into landing fees. However, a treatment technology that affects both landside and airside must 

be assigned to both landside and airside cost centers. Landside costs cannot be included in landing fees, 

and may be difficult to pass through to airport users in other forms. 

Also, smaller airports have simpler cost centers and thus more flexibility on rate setting. It might be 

easier for a smaller airport to raise their landing fees than larger airports, where negotiations over rates 

and charges between the airport and airlines might be complex and difficult. 

Potential Loss of Air Service 

Industry representatives argued that EPA must look at the potential loss of air service at an airport as an 

impact of the ELG. At some airports the loss of a single flight might be significant. Loss of air service 

might also conflict with the will of Congress as reflected in its decision to provide subsidized air service 

to ensure access to air transportation in certain communities and regions. Industry representatives 

suggested EPA may be able to use the Bureau of Transportation Statistics (BTS) Origin and Destination 

(O&D) Survey, a 10 percent sample of airline tickets, as a data source to estimate revenues by route to 

project route-specific impacts that might cause a loss of air service. 

Incremental Costs to Airlines in Addition to Costs to Airports 

Airline industry representatives stated that the costs of EPA’s ELG should include operational costs to 

airline, not just capital and O&M costs to airport. Thus, for example, if aircraft are required to use a 

deicing pad, aircraft will need to wait in line, thereby using additional fuel, as well as creating the 

potential for delay, which can impose significant costs on the airline. 

Furthermore, waiting for deicing at a deicing pad creates environmental impacts in the form of additional 

engine emissions from aircraft waiting with engines running. The incremental emissions might also be 

responsible for additional negative health impacts. These are all costs that should be included in EPA’s 

regulation. 
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Price Elasticity of Demand for Air Transportation 

Finally, EPA had suggested in its methodology that it might use the percent of O&D traffic at an airport 

to reflect the price elasticity of demand for flights to that airport relative to the overall price elasticity of 

demand for air transportation in general. Industry representatives stated that there is no relationship 

between O&D traffic at an airport and the price elasticity of demand for flights from that airport.