## Overflight Fee Rate Development Report

In Support of “ Update of Overflight Fees”

Notice of Proposed Rulemaking

Office of Financial Analysis

Federal Aviation Administration

800 Independence Avenue S.W.

Washington, DC 20591

April 21 , 2015PURPO SE OF THE REPORT

The purpose of this document is to provide supporting information concerning the updated schedule of Overflight

fee rates that the Federal Aviation Administration (FAA) is proposing to charge for aircraft flights that transit U.S.

-

controll ed airspace, but neither land in nor depart from the United States. The FAA currently charges fees for such

flights, pursuant to its Final Rule, “ Update of August 2001 Overflight Fees (Docket No. FAA

- 20 10

- 0326 )

, ” 76 Fed. Reg.

43112

- 01 (July 20, 2011).

T he FAA issued a similar report in support of the Final Rule for the “Update of August 2001 Overflight Fees” in 2011.

The general Overflight fee rate development methodology used for the current update has remained the same from

the 2011 rule and the only a djustment s made are the use of more recent data and an update to the methodology

based on an ARC recommendation to exclude costs and miles for combined control facilities that may handle a mix of

general and commercial aviation traffic.

INTRODUCTION

Fees for FAA services for aircraft flights that transit U.S.

- controlled airspace, but neither land in no r depart from the

United States , are authorized by 49 USC 45301. These flights are commonly referred to as “Overflights”. Unlike flights

that land and/or tak e

- off in the United States 1 , Overflights did not have a mechanism to assess and recover the costs

they impose on the FAA’s air traffic control (ATC) system until the August 1, 2000 implementation of the Overflight

Fee Interim Rule.

The practice of chargin g Overflight Fees for ATC and related services provided to Overflights is common within the

international community. For example, a flight from Frankfurt, Germany to Bogota, Columbia, could pass through

airspace controlled by France, Portugal, the United S tates, the Netherlands Antilles, and Venezuela, in addition to

airspace controlled by the countries of origin and destination, Germany and Columbia. The operator would have

been charged ATC fees by all of these countries except the United States until the U.S. Overflight Fees were

established on August 1, 2000.

The level and type of air traffic services provided to Overflights depend, in part, on the portions of the U.S.

- controlled

airspace transited by such flights. This report is concerned with only the flight activity that occurs in the two ATC

operating environments (Enroute and Oceanic) where Overflights occur. Figure 1 identifies the U.S.

- controlled

airspace and illustrates where the FAA generally provides Enroute and Oceanic services.

1 W hich are subject to one or more of the following excise taxes: passenger ticket tax, international arrival/departure tax, or

cargo waybill tax.F igure 1

U.S.

- Controlled Airspace *

C ost of Services:

The FAA’s Overflight fee rates are derived from the agency’s costs of providing Enroute and Oceanic services, which

are two of the four services or cost pools into which all of the FAA’s costs for ATC and rel ated services are distributed.

The FAA’s Cost Accounting System (CAS) determines the costs of providing ATC and related services within the

Enroute and Oceanic environments. The agency’s costs of providing the other two ATC services (Terminal and Flight

Se rvices), are not included in the cost base for the FAA’s Overflight fee rates

.

The FAA has determined, based on the structure and operation of its ATC system, that there is little or no difference

between the cost of making ATC and related services availa ble to an Overflight within a particular service

environment (Enroute or Oceanic) versus making the same services available to any other operation within the same

environment. Flights in the Enroute ATC environment (Overflights and domestic/international U .S. operations) use

similar types of services. This is also the case for those flights receiving procedural control in U. S.

- controlled Oceanic

airspace.

The process of deriving Overflight Fees from the costs of providing Enroute and Oceanic services involv es the

following four steps:

1. Using CAS data, determine the FAA’s total costs of providing Enroute and Oceanic ATC and related services to

all flights;

2. Determine which of these costs can be used as a basis for fee rates per the current statutory requireme nt

that the Overflight fee rates be “reasonably related” to the FAA’s costs of providing the ATC and related

services;3. Determine the unit costs of Enroute and Oceanic services;

4. Derive the Overflight Fee rates that will recover the costs of providing ATC an d related services

.

In the “Update of August 2011 Overflight Fees” rulemaking , overhead costs were included in the cost base. Since

overhead costs are frequently and typically included in the costs base when setting fees to achieve full cost recovery,

the FAA believes it is reasonable to include the overhead costs in the cost base for its Overflight f ee rates . This

methodology has remained unchanged in the currently proposed update of Overflight Fees.

The step

- by

- step process of deriving the fee rates prop osed in this Notice of Proposed Rulemaking (NPRM) is as

follows:

STEP 1:

Using CAS data, determine the FAA’s total costs of providing Enroute and Oceanic ATC and related services

Introduction

The FAA’s CAS was developed both for overall agency management p urposes and to provide the basis for

determining Overflight f ee rates , which were being developed initially by the FAA at about the same time. Each cost

category in the CAS was individually analyzed to determine whether it was directly related to the provi sion of

Enroute and/or Oceanic services. Other costs, such as those incurred for the provision of Terminal and Flight Services

were not included, as they were determined not to be related to the provision of Enroute and Oceanic services.

All costs in the C AS have been assigned or allocated to services based on generally accepted accounting principles

. The Federal Accounting Standards Advisory Board’s “Statement of Federal Financial Accounting Standards 4 :

Managerial Cost Accounting Standards and Concepts ( July 31, 1995) , the Federal Government’s guiding framework

authority on cost accounting matters, was used throughout the development of the CAS. All assignments were

performed using the best available data and, where economically feasible, new processes we re created to enhance

the fidelity of particular assignments.

Expenditures Vs. Obligations

The FAA has used CAS data for fiscal year (FY) 2013 (October 1, 2012 through September 30, 2013) for this update of

its Overflight f ee rates . Total expenses recorde d for FY 2013 do not precisely match the FAA’s FY 2013 budget as

enacted by the U.S. Congress. This is due to the Governmental budgeting rules that allow obligations (legal

reservations of budgeted amounts) to be incurred over a period of one to several ye ars after enactment of the

budget by Congress.

As Figure 2 below indicates, expenses for FY 2013 were actually obligated against budgets enacted from FY 2001

through FY 2013, depending on whether the expenditures were for Facilities & Equipment or Researc h, Engineering

& Development.Figure 2

Description of the Cost Accounting System (CAS)

The FAA has developed the CAS to better understand its costs. The purpose of the CAS is twofold:

1. To provide information to help improve the management of the FAA

.

2. To determine the costs of Enroute and Oceanic services in support of Overflight Fees.

The first phase of the CAS developed the cost information for the agency’s Enroute and Oceanic air traffic services.

This cost information was the basis from whic h the agency’s 2001 and 2011 Overflight fee rates and fee rate update

were derived.

Full details on how the FAA’s cost accounting system captures costs for all FAA lines of business and the methods of

assignment of costs to the Enroute and Oceanic ATC ser vices are available in a separate report. A copy of that report

titled “Costing Methodology Report,” will be placed in the Overflight Fee rulemaking docket.Enroute and Oceanic Costs

Table 1 below indicates the cost categories and the total costs for t he FAA’s Enroute and Oceanic ATC and related

services, as determined by the FAA’s CAS. In response to an ARC recommendation related to cost elements used in

the fee derivation

, Enroute FAA costs have been updated to exclude Guam and San Juan

, which are com bined control

facilities t hat may handle a mix of general and commercial aviation traffic

. Enroute costs for Honolulu, which is a

similar facility type, are also excluded and handled similarly to Guam and San Juan. With this change, the Enroute

costs for H onolulu, Guam and San Juan, which are similar facility types are excluded and treated similarly. The FAA

costs are based on the FAA’s FY 2013 expenditures.Table 1

TOTAL COST OF ENROUTE AND OCEANIC SERVICES

FAA COST ACCO UNTING SYSTEM

COST OF SERVICE REPORT

FOR THE YEAR ENDING SEPTEMBER 30, 2013

ENROUTE OCEANIC

Level 1

- Facility ATC Direct Labor $1,304,384,380 $53,685,995

ATC Indirect Labor $326,715,366 $12,429,776

ATC Direct Non

- Labor $3,401,181 $261,404

ATC Indirect Non

- Labor ($1,688,235) ($153,501)

ATC Contract Training $21,851,229 $1,030,452

ATC Academy Training $10,613,924 $289,998

Tech Ops Direct Labor $156,535,661 $2,894,691

Tech Ops Direct Non

- Labor $30 ,556,186 $194,138

Tech Ops DO Indirect $140,229,293 $6,703,565

Tech Ops Academy Training $13,204,567 $96,667

Telecommunications $87,290,335 $29,448,227

Telecommunications Support $39,428,112 $563,896

Flight Inspection Services $15,019,084

-

Logistics $29,146,083 $14,760

Utilities $33,657,877 $874,092

Subtotal: $2,210,345,041 $108,334,162

Level 2

- Service Unit ATC Workers' Compensation $31,161,044 $1,136,726

Tech Ops Workers ' Compensation $1,167,510 $7,256

Direct Field Support $238,853,940 $12,688,431

Contract Weather $13,480,541 $527,018

Contract Weather Observations

- -

Contract Tower

- -
Contract Flight Service

- -

DUATS

- -

F&E Expenses $787,067,106 $10,644,942

Depreciation & Capital Leases $421,737,138 $23,150,208

Subtotal: $1,493,467,279 $48,154,581

Level 3

- ATO ATC System Command Center $48,319,025

-
Atlantic Operations Control Center $2,879,926 $101,235

Mid

- States Operations Control

Center $4,021,769 $16,284

Pacific Operations Control Center $3,760,094 $125,178

National Network Control Center $7,987,678 $76,718

Charting $36,839,222

-

Service Area Indirect $51,729,206 $2,206,360

Service Unit Indirect $85,997,824 $3,526,826

ATO Indirect $189,779,402 $7,793,132

Subtotal: $431,314,145 $13,845,733

Level 4

- FAA FAA Regional Indirect $19,272,271 $789,859

FAA Headquarters Indirect $293,903,598 $7,621,308

Medical $9,889,355 $407,356

Loss on Disposition of Asset $22,755,478

-

Employee Benefits Liability $159,107,141 $5,238,603

Environmental and Legal Liability ($42,246,250)

-

Subtotal: $462,681,594 $14,057,127

Grand Total: $4,597,808,058 $184,391,603As shown by the table above, the total cost, as determined by the CAS, for the FAA’s provision of Enroute services in

FY 2013 was $4,597,80 8

, 058 and the total cost for the FAA’s provision of Oceanic services in FY 2013 was

$184,391,603

.

Step 2:

Determine the unit costs of Enroute and Oceanic Services

In the previous section, the total costs for Enroute and Oceanic services were identified. The next step is t o derive the

unit cost of providing services within the Enroute and Oceanic environments. The unit costs calculated herein reflect

the FAA’s cost of making services available on a per 100

- nautical

- mile basis. The level and type of services provided

are hig hly similar for all aircraft operators within a particular environment (i

. e., Enroute or Oceanic), although the

cost of making services available for safe flight to all users, including Overflights, constitutes much of the cost. The

FAA has determined, bas ed on the structure and operation of its ATC system, that there is little or no difference

between the costs of providing services to an Overflight, versus any other operation within each of these service

environments. Consequently, the unit cost of provid ing services to Overflights within each environment is considered

identical to the unit cost of providing services to any other flight within each respective environment.

To construct these u n it costs, flight miles within each environment are identified o n an annual basis. The costs of

providing ATC and related services within each environment are divided by the respective flight miles to determine

the unit costs of service. Flight miles are tracked using FAA’s Traffic Flow Management System ( TFMS 2 ) , which

provides detailed information on a flight

- by

- flight basis for every aircraft operation. Using TFMS data, it is possible to

track flights from origination to destination and thereby determine the amount of services provided based on the

distance flown wit hin U.S.

- controlled airspace. To be consistent with the treatment of costs for the combined control

facilities

, the Enroute miles for Honolulu and Oceanic miles for Guam have been excluded from th e total miles. San

Juan Enroute miles were already excluded from t he total miles and with this change, the costs and miles for these

combined control facilities ( Honolulu, Guam and San Juan ) are treated consistently.

Air T raffic Activity

Table 2 shows the total number of flights and miles traveled within the E nro ute and Oceanic environments for FY

2013.

2 TFMS was formerly known as the Enhanced Traffic Management System (ETMS).T able 2

ENROUTE AND OCEANIC ACTIVITY

TOTAL TRAFFIC WORKED 3

(10

- 1

- 2012 to 09

- 30

- 2013)

Enroute Airspace Oceanic Airspace

GCD nm* GCD nm

FY 2013

Activity 7,445,668,883 695,620,413

* GCD nm is the great circle distance for these flights expressed in nautical miles.

Over the 12

- month period, flights traveled 7,445,668,883 nautical miles (nm) within the Enroute environment and

695,620,413 nm within the Oceanic environment.

Unit Cost of Service

Usin g the total annual GCD flight miles shown in Table 2, the unit cost of each type of service (Enroute or Oceanic) is

computed. Table 3 illustrates this calculation. The unit costs of ATC and related services are calculated by dividing the

respective total c osts by the respective number of miles flown.

Table 3

UNIT COST OF ENROUTE AND OCEANIC SERVICES

Enroute Oceanic

Reasonably Related ATC and

related Costs $ 4,597, 808

, 058 $ 184,391,603

Total annual GCD (nautical

miles

-- nm) 7,445,668,883 695,620,41

U nit Cost (per 100 nm) = (ATC

Costs/ GCD nm)*100 $ 61.75 $ 26.51

Because the FAA’s costs of making services available to Overflights have been determined to be the same as for any

other aircraft operation (as discussed previously) within the same resp ective (Enroute or Oceanic) environment,

these unit costs represent the “reasonably related” unit cost of services made available to Overflights on a per 100

-

nautical

- mile basis. Thus, the cost of providing ATC and related services to a fligh t within the E nroute environ ment is

3 Flight miles are expressed in te rms of the great circle distance (GCD) traveled in each type of U.S.

- controlled airspace. For any

individual flight, the point of entry and the point of exit are determined based on the best information available as determi ned

by the FAA. The GCD is calcul ated for each set of entry and exit points per airspace. This mileage is then summed up by airspace

and appropriate fee is applied to the total miles in each type of airspace (Enroute or Oceanic) to determine the total charge for

the flight. GCD was used r ather than actual flight miles to, among other reasons, reduce the computational burden associated

with the calculation of the flight miles.$61. 75 per 100 nm ; similar l y, the cost of providing ATC and related services to a flight within the Oceanic

environment is $26. 51 per 100 nm.

Step 3:

Derive the amount of Overflight Fees that, when fully implemented, will recover t he reasonably related costs of

providing ATC and related services in the Enroute and Oceanic environments

As explained earlier in this report, the statutory standard for the FAA’s Overflight Fees to be “reasonably related” to

costs has allowed the FAA to i nclude overhead in the cost base for Overflight fees. This is the same methodology that

was used to derive the Overflight fee rate update in 2011. Since overhead has already been included in the cost base,

the FAA has not adjusted the calculated unit costs to account for billing and collection costs in order to avoid double

counting of those costs.

Thus, the proposed updated Overflight f ee rates will be, quite simply, the unit costs of providing services in the two

operating environments, as detailed in Ta ble 3, but with one significant caveat. As explained and detailed in the

accompanying NPRM, the FAA is proposing that the updating of the fee rates be done incremen tally over a three

year period based on the compounded annual growth rate over the three

- yea r period (2. 79 % for Enroute and 7.02 %

for O ceanic).

While it is difficult to predict how long a full notice and comment Rulemaking such as this might take, we are

proposing an effective date for the first fee rate increase of October 1, 2015, to be follow ed by annual increases on

October 1 for the next two years. The specific fee rate , by year, would be as follows (per 100 nm) :

Effective Date Enroute Oceanic

October 1, 2015 $58. 45 $23. 15

October 1, 2016 $60. 07 $24. 77

October 1, 2017 $61. 75 $26. 51