# III
KAPLAN KIRSCH ROCKWELL

February 14,2011

Ms. Catherine M. Lang Acting Associate Administrator for Airports, ARP-1 Room600E Federal Aviation Administration 800 Independence Avenue, S.W. Washington, DC 20591

Re: Clark County Department ofAviation Request for Determination

Dear Ms. Lang:

Enclosed for your review is the request of the Clark County Department of Aviation (the "Department") for a determination by FAA that the Department's proposed air service incentives program for McCarran International Airport does not conflict with its federal obligations. We appreciate the willingness of you and your staff to explore the relevant issues with the Department's representatives.

Please let us know ifthere is anything we can do to help facilitate FAA's review ofthis program,
so that the Department can implement it as soon as possible.

Thank you very much.

Sincerely,

# ~~~~ Thomas R. Devine

Enclosures

cc. Randall Fiertz Kevin Willis Daphne Fuller

Attorneys at Law Denver • New York • Washington, DC Kaplan Kirsch & Roch:well LI.P tel: (202) 955-5600 1001 ConnecticutAve., N.W., Suite 800 fax: (202) 955-5616 Washington, DC 20036 www.kapI:Ulkirsch.comClark County Department of AviationRequest for Determination that Its Proposed Landed Weight Incentive Program for McCarran International Airport (LAS) Does Not Conflict with Its Federal Obligations

I. Introduction

The Clark County Department of Aviation (“CCDOA” or “the Department”) requests a determination by the Federal Aviation Administration (“FAA”) that its proposed air service incentives program (“Incentives Program”), which is intended to induce increases in landed weightby air carriers at McCarranInternational Airport (the “Airport” or “LAS”) in Las Vegas, is consistent with its federal obligations. To qualify for the incentives, increases in landed weight would be measured for each carrier for each month, compared to the same month in the preceding year,

The applicable obligations against which the proposal must be measured are the prohibitions against unjust discrimination1and granting exclusive rights,2the FAA’s Policy and Procedures Concerning the Use of Airport Revenue (“Revenue Use Policy”),3 the Policy Regarding Airport Rates and Charges (“Rates and Charges Policy”),4and the Airline Deregulation Act (ADA).5

As demonstrated below, the Department’s proposed program (a) is nondiscriminatory, (b) does not grant any carrier an exclusive right, (c) is not prohibited by the Revenue Use Policy, (d) is not prohibited by the ADA, and (e) complies with the Rates and Charges Policy. Therefore, the FAA should determine that the proposed Incentives Policy does not conflict with any of the Department’s federal obligations.

II. Background

The Department is concerned with a temporary, but precipitous, drop in air service at the Airport that has not rebounded as quickly asat other airports. Landed weight at the Airport was down approximately 17% from Calendar Year 2007 through the 12-month period ending in September 2010. While some individual carriers have expanded operations, these initiatives have fallen well short of restoring McCarran operations to previous levels. This drop-off in operations has meant that the Airport’s airside and terminal facilitiesare not optimally utilized.

The shortfall in traffic has also causeda significant drop in Airport revenue, particularly non-aeronautical revenue. While load factors at LAS are high, the service cutbacks by the carriers are reflected in a drop in passengers. On average, the Airport

149 U.S.C. § 47107(a), AIP Grant Assurance 22. 249 U.S.C. §§ 40103(e), 47107(a)(4), AIP Grant Assurance 23. 364 Fed. Reg. 7696 (Feb. 16, 1999) (“Revenue Use Policy”), 49 U.S.C. §§ 47107(b), 47133.
4Amended at 73 Fed. Reg. 3310 (July 10, 2008), originally published at 61 Fed. Reg. 31994 (June 21, 1996), 49 U.S.C. 47129(b) (“Rates and Charges Policy”), partially vacated by Air Transport Ass’n of Am. v. DOT , 119 F.3d 38 (D.C. Cir. 1997), amended by 129 F.3d 625 (D.C. Cir. 1997) (“Rates and Charges Policy”). 549 U.S.C. § 41713.2 generates approximately $9 per passenger innon-aeronautical revenue (rental cars, concessions, taxi fees, gaming, etc.). Because of the decline in passenger volume, annual revenue from these sources declined by approximately $20 million or 10% over a two year period from FY 2008 to FY 2010.

In this difficult economic climate, including the recession and its lingering effects, airlines demand that airports reduce or hold down costs that are charged to carriers. The Department has implemented a number of cost-saving and cost-cutting measures, including the closure of some gate areas, reduced spending in purchasing and contracting, and not filling positions made vacant by employee attrition

.Increasing the opportunities to travel to LAS will increase passenger volumes, and, thus, raise additional ancillary, passenger-related revenue that isneeded to help the Airport to pay debt service, meet operating expenses, keep airline costs down, and raise funds for necessary Airport projects.

In order to help induce expansion in air carrier operations, and thus promote effective utilization of airside and terminal facilities and generate additional passengers that, in turn, increase non-airline revenues that can be applied to further reduce air carrier costs, the Department has developed the Incentive Program to provide temporary relief from fees for increased air service to LAS. The Department views the downturn in operations as a short-term anomaly, and the proposed incentives will be discontinued when traffic is back on track.

Unlike many airports contemplating air service incentives, the Airport receives service from virtually all major U.S. cities. Thus, the Department does not seek to target any specific markets. Rather, CCDOA seeks increased air service, in the aggregate, from
anymarkets.

Because it is important to the Department to ensure that Airport facilities are utilized effectively and to increase the num ber of passengers using the Airport, thus generating additional non-aeronautical revenues from such incremental passenger traffic, the proposed Incentive Program is tied to increased landed weight, by carrier, over the previous year, measured monthly.

The Department has designed a program that is totally non-discriminatory and maximizes airline discretion and decision-making in developing service that qualifies for the incentives, in terms of the markets they serve, the duration of the service, and the equipment they utilize to serve those markets.

A. Essential Elements of CCDOA’s Proposed Air Service Incentives Program

The objective of the proposed Incentives Program is to provide an incentive at the margin to promote additions to scheduled air service seat capacity. The key elements of the Incentives Program are as follows:3 • Target start date for the program is June1, to provide a realistic opportunity for air carriers to make adjustments to their service schedules in light of the incentives. The program will last for one year and may be extended.

• Subject to exceptions noted below, all monthly scheduled service landed weight, by airline, in excess of that operated in the same month of the prior year, would receive a credit of up to 100% of the landing fee (currently $2.26 per 1,000 pounds of landed weight) paid on the incremental landed weight.

• No credit shall be given for an increase in landed weight due solely to the fact that scheduled service was not actually operated in the baseline year (e.g., due to cancellations related to acts of God, strikes, etc.) but was operated in the subsequent year.

• To the extent that this program extends into 2012 (which is a leap year), February 2012 landed weight would be comparedto February 2011 landed weight multiplied by 29 and divided by 28, to account for the extra February day in 2012 and put the comparisons on a comparable basis.

• Similarly, if a carrier operates a limited number of flights per week in a small number of markets, so that the landings for some months are higher than for the corresponding month in the previous year due solely to difference in number of days in a month that the flights operatedin the respective years, the Department may devise an appropriate mechanism to ensure that a credit is not accrued for operating essentially the sameschedule, year over year.

• The maximum monthly credit to be provided to all airlines, in the aggregate, is $250,000. If the monthly maximum is not reached, based on a 100% credit, the remaining funds will not be carried over into other months. If the monthlymaximum is exceeded based on a 100% credit, then the maximum will be prorated across all of the qualified incremental landed weight.

• Regional operations would be combined with those of the “parent” airline.

• In the case of common ownership (e.g., Republic with Frontier and Midwest, Delta/Northwest, Continental/United), year-over-year comparisons would be made against the combined carrier operations.

• How the landing fee credits will be applied has yet to be determined, but no credits will be provided until the airline earning them has actually paid its landing fees for the period in question.

• The CCDOA Director’s Office has the final authority to make determinations as to year-over-year operationsthat qualify for credits, versus those that do not, consistent with the principles set forth in this guidance.4 • The waived fees will be covered by non-airline revenues of the Airport, and there will be no adverse impact on fees assessed on air carriers operating at LAS due to implementation of the incentives program.

III. The Department’s Proposed Incentives Program is Consistent with its Federal Obligations

As noted above, analysis of the issues relating to the compliance of the Department’s proposed Incentives Program withits federal obligations must be grounded in the assessment of the proposal against the underlying statutory and grant obligations imposed on the Airport prohibiting unjust discrimination and exclusive rights, as well as determining whether the Revenue Use Policy, the Rates and Charges Policy or the ADA necessarily precludes the Department’s proposal. The FAA’s recently published Air Carrier Incentive Program Guidebook: A Reference for Airport Sponsors (“Incentives Guidebook”) recognizes these as the actual legal requirements that are applicable to airports’ air service incentives programs.6

It appears that there may be three potential issues relating to the legal viability of a weight-based incentives, the Airline Deregulation Act (ADA), supposed potential discrimination against air carriers that only operate one type of aircraft, i.e., carriers that cannot upgauge, and provisions in the IncentivesGuidebook indicating that incentives are allowed only for “new flights.” As set forth more fully below, the ADA is inapplicable, the proposal would not unjustly discriminate or confer an exclusive right, and there is no provision in the underlying federal obligations that requires limiting incentives to new flights. Statements in the Incentives Guidebook indicating that incentives may only be provided for new service, which the IncentivesGuidebook defines as new flights, and not for upgauging existing flights, are not binding obligations imposed on airports. Instead, they represent informal guidance provided to airports over the years, and it is necessary and appropriate for FAA to examine the underlying legal obligations, not the Incentives Guidebook, in assessing the Department’s proposed Incentives Program.

In light of the total flexibility provided to all types and kinds of air carriers to qualify for incentives in the manner suitable tothem, and for the reasons set forth more fully below, FAA should find that the proposed Incentives Program does not violate any applicable federal obligations.

A. The Airline Deregulation Act’s prohibition against state/local government interference with carriers’ rates, routesor services does not apply to the Department’s proposed Incentives Program.

The ADA would not bar the Department’s proposal. The ADA’s preemption provision prohibits a state or political subdivision from enacting or enforcing “a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation under this subpart.” 7

6 SeeIncentives Guidebook at pp. 3, 5.
749 U.S.C. § 41713(b)(1).5 The Department’s proposed Incentives Program is not a regulation (or any other type of provision that has the force and effect of law) and therefore is not covered by the ADA’s preemption clause. The ADA does not preempt voluntary agreements between airport sponsors and air carriers such as the Incentives Program.

The Incentives Program would not require any carrier to change its service at all. Those carriers that elect to take advantage of the incentives have total flexibility as to how they meet the criteria for the incentives: they can increase the number of flights, increase the size of the aircraft they operate, or any combination of the two, as each carrier determines; they can start and stop service as their individual business plans and market experience determine; and they are not locked into any specific service for any period of time. Or, if they prefer, they do not have to participate in the program or modify their operations in any way; their participation in the program is entirely voluntary.

FAA has previously determined that a voluntary agreement between a local government and an airline, in which the local government offered financial incentives for the airline to provide service between identified city pairs, does not conflict with the ADA’s prohibition against state regulation of price, routes, orservice provided by an air carrier.8As is the case here, in that instance the agreement was a contract between the parties rather than a regulation. The agreement was voluntarily entered into, and did not have the force of law, except to the extent agreed to by the carrier. Thus, the FAA determined that the agreement “is not law, and does not have the force of law” and was not subject to the ADA.9Simply put, if a carrier elects notto participate in the Incentives Program, its prices, routes, and service are unaffected by the program.

FAA has also allowed airports to implement other air service incentives programs and related agreements, not finding them preempted by the ADA. In fact, allair service incentives programs implemented by airports that have been authorized or allowed by FAA are designed to induce air carriers to change their routes. Under the ADA, airports could not require air carriers to change their routes. Thus, incentives programs and related agreements are clearlynot subject to, or prohibited by, the ADA; otherwise FAA could not allow any such programs or agreements.

B. The Department’s proposed Incentives Program does not discriminate against any category of air carrier.

The Department’s proposal is totally non-discriminatory. A carrier can choose whether and how it wants to add capacity. If it wants to add new flights, it can do so and earn the incentive. If it wants to change the service it provides by increasing the capacity of its existing operations, by substituting larger aircraft for smaller aircraft, it can do that. Or it can do any combination of the two, as the carrier, in its sole discretion, chooses.

8 See Letter from David L. Bennett, FAA Office of Airport Safety and Standards, to Bailis Bell, Dir. of Airports, Wichita Airport Auth., (Nov. 18, 2003), at p. 4. (Attached as Exhibit A). 9Id

.6 Thus, there can be no serious argument thatthe Department’s proposal is unjustly discriminatory in any way, or favors any carrier or type of carrier.

Carriers are allowed to choose the markets in which they add capacity, and they are allowed to choose the manner in which they add capacity. All carriers are on an equal footing, and whether or how they choose toqualify for the incentives is a business decision for each of them to make, as is the type of equipment they choose to operate. Indeed, it is difficult to imagine that there could be an incentive program that is less discriminatory than the one proposed by the Department.

The essence of the prohibition against unjust discrimination, as elucidated by the FAA, is that similarly situated aeronautical users must be treated similarly. This standard is clearly met by CCDOA’s proposed Incentives Program. Every carrier that increases its landed weight, year-over-year in any given month is eligible for the incentive for the incremental increase in landed weight, period. That is treating similarly situated aeronautical users exactly the same.

Moreover, there is no legal basis for the assertion that a size or weight-based incentive is discriminatory against carriers that operate one type of aircraft. 10One could just as easily argue that allowing incentivesonly for new flights discriminates against carriers that have little or no ability to add f lights, but could substitute larger aircraft for smaller aircraft.

FAA already permits incentives that not all airlines can take advantage of, due to the type of equipment they operate. For instance, FAA allows airports to provide incentives that are limited to international air service, for example, to specific cities, or for trans-oceanic or trans-Pacific (or trans-Atlantic) service, or for international service in general. Certain airlines, because of the aircraft they operate, would not be able to add qualifying service unless they obtained new types of aircraft. For instance, an air carrier operating only 737s could not fly non-stop from the eastern part of the U.S. to China or Australia, or from the western U.S. to Europe or the Middle East. Yet FAA does not find an incentive limited to such destinations to be discriminatory. Thus, it is clear that an air carrier’s business decision on the fleet it chooses to operate provides no basis for finding that an airport sponsor’s incentives program is unjustly discriminatory.

Any assertion that a weight-based incentive constitutes unjust discrimination is based on an implicit, subjective presumption that favors adding seats to a market via new flights rather than adding more seats per flight, even though the increase in capacity

10Although the Incentive Guidebook, p. 22, Q&A 35, raises the possibility that an incentive “based on increased weight for a previously scheduled flight . . . could be discriminatory to those airlines that do not have different sizes of aircraft,” it does not offer an explanation of how it would be discriminatory. Moreover, even if an incentive based onlyon increasing weight on a previously scheduled flight could be deemed discriminatory, such reasoning would not apply to the Department’s proposed incentive plan, which would allow an airline to qualify for the incentive if it adds total weight by increasing the number of flights it operates, by increasing the weight of aircraft used for previously scheduled flights, or any combination of the two.7 could be exactly the same either way – or even greater through upgauging, for instance, in upgauging from a 737 to a 747, versus adding a new flight with a regional jet. There is no legal requirement that an incentives program reward only capacity additions to a market that are achieved by new flights, rather than through the use of larger aircraft. 11

It is inherently reasonablefor an airport sponsor to seek to increase the number of available seats (or to use a surrogate, such as aircraft landed weight), to its airport, either generally or to specific markets. Increasing the number of seats adds available capacity and air travel opportunities for the travelling public, thus helping to fulfill the primary purpose of an air carrier airport. It alsoprovides opportunities for increased numbers of passengers to travel through the airport, spending additional dollars and raising additional revenue for the airport.

There is no federal law or rational federal policy that compels an airport sponsor to prefer that additional seats or increased landed weight be obtained by increasing the number of flights rather than the size of the aircraft. In fact, in terms of imposing burdens on the air traffic control system and the environment, it can be argued that, if anything, the federal government should prefer that increased passenger-carrying capacity be achieved via increases in aircraft size, rather than number of aircraft.

In any event, the Department need not demonstrate that increasing passenger capacity is better achieved via larger aircraft, because the Department is indifferent as to whether increases in passenger capacity are achieved by new flights orincreased aircraft size, and this is reflected in its proposal. 12The proposed Incentives Program is truly nondiscriminatory. In contrast, it would be discriminatory if CCDOA were only allowed to apply incentives to increases in landed weightdue to new flights and not to incremental landed weight increases due to the use of larger aircraft for previously scheduled flights.

Requiring the Department to modify its proposal to eliminate the option for air carriers to qualify for the incentives by increasing the size of the aircraft they operate would actually be more discriminatory than the Department’s proposed program and would unduly circumscribe the total flexibility afforded carriers by the program. It would be counterproductive to eliminate any one of the broad range of options provided by CCDOA, and, thus, make it more difficult for some carriers to qualify for the incentive, based on concerns about unjust discrimination.

11The Incentive Guidebook at p. 11 provides no policy or legal basis for the statement that a new flight with a 50-seat aircraft may qualify for an incentive, but an upgrade in a flight from 50 to 126 seats (for an incremental increase of 76 seats) is not eligible for an incentive. Airports that are concerned with providing air service opportunities to the traveling public should not be forced to favor a 50-seat increase over a 76- seat increase.

12In this regard, CCDOA’s proposed Incentives Program isnot “based on the type or size of aircraft,” or contingent upon adding “a certain number of seats to the market,” or “limited to aircraft with at least a certain number of seats,” as discussed in the Incentive Guidebook, p. 10, Q&A’s 9 and 10. That is, the Department has not specified the type or size of aircraft or the number of seats that can qualify a carrier for an incentive. Anyincrease in landed weight, however achieved, will qualify for the incentive.8 It is likewise clear that the Department’s proposal would not confer a right on one or more parties, but exclude others from enjoying or exercising a similar right. Every carrier would have an equal opportunity to earn the incentive. Thus, no exclusive right would be granted by the proposed Incentives Program.

C. The Department’s proposed Incentives Program is consistent with the Revenue Use Policy, notwithstanding advice in the Incentives Guidebook indicating that incentives are allowed only for “new flights.”

As discussed above, in assessing whether the Department’s proposed Incentives Program is consistent with its federal obligations, it is important to assess the program against the actual federal obligations, i.e., the applicable grant assurances, the Revenue Use Policy, the Rates and Charges Policy, and the ADA, rather than simply looking at the Guidebook, which FAA has described as not being a regulatory document that is binding on airports, but rather, as simply a compilation of past informal guidance.Such analysis of the underlying obligations demonstrates that the Department’s Proposed Incentives Program is consistent with its federal obligations.

For instance, Subsection B, above, sets forth why the proposed Incentives Program is not unjustly discriminatory, given that it would provide all airlines, regardless of the configuration of their fleets, the opportunity to qualify for incentives. As set forth below, analysis of the other relevantobligations imposed on airports likewise demonstrates that, notwithstanding certain advice in the Guidebook, the Proposed Incentives Program does not violate any of CCDOA’s federal obligations.

The Revenue Use Policy does not require fee waivers to be limited to “new flights.” Instead, it allows an airport to provide fee waiver incentives for a promotional period. Specifically, the Policy states that:

Prohibited direct subsidies do not include waivers of fees or discounted landing or other fees during a promotional period. 13

There is no limitation that allowable fee waivers may only apply to new flights. The Revenue Use Policy and the Airport Compliance Manual both speak of incentives being available for an undefined “promotional period,” but do not specify the baseline from which the start of the promotional period begins. The promotional period relates to the time in which the incentives are available to a carrier, so that the incentives do not become long standing, or perpetual. As DOTexplained in the preamble to the Revenue Use Policy:

1364 Fed. Reg. 7696, 7720, VI. B. Prohibited Uses of Airport Revenue, Paragraph 12, see also Airport Compliance Manual, FAA Order 5190.6B, (“Airport Compliance Manual”) ¶ 15.13 (“Prohibited Uses of Airport Revenue”), §(n)(1), p. 15-11.9 The Final Policy therefore, permitsfee waivers and discounts during a promotional period. The waiver or discount must be offered to all users that are willing to provide the type and level of new service14that qualifies for the promotional period. The Policy limits the fee waiver or discount to promotional periods because of the requirement that the airport maintain a self-sustaining airport rate structure. In addition, indefinite fee waivers or discounts could raise questions of compliance with grant assurances prohibiting unjust discrimination. 15

The Department’s proposal is to limit the promotional period for which any carrier’s increased incremental landed weight qualifies for an incentive to one year. By definition, once a carrier has operated at an increased landed weight for a year, the incremental amount will become part of the baseline from which the following year’s incentive would be calculated, and thus would, itself, no longer be eligible for the incentive. A one-year incentive is well within FAA guidelines for the allowable promotional period in which to provide incentivesto a carrier. The program itself may be extended for another year, but incentives would have to be earned based on new increases in landed weight that year, above the elevated baseline.

The Revenue Use Policy itself refers tothe requirement referenced in the preamble that application of the fee waivers does not result in unjust discrimination:

Any fee waiver or discount must be offered to all users of the airport, and provided to all users that are willing to provide the same type and level of new services consistent with the promotional offering. 16

The thrust of this provision is that the incentives must be offered universally, and must actually be provided to those carriers that meet the terms of the promotion. The reference to “new services” certainly does not state or even imply that it applies only to new flights. The Revenue Use Policy does not define “new services.” Importantly, the Policy certainly does not state that upgauging would not qualify as one of the “new services” that could be the basis for an incentive. At worst, the language of the Revenue Use Policy is ambiguous and does not precludean incentive from being offered for a flight that is not new, but rather represents new service in the form of an upgrade from an existing flight. Air travelers, as well as airports, reasonably regard an upgrade in the size of equipment used on a flight to constitute “new service(s).”

In explaining the legal basis for treating direct subsidies of airlines differently from waiving fees otherwise payable by airlines, FAA has emphasized the broad flexibility airports have in setting, and waiving, fees.

14As set forth below, “new service” need not be limited to “new flights.” 1564 Fed. Reg. 7696, 7709-10. 16 Id.
, see also Compliance Manual

, at ¶ 15-13(n)(1), p. 15-11.10 In contrast, the statutes relating to airport rates and charges are much less prescriptive. Airport fees are subject to broad requirements of reasonableness and nondiscrimination, under 49 U.S.C. 40116 and 47107(a)(1), but the actual fees are set by the airport operator. Airport operators have substantial discretion in setting fees and routinely set fees to accomplish a variety of objectives. The FAA reviews fee methodologies and resulting fees to see that they are reasonable and not unjustly discriminatory, but does not generally inquire in the airport operator's policies or strategic objectives. Accordingly, the FAA evaluates promotional fee waiver programs to ensure the programs are not unjustly discriminatory and that the costs of a fee waiver are not in any way passed on to other operators, but does not consider the purposes or effectiveness of the program. Given the latitudeprovided the airport operator by 49 U.S.C. 40116 and 47107(a)(1) to set fees, the FAA has found that a temporary promotional fee discount or waiver is not inconsistent with those statutes. 17

Nowhere did FAA indicate that there was a legal requirement that fee waivers could only be provided for new flights, ratherthan for upgrades in equipment operated on a route.
Consistent with the above provisions, FAA could, without revising the Revenue Use Policy or violating any legal requirement,interpret “new service” and ‘new services” to include service with larger equipment,rather than only entirely new flights, notwithstanding contrary statementsin the Incentives Guidebook.

The Incentives Guidebook provides an exam ple of three airlines that provide service to a destination specified by an airport as qualifying for an incentive during the relevant timeframe, two via new flights with 50-seat aircraft and another via newly upgauged equipment on an existing flight, resulting in an additional 76 seats to the destination. The Guidebook statesthat the first two airlines are eligible for the incentive, because they added new flights, but the third airline is not, because it “only increased the gauge of aircraft, it did not add an additional qualifying flight.”18

The Guidebook also states that incremental discounts may not be offered based on increased weight for a previously scheduled flight, because:

This does not qualify as new service.It would also appear to be based on aircraft type since the carrier would be changing the aircraft to add seats on an existing scheduled flight. Incremental discounts based on weight could be discriminatory to those airlines that do not have different sizes of aircraft. 19

17DOT/FAA Denial of Petition, 69 Fed. Reg. 61544, 61549 (Oct. 19, 2004) (emphasis added). 18Incentives Guidebook at p. 11. 19 Id. at p. 22 (Q&A 35)

.11 The Incentives Guidebook does not provide any support for this position, and in particular, it does not analyze upgauging in the context of the legal obligations discussed above, which the Guidebook acknowledges as the relevant obligations with which airport sponsors must comply.20As discussed in Subsection B, above, the Department’s Proposed Incentives Program is not based on aircraft type nor does it discriminate against carriers that operate only one size of aircraft.

Moreover, the view expressed in the Guidebook is inconsistent with past FAA determinations on the subject, despite the f act that the Guidebook was not supposed to represent new FAA interpretations of sponsorobligations (indeed, the Guidebook was not published in draft form for comment by interested parties), but rather, to reflect previous informal FAA guidance on allowable incentives. In fact, FAA has allowed airport sponsors to provide incentives for service that is not new. In addressing a longsimmering situation in which the City of Wichita provided an incentive in the form of non-airport revenue to AirTran but not Delta, the FAA indicated that, if the City continued to provide incentives to AirTran, it also had to provide the incentives to Delta, because:

Both AirTran and Delta Air Lines (Delta) are air carriers wishing to provide continued scheduled service between Wichita and Atlanta. The FAA views these two air carriers as similarly situated with respect to this route. Treating these two similarly situated air carriers differently could constitute a violation of grant assurance 22.21

In other correspondence, FAA indicated that the incentives provided by the City to AirTran lasted a total offour years.22Thus, it is clear that the FAA did not require the incentives to be limited to newservice. While the incentives in Wichita were provided in the form of a revenue guarantee, this does not alter the fact that the FAA allowed an incentive for air service that it did not consider to be “new.” Moreover, FAA has, if anything, established tighter restrictions on payment of cash to air carriers than on the waiver of fees.23

The FAA has also allowed the Port of Portland to provide incentives to retain existing transoceanic service at Portland International Airport. This included fee waivers for service across the Atlantic or Pacific.24

Thus, consistent with the underlying federal obligations imposed on airport sponsors, particularly those contained in the Revenue Use Policy, and FAA’s previous guidance, as set forth above, FAA should find that there is no federal requirement that

20Incentives Guidebook at pp. 3, 5
21Letter from Charles C. Erhard to Arthur P. Berg (Apr. 6, 2005), at p. 6. (emphasis in original). (Attached

as Exhibit B).
22Letter of Charles C. Erhard to Robert E. Cohn and Arthur P. Berg (Aug. 2, 2006), at pp. 1, 2-3.

(Attached as Exhibit C). 23 See DOT/FAA Denial of Petition, 69 Fed. Reg. 61544, 61549 (Oct. 19, 2004) (emphasis added).
24 See, e.g., July 28, 2009 Landing Fee Waiver Agreement between Port of Portland and Air China Cargo

Company (effective May 1, 2009) at p. 1. (Attached as Exhibit D).12 would limit CCDOA’s proposed Incentives Program only to new flights. Rather, new service that is provided with new equipment should be eligible for the incentives as well.

IV. Conclusion

The Airport is faced with a short-term downturn in air service that has persisted longer than anticipated. CCDOA expects that, through the operation of economic forces, air service will return to prior levels and even increase, but in the interim, CCDOA has devised an air service incentive program based on landing fee waivers that is designed to stimulate increases in air service in the short term, in order to facilitate effective utilization of existing airport facilities, generate non-aeronautical revenues to help hold down airline costs, and provide funding for necessary projects. Once traffic has returned to normal levels, anticipated to be in 1-2 years, the incentives will be discontinued.

The goal of the program is simply to stimulate air service in the short term. It does not matter, for the Department’s purposes, where the service comes from or in what form it is provided. Thus, the program, which is based on incremental increases in landed weight by carrier, provides maximum flexibility to air carriers, who are free to determine what routes they serve, how long they serve them, and the equipment they use to serve them. In this way, the program is totally non-discriminatory

The program similarly provides no exclusive right – in fact, the Incentives Program will be available to every carrier that wants to participate; the broad flexibility in qualifying for the incentives provides a genuineopportunity for every carrier, incumbent or new entrant, large or small, foreign or domestic, hub-and-spokeor point-to-point, multi-aircraft fleet or single-aircraft fleet to earn the incentive.

It would be paradoxical for FAA, due to unjust discrimination or exclusive rights concerns, to eliminate any of the broad range of options provided by CCDOA for carriers to qualify for the fee waiver incentive and, thus, make it more difficult for some carriers to qualify for the incentive.

As noted above, the Revenue Use Policy does not prohibit a weight-based incentives program; the use of a non-airline source of revenues to make up for the foregone landing fees ensures that there is no impact on airline fees and thus, no issue under the Rates and Charges Policy; and the ADA does not preempt the proposed program.

Given the universal inclusiveness of the Incentives Program and the maximum flexibility provided to air carriers in qualifying for the incentives, the Department submits that this is the typeof program FAA should want to encourage, not discourage or even prohibit. While FAA may, in the past, have been concerned with weight-based programs designed simply to induce some specific shif t from smaller to larger equipment, the Department’s proposed program is very different, because it allows carriers total freedom to choose how they will increase their landed weight. It provides benefits to carriers that increase landed weight by adding new flights as well as those that provide new service byincreasing the size ofaircraft they use to serve the Airport. The proposed program would penalize no carriers, and would provide an opportunity for all carriers to qualify for the incentives, however they see fit.

Moreover, this is truly a short-term program, to deal with a short-term anomaly in traffic, until economic forces return traffic to its normal levels. The Department's approach is thus in line with a fundamental purpose ofFAA's air service incentives program.
Simply put, there is no policy or legal reason to disallow the Department's proposed Incentives Program. For these reasons, CCDOA urges FAA to determine that the Department's proposed air service development program is consistent with its federal obligations.

Respectfully submitted,

Thomas R. Devine Kaplan, Kirsch & Rockwell, LLP Counsel for Clark County Department ofAviation

February 14,2011

1304/28/2008 16:46 6464355684 CELEBRATION PAGE 07/18

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U.s. Depcrtment of Transj:)ortatlon Federal AvIation Administration



### August 

### 11, 2004 Office ofAirport Safety and Standards



### Bailis Bell, Director ofAirports Wichita Airport Authority 2173 Air Cargo Road Wichita, KS 67209

Dear Mr. Bell: 800**InofependenC1~ ,~** ...e •• S.w. Washillgton, D.C.**~!0591** .



### On November 18,2003, 

### I wrote 

### to you in response to a complaint by Deltt:. Air Lines, Inc. (Delta Air Lines) regarding an agreement between the City 

### c)fWichita (City) 

### and AirTran Airways, Inc. (AirTran). That agreement, effective May 8,2002, provided fin.anoia! incentives from tbe City to AirTran for providing schectuled air $!lrvice between identified city 

### pairs.

We reviewed. thai agreement and detennined that.as long as subsidy paytm:nts to the airline did 

### not come from aiIport**revenue~** 

### ·the paYD:lents'themselves would not**violl~te** 

### the Federal Aviation Admirustra.tion's (FAA) Policyand

### fr.ocedures Concerning thf! 

### Use of AirportRevenue, 64 FR 7696 (February 

### 16, 1999) (Revenue 

### Use P<: Hey). However, we noted that the agreement could potentially result in a violatio:l

# ofthe airport's Federal grant assurances regarding economic nondiscrimination a:ld exclusf.ve 

### rights.

At the time that letter was written, we were not aware ofany promotional i:1centive,s that had been denied to other carriers under the same**circumstaIl(~es. Neith~**  

### were we
a.ware ofany other cauier being denied the opportunity to provide service 

### 1.ll1der thEl

same conditions as guaranteed exclusively to AirTran. Based on our understanding that



### no other carriers had been denied comparable treatment, we found the 

### aUp(.rt sponsor
was not in violation ofits 

### grant assurances rega.rding economic nondiscrim:.nation and exclusive rights at that time.

.
We have now received a second complaint from Delta Air Lines regarding 1 

### May 11. 

### 2004, agreement between the City and AirTran. According 

### to**thc~** 

### complair

### .t, this**J:l~~W** 

### agreement offers similar incentives to the 

### May 8,**2002~** 

### agreement. Again) the City is offering ftnancial incentives to be paid from City funds, not from airport 

### retrenue. As before, this would not violate the Revenue Use Policy since airport revenu,e 

### is not 

### involved in the transaction. However, we have to consider whether this agr.eement conflicts with the airport 

### sponsor's grant assurances regarding 

### eCI)nomic 

## t1,t:.CEIV.ED nondiscrimination and exclusive rights. rt I; 

## AUG 1

## 6 2.004


### W.AA.04/28/2008 15:45 5454355584 CELEBRATION PAGE 08/18



# .,

'2 

## 00 Economic Nondiscrimination. Federal Grant Assurance 22, Economic Nondiscrimination, requires the airport sponsor to make the airport**availabll~** 

### for public use on reasonable 

### terms and withOl.lt 

### unjust discrimination -10 

### all types, kinds, and classes ofaeronautical activities. The assurance states in**pertinl~tlt** 

### part,

"Each 

### air cattier

### hsing such airport (whether as a tenant, n.ontenant,
or subtenant ofan.other air carrier tenant) shall be subject 

### tc such 

### nondiscriminatory and substantially comparable lutes, regu:.ations, conditions, rates, fees, rentals, and other charges 'Mth respe**~t** 

### to facilities directly and substantially related to providing air transportation 

### as are applicable to all such 

### air carriers 

### whict make similar use ofsuch**~irport** 

### and utilize similar facilities, subj.:ct to 

### reasonable classifications such as 

### tenants 

### or nontertWnts and 

### signatory carriers and noosi.gnatory carriers." [As:ru.rance 22 e]

The May 

### 11,2004, agreement between the City and Air'I'ran provides an economic benefit exclusively to AirTran. The agreement 

### states, "The City agrees that 

### AirTtan shall be the sole and exclusive scheduled air ca:tier providing service under this or any 

### other similar block hour or**pas8~nger** 

### revenue guarantee in whatever direct or indirect form between Wichita (ICT) and Atlanta CATL)." We understand that Delta Air Lines has requested similar incentives under the same program to provide the same**sc~rvice,** 

## ane was delued. The May 11, 2004, exclusive agreement results in economic discrimination benefiting one aeronautioal user to the detriment ofanother, which :.S 

### a violation ofgrant assurance 22

. 

### .QU Exclusive Rights. Federal'Grant Assurance 23,**Exclusiv(~** Rights, 

### pt'ohibits the 

### airport sponsor from permitting any aeronautical entity to have an exclusive right 

### to provide service at the airport.

While the 

### agreement in question grants an exclusive economic bendit to onl;: 

### aeronautical user over anotber, it does not grant an exclusive right 

### tu AirTran. to be 

### the 

### sole provider ofa particular service. 

### Therefore, this agreemelt, in and of itself, does not appear to result in a violation ofgrant asSurance 23. It 

### is not clear at this time whether the economic benefit is sufficient to be co:ls.idered an exclusive right under grant assurance 23.

We are aware that the agreement in question is between the City iUl.d 

### AirTrJlll. You have advised us that the airport sponsor, Wiohita'Airport Authority, is not fl 

### party to the agreement. It appears, however, that the Wichita Airport Authority is part ofthe Wichita 

### City Government. In 

### fact, 

### the Director ofAirports 

### repor:s to the C

### :ty Manager. Thex-efore, the FM considers the City and the Airport Authority as a**sing1(~** 

### entity £:)]7 

### the purposes ofsponsorship ofAirport Improvement Program (AtP) 

### grants and related grant obligations.04/28/2008 16:46 6464355684 CELEBRATION PAGE 09/18

3



### Grant assurance 22 requires the airport sponsor to ensure that si.milarly Si1

### uated aeronautical enterprises enjoy comparable economic conditions within which to**O:?I~ate.** 

### Both AirTran and Delta Air Lines are air carriers wishing to provide sche,iuled service between Wichita and**Atl~nt.a.** It 

### appears AirTran is guaranteed an exclusive :financial benefit denied to Delta Air Lines for the same service. The Widrita Airp(lrt 

### AuthoIity 

# may not permit one air carrier to receive a benefit denied to another air**ca;~ier** 

### under the

same circumstances. Based on the infonnation we have, it 

### would appear 1 hat the Wichita Airport Authority is in violation ofgrant assurance 22.

Please respond within 30 days explaining how the Wichita Airport Authority will resolve this issue, providing atirne1ine for resolution. Ifyou diSlagree witl:l 

### our preliminary conclusions, please provide any additional information you believe wiU support your views.

. 

### If

### you have 

### any questions, please contact Charles Erhard, Division**Ma.nag,~** 

### ofthe FM Airport Compliance Division, at (202) 267-3446, or Katherine Baxter, Air:Jort Compliance Analyst, at 

### (202) 267-9024.

Sincerely, 

# GLu

David 1. 

### Bennett Director, Office ofAirport Safety and Standards

Cc: Mr. Robert E. Cohn, Counsel for Delta Air Lines, Inc. ShawPittman LLP 2300 N Street, NW Washington, DC**20037~1128**04/28/2008 16:46 6464355684 CELEBRATION PAGE 02/18**.~.~** :"

.**~** 

# 0,

U.S. Deportment of Transportotton Federal Aviafion AdministratIon 

### NOV 

## '1 

# a 2003 Office of Airport Safety and Standards



### BaiJis Bell, Director ofAirports Wichita Airport Authority 2173 Air Cargo Road Wichita, KS 67209



### Dear Mr. 

### Bell: ao.o 'ndependence Ave•• S.W. Was'1ington, D.C. 205Sl1

As 

### you are aware, 

### Delta Air Lines provided us a copy ofthe dra.ft 

### agreement bef:\.ye1eIl. 

### the City ofWicbita (City) 

### and AitTran Ai.rWays. Inc. (Ai.rTran) mwbich 

### ':he Cityoffers financial incentives for AirTran to provide 

### da.ilY schedUled round-tripjet ;ervice between identi.fi,ed city pairs. We reviewed that agl-eement to considerw]

### lether the incentives offered are compatible:with va.tious Federal regulati<ms and policies,

_

ip.cluding: (1) 

### FAA'sPoliC)l a,nd

### Procedures Concerning the 

### User of 

### AirportReve:nue, 64 FR 7696 (February 16, 1999) 

### (Revenue Use Policy), (2) airp,ort sponsor Federal grant**a~SUl"ances,** 

### (3) 

### FAA's Policy 

### Regarding

### AirportRates and Charges, 

### (61 FR 31994 

### (June 21, 1996) (Rates and Charges 

### Policy};a:n.d l

### (4) Titll::''49 Unite.:! 

### Sta.tes Code (U.S.C.), 

### § 41713(b).



### We determined that the draft 

### agreement is consistent with the 

### Rrtvenue**Us,~** 

### Policy: the 

### Rates and Charges Policy, and Title 49 U.S.C. 

### § 41713(b). In considerin!!;the draft 

### agTeement's consistency 

### with the airport sponsor's 

### Federal grant 

### assuran.cms, we identified two areas that could potentiallyresul.t in a violation:'



### • Under Assurance 

### 22, Economic Nondiscrimination. pronlotional fe:e 

### waivers or discounts must be made available to all 

### aeronautical users willing t:l 

### pro'Vide the,

same type and level ofnew service.

• Under Assurance 23, 

### Exclusive Rights, 

### the airport sponse,r may not permit cltle 

### aeronautica.l user to have a guaranteed exclusive benefit.

, 

### At this 

### titne, we are not 

### aware that

### promotion~ fee 

### waivers have been denied 

### to other cairiers 

### under the same circumstances. Neither are we aware that another dr

### cattier: has been denied the opportunity to provide service under**tl;l.~** 

### same conditions as**guarant(~ed** 

### exclusivelyto AirTrau. Therefore, we find 

### the airport sponsor is not 

### cu:rreIttlyfn violation offuese grant assurances.

The basis for'our detemrination is presented inthe discussion below.

. . . .. '...



## ..

w'AA,04/28/2008 16:46 6464355684 CELEBRATION PAGE 03/18

',.,

(1) Revenue Use Policy. 

### The Revenue 

### Use Policy 

### identifies appropriate costs tha.t can be covered by 

### .aiJ::port revenue. It also identifies prohibited uses ofairpjrt

### revenue. We considered whether the sections in the draft agreement covering subsidy- 

### paymeDts to AirTran and payments for cooperative marketing and advertising were within**thc~** 

### giUdelioes of

### the 

### Revenue Use Policy.

, . (3) Air 

### Carrier Subsidies The 

### Revenue Use Policy 

### permits ai:r.port sponsors to P;::lY the ful] 

### costs of 

### activities directed toward promot:ing new air 

### se:r:v:ice**~ld** 

### competition at the airport from Hilport revenue. It pem:rits fee waivers and discounts during a promotional period So 

### long as the waiver 

# or di.scount is offered t) all 

### user:; will:ing to provide the same type and level ofnew service. It dO(ls not, however, allow sponsbrs to pay direct air 

### camer subsidies 

### ofany kind.

The draft 

### agreement between 

### the City and AirTran provides guaranteed

. payinents to AirTran. These are air cauier subsidies that ma.y nc; t 

### be paid out of

.

airport revenue, We note, however,' that these sublSidy 

### payments are to cc)me from the City and not 

### from aiIport revenue. Since the payments do not iuvolve airport revenue, these payments do not violate the**Rev~mue** 

### Use Policy.

(b) 

### Cooperative Marketing Payments The 

### Reven.ue Use Policy permits a share ofpromotional 

### expense:, for 

### IDmketing, advertising. 

### and related activities to be paid from airport revenue. The dra·fi: agreement between the City and AirTran calls for airpc.rt revenuc; up to a specified sum to be used for cooperative marketing and.**advertish~g** 

### for th,;, 

### new service. These payments do :not violate the Revenue 

### Use Policy

.. (2) Federal Gral1tAssura,nces. 

### The FAA incorporates into grlmt agreements cert;rin obligations airport owners accept when receiving Federal 

### grant funds or ·Nhen 

### acc',{,ti.o.g the transfer ofFederal property for airport purposes. These ob:tigations ar¢**p~ese11ted** 

### in



### . the form ofgrant assurances designed to protect the public's 

### investment in 

### civil aviation

and to ensure compliance with 

### Federat 

### laws. We reviewed the draft agreement**h~1:vveen** 

### the City and MITran

### to detellllme 

### whether the agreement violates the alr:?or.t**SpOJl~30r~S** 

### grant assurances conceming (a) economic nondiscrimination, 

### (b) e;x:cl'llsi're rights, and (c) 

### self*sustainability.

The 

### draft agreement is between the City and AirTran. The**airpo~** 

### spons(' t, 

### Wich:1a Airport Authority, is not a party 

### to the agreement. Howe'Ver, it

# is ourunderstandiog that the**~embers** 

### ofthe Wichita Airport Authority are essentially the same pc::)ple 

# as 1he members ofthe city

### body responsible for reviewing and**~proving** 

### the drj\ft agree:i:llent. 

### We also note that, while not a party

### to the agreement, the Wich:lta Airporl Author..ty is committed by 

### the draft 

### agreement to providir.1,g :funds for coopel:ative 

### mar:ceting. ·We

assume the Wichita Airport Authority is substantially involved :in attracting this**n'~w** 

### service to'the airport and 

### in s1lucturing the draft agreemet1t. Its members are, or sh:luld 

### be, fully aware oftbe 

### airport sponsor's 

### obliga.tions regaxdin,g 

### its grant**aSSl1.'r:ancm:t~nftD** 

### such, we will not accept the fact that the agreement is with 

### tb.e Cityrather 

### tha:ri thel 

### :'loOr:-

. '. M'W**~** 

### IJ. " UJ

. t'l'.,.l'J**~** •**~I** A A 

## ... ,.... '"\.04/28/2008 16:46 6464355684 CELEBRATION PAGE 04/18**Wic~ta** 

### Airport Authority as a defense for failure to comply 'with 

### the 

### S1)onsor' s grant**a.s~ances.** 

## 00 Economic No:o.discrimination. Federal Grant Assurance 22, 

### EC(:lnomic

, lvondtscn'mination, requires the ai'tport sponsor to maj{e 

### the airport available for public use 

### on reasonable terms and 

### without unjust disGrirninatiO:l 

### to all 

### rypes, kinds, and classes ofaeronautical activities. . ' .

The draft 

### agreement. between the City and AirTran pre,vides an economic: incentive to AirTran. A promotionai fee waiver or dis,;;ount must be offerl3d to all users that are willing 

### to provide 

### the type and level (.fnew ser'Tlce that qualifies 

### for the promotional period. We are no.t awa.re ofother air**ca.rrier.:~** 

### that 

### have requested and been denied the same eCQnomic be:o.efit for'p::ovidi't).g the

same type and level of

### new service as'AirTra'O. 

### We w()uld re.mirJd the 

### W:lc,bita Airport Authority, however, that it could be f01.Ul.d in 

### v.lolation ofAssura1:l('.e 

### 22 should it 

### deny a:i:J.other'alr carrier the same opportunity under the same 

### terI'lls and circumstances as provided to AirTran.


## 1hl Exclusive Rights. Federal 

### Grant Assurance 23, Exclusive Rights! 

### prohibits the ailport sponsor frompermitting' any 

### aeronautica1 entity to have an 

### excluslve right to provide 

### service at the aiIport.

The draft 

### agreement between the 

### City and AirTran**statt~s** that "

.. 

### ,A1rTran 

### shall be the sole and exclusive scheduled all' 

### ca:r:rier pro'1ding service l .

### .nder this or any 

### other similar

...passenger revenue guarantee

..." Clearly, the City here is p,roviding 

### an exclusive benefit to A.il'Tra'O. to 

### be the only 

## ai! came'; on this route recei'Via.g an economic inoentiye. It does not matter that the agrer;ment is with the City rather than the Wicbita AiIport Authority. 

### Iris the airpO!t 

### sponsor that 

### may notpermit 

### such an exclusive arrangement.

Assurance 

### 23, requires the allport sponsor. 

### to terminate any exclusive right,to, conduct an aeronautical 

### activity now exiting. 

### In this case, the 

## airt: ort SpoIls,or 

### may continue to**~llow** 

### AiITran,to operate the designa.ted service and to 

### :receive the revenue guarantee from City funds. 'However, 

### shoul.d another air 

### cam':!' choose to operate 

### the same service in 

### the same 

### maimer under 

### the**~** 

### arne circumstances, that air car.d.er 

### should 

### not be denied the same or sir.oilarpassenger
revenue guarantee. 

### Weare not aware of

## any instance in

### which tbi; has occ:tlITed. 

### However, we would re:tnind 

### the Wichita 

### Airport Authority that it «: 

### ould be fbund in 

### violation ofAssurance 23 

### should it permit.one air 

### car.ier

### to**rec~liye** 

### a. benefit denied to another air 

### carrier under the same circumstances.
(g) 

### Self-sustainability. Federal Grant Assurance 24, Fee andRental Structure, 

### requires the all-port sponsor to maintain a fee and rental :structure hat**willl~,ak:e** 3



### the airport as self-sustaining as possible under the existiJlg 

### cl"t'cUIruitances.**l1~~~'1l."Eff'il** 

### draft agree:m.eut 

### between the City and AirTran does not

### (~aU for an/fee

### Wa:l~..

### ~""'l\f ,""



### or fee reductions that 'Will affect the self-sustaio.ability 

### 0::the aiIpo:i.**~""l;** 

## 1'),.' ·jIiQ-;



### .**~~"J** r c-. "} !,..,. .., 

### 'NAA.04/28/2008 16:46 6464355684 CELEBRATION PAGE 05/18

"':".

(3) Rates and Charges 

### Policy. The

### Rates and Ch9-rges Policy**provide~ gu.idau.(~~l**  

### for establishing fees for air 

### carriers aI'ld ather aeronautical USCI'S. 

### Rates, 

### feels, and**C~ll!1"ges** 

### to aeronautical users must be 

## fa;u- and reasonable; they cannot be unjust

# :y discriminatory; and they must be consistent with 

### the sponsor's obligatkn to**makl~** 

### the



### .airport as self-susta.i:oiIig as 

### possible 

### under the circumstances.

Costs associated with 

### incentives benefiting one or a**limi~cd** 

### number of

### e ir carriere! 

### may not be factored into the 

### rate base or 

### allocated to air 

### carners not beue:fitir..g from 

### m;,ch incentives unless those other air earners ag;ree.

The draft 

### agreement between the City and AirTran does not :1tlclude fee waivers or ·4



### ...reductions. Theref<?re j in 

### this case, there are no**issu~s** regardhg 

### waived or reduc:ed fees



### where the C()sts 

### no:rmally**cover~d** 

### bythe waived rev.¢ue tttigJ:Lt 

### be 

### impr!:'Pe:r:1y shifted to other air 

### carriers. The draft 

### agreement does**inc1ud~** 

### cooperatN'e tnarketi.ng**exp~l~les** 

### to be 

### paid from aiIport revenue funds. These costs, while an appropriate O!,eratiug expense fat the aiIport, 

### canuot.be 

### included in. 

### the rate base 

### or s:hifted to (ther air 

### ::uriers without their agreement.


### {In calculattOg a rate base, 

### the airport sponsor must use a reaso:nable, conr: istent, and :transparent method ofidentifying and distributing costs.**Wbi11~** 

### we have liece:iveC

. 

### .general concerns .from 

### air carners that 

### promotional incentive C()sts 

### may Ii

### ot be clElarly

.



### .identified or equitably 

### distributed, we are not aware 

### Ofany 

### instances:in which an air ''Carrier has alleged that promotional incentive costs at Wichita**JM:id~Cont:1ner.tt** 

### Airport ,have been improperly identified or inequitably distributed.
i(4) Title 

### 49 UnitedStates Code, 

### § 41713{b). 

### This section ofthe United**~** 

### tates 

### Cc·o.e 'deals with preem.ption ofauthority overprices, routes, and 

### service. Generally, tbis ,section states that 

### a State 

### or political authority may not enact 

### 01' enforce a law, regulation, or other provision having the force and effect oflaw related to a price, route,

or service ofan 

## arr 

## camer.

:The draft 

### agreement between 

### the City 

### and AirTran calls for AirTran to pr·,vide**~iJy** 

### scbeduled round-tripjet**~ervice** 

### for identilled city,pair mm-kets. The 

### draft**agreetrl'~lt** 

### also stipulates that faxes offered on these flights will not vary significant!)· from th.ose nonnally offered 

### byAirTran i:u markets of

### simila:r: distance. Accord:ing 

### tel the draft**agreem~t,** 

### AirTran may 

### adjust flight 

### times 

### and aircraft type in**jaccordanc.~** 

### with it:$ usual proeedures and 

### operational requlrements. 

### Tn addition, AiI'Tran will 

### letemrltlEl the actual fare levels and inventory allocation.

The draft agreement represents a contract between the parties. It is not law, and it does not have 

### the force oflaw, 

### except to 

### the extent agreed by

### the car.rier. The air 

### carrie:r agreed to operate on certain routes while retaiIring control overprice and service. We find no conflict between this draft agreement and U.S.C. § 

### 41713(b).04/28/2008 16:46 6464355684 CELEBRATION PAGE 06/18

• I

\,



### Conclusion Based on 

### the above analysis, we determined that the draft 

### agreement is consistent with



### ,**~eRevenue U~e**  Policy, 

### the 

### Rates and Charges Policy, 

### and Title 49 U.:LC. 

### § 41713(b). At**~s** 

### ;time, we find the Wichita AirPort Authority is not in violation o::its graut

assurances regarding the draft agreement between the City and AirTran HOWeYE1l", 

### we would remind the allJlort sponsor that (1) a promotional fee 'W'aiver or d:.scount must be offered to all users willing to provide the same type and level ofnew 

### se:-vice, and (2) the airport sponsor may not per.n.tlt one air 

### .carrier to enjoy an exclusive':>ene,fit

. regardless ofhow that 

### benefit is derived.

. . .
If.you have au,y questio:ils regarding this ;matter, please contact**KatheriIl'~ ~axter**  

### at (202) 267-9024.**~** 

### Sincerely,



### David L. Bennett Director, Office of 

### Ai-cport Safety and**Standar~**

" cc: 

### Rebecca. A, Bays General Attorney, 

### Law Department 

### Delta Air 

### Lines, Io.o. I

. 

### P.O. B02C 

### 20574 Atlanta, GA 

### 30320-6001**W.A.J~.** 504/28/2008 16:46 6464355684 CELEBRATION PAGE 11/18

U.S. Deportment Of Transportation Office of Airport Safety and Standards 800 Inelapendence Ave., SIN.**Washll'l~ton,** DC 20!;91 Fedetcl Aviation Administration



### April 6, 2005

Arthur P. Berg Palmer & 

### Dodge, LLP 

### 730 Fifth Avenue, Suite 900 New York., NY 10019



### Dear Mr. 

### Berg:

RE: Air Cattier Subsidies to AirTran from the City**ofWichit~.** 

### Thank you for your letter ofOctober 18, 2004, outlining the Wichita Airport Authority's (Authority) position regarding the May 11,2004, agreem.ent between the City ofWichita (Ci.ty) and AirTran Airways, Inc. (AirTran) in which the City agreed to provide financial incentives directly to AirTratl.

On August 11, 2004, David Bennett, Director, FAA Office ofAitport Safety

### and Standards, wrote a letter to Mr. Bailis**Bell~** 

### Director ofAirports at the Wichita AitpOlt Authority, advising that the agreement between the City and Ai.rTran provided an exclusive economic benefit to one aeronautical user to the detrimt:'}nt ofan01her in an apparent violation ofgrant assurance 22, Econom.ic Nondiscrimination.

The Authority disagrees with 

### this assessment. In your October 18, 2004, 

### re.::Ily, you present two points for discussion: (1) 

### You argue-that th.e City and Authority are sep2ltate entities and that the actions ofthe City should not be imputed to tl1e 

### Authority; and ('2) there is a reasonable basis for the City to subsidize the new service started by AirTran.

(1) 

### City and Authority as Senarate Entities



### You argue that the City and Authority are separate entities, and since the At.thon.ty is not a party to the agreement between the City and AirTran. it should not be leId accountable for the actions ofthe City 

### in this matter.

As noted in the August 11,2004, letter, we hold the view that the Authority is part of the Wichita City 

### Government and that the Director ofAirports reports to the City Manager. In light ofthis relationship.• the FAA considers the City and the Authority as
a single entity for the purposes of

### sponsorship ofAirport Improvement Program 

### (All)) grants and related 

### grant obligations.04/28/2008 16:46 6464355684 CELEBRATION PAGE 12/18

2



### You acknowledge that the members ofthe governing body**ofthc~** 

### City are ":he members ofthe City Council, and that the members ofthe City Council ate the members ofth,e Authority. You argue, n.onetheless, that the Wichita Airport Authority is a. separate: entity from the City ofWiohita.

As evidence, you provide minutes from the May 11, 2004, City Coun.cil M ;,eting in which the AirTran agreement was discussed. You state 50" •

### the nlembers**o:~the** 

### City Council approved the agreement with AirTran as the governing body**ofth~:** 

### City, nq:!, as the governin.g body ofthe Wichita Airport Authority."

TIlese same minutes**show~** 

### however., that it was the Director ofAirports wl.o reviewc:d the agenda item labeled "Transportation Services Agreement

- AirTran Abways, Inc." at this meeti.ng. That puts the Authority into the discussions and action reg,"u-ding the agreement with AirTran.

As further evidence that the Authority is separate from the City, you provide**minutE~s** 

### from the August 10, 2004, City Council Meeting purporting to show a sepa.rate City Council agenda and Airport agenda. Both agendas, however, are included nnder tho broad title of"City Council Proceedings." In addition, a notice hnmediatel:r following th.e heading for the Airport Agenda states, "The City Council is meeting as the governing body ofthe Airport

...." In our view, this statement supports our contention that the City Council is the governing body ofthe Airport.



### In addition, we poitlt out that both the City and the Authority**agrE~ed** 

### to gratlt 

### assuram:e obligation.s. Thc Mayor. the 

### City**Manager~** 

### and the Director ofAirports all signed grant agreements 

### on. behalfofthe Authority:

• The Mayor signed grant agreements as the 

### Wichita Airpolt Authorit

### y's designated official representative between July 

### 2003 and August 2004.'

• The City 

### Manager sign.ed grant agreements and amendments as the ·Wichita Airport Authority's designated official representative between. April 2001 and 

### August 2002.2

• The Director ofAhports signed 

### grant agreements between June**199~i** 

### and August 1999. 3 TIle 

### Director ofAirports and the City Clerk also signed an 

### am.endmel1t September 3, 2003.

1 The Mayor signed gl'ant agreements on July 15,2003; August 12,2003; August 19. 2003:**Septell1b~lr** 3, 2003; May 18, 2004; and August 25, 2004.

ZThe City Manager sigoed grant agreements on .Tlme 5, 200 I; September 11, 21)01; May 24. 2002; June 20,2002; and August 27,2002. The City Manager and the Director ofAirports s.igncd an amendment cn April S, :200]. T11e City Manager and the City Clerk signed an amendment May 2J, 2002.**~** Thlt Director ofAirports signltd grant agreements ,hmc 5, 1995; March 28, 1.996; July 7. H97; May 1**:~,** 1998; May 27, 1998; March 1. .• 1999; March 31, 1999;.ruly 1.3, 1999; Augu.st2, 1.999.04/28/2008 16:46 6464355684 CELEBRATION PAGE 13/18



### We affl111l 

### our position that the City and the Authority are collectively and individuaJ1y obligated by 

### the grant assurances accepted by the Mayor, the City Manage:, and**th~** 

### Director ofAirports as recipients ofAlP grant funds.

We reiterate tbat the May 11, 2004, agreement betweel1 the City and AirTrm provides

an economic benefit eXclusively to one aeronautical user to the detriment (If**another~** 

### in

an. apparent violation ofgrant assurance 

### 22, Economic Nondiscrimination.

(2) Reasonable Basis 

### to Provide Subsidy 3



### You atgue that even ifgrant assurance 22 is applicab.le to the present situat.on, therl;: is a reasollabl.e basis for the City to agree to subsidIze the new**servic(~** 

### started 

### b:{ AirTran as shown by (a) the economic benefit to the City, (b) the classification disti.nclion betwcell legacy and low fare carriers, and (c) Congressional intent.

(gl 

### Economic Impact

You n.ote that the presence ofAirTran has had a si.gnifiCa11t im.pa(:t on redu,:cd airfare:s at Wichita Mid-Contin.ent Airport, You report a 30 percent reducti.on in ai.rfares and a. corresponding 33 percent increase in 

### passengers with an estimated savings ';0 

### air travelers in excess of$85 million. You state that the City has a strong publ:.e intereHt ill maintaining AirTran's low-farc service to their community.

Both the Department ofTransportation (nOT) 

### and the FAA have an interest in promoting competition and encouraging new entrant a,ir carrier access at**th~~** 

### nation';:; airports. 

### In fact, FAA's policies contemplate marketing incentive programs consistent with those goals. However, the fact that the Ci.ty favors the routes and fares ofone carrier over another does notjustify continuing a fmancial incentive that fa"ors one carrier over another making simi.lar use ofthe airport.

(b)**Cla~sification.** 

### Distinctions

We have indicated that the agreement with AirTran appears to be inconsistemt with grant assurance 22, Economic Nondiscrimination, as a result ofthe City's financial incentive provided to one aeronautical user to the 

### exclusion ofanother similarly situ.;tted aeronautical user.

Under grant assurance 22(e), the airport sponsor must ensure that each ajr**c~lfriet** 

### using the airport i.s subject to 110ndiscriminatory and substantially compa,rable nUE:S, 

### regulations, conditions, rates, fees, r.entals, arJ,d other charges with respect to facilities directly and substantially related to providing air transportation as are 

### applicable to all. such air 

### carri.ers which make silnilar use ofsuch airport and use similar facilities, subject to reasonable classifications such as tenants or non-tenants and signatory carriers and**non~s.i.gnatory** 

### carriers.04/28/2008 16:46 6464355684 CELEBRATION PAGE 14118



### You argue that a "reasonable classifi.cation" should include the distinction between legacy and low-fare carriers.

Title 49 ofthe United States Code (U.S.C.) § 

### 47107(a)(2)(B) and grant**as~:~lrance** 

### 22 provide for distinctions based on. the level ofcommitment the ail' carrier makes to the airport (signatory versus nOIl"signatory and tenant versus non-tenant). Ajr carriers making the sarne level ofcommitment fall into thc same classific:ation category.

Title 49 ofthe 

### United States Code § 

### 47107(a) requires airport spOllS0rs 

### to E.ssure tl:M.t 

### the aitport will be 

### available for public use on reasonable conditic,ns and wi'hout unjust 4



### . discrhnlnatiol1. It 

### also requires that air carriers making similar**u:~e** 

### ofthe a: tport wi).l 

### be



### subject to substantially compara.bIe charges. Section 47107(a)(2)(B)**a.llow~** 

### for differences 

### based 011 

### reasonable classift.cations, "such 

### as betweel1. (i) 

### tenant) and 110;:)

.. 

### tenru1ts; and (U) signatory and non·signatory carriers."

The reasonable classifications cited above hi (i) 

### and (ii) 

### are exam.ples from the statute. They do not necessarily reflect the only reasonable classification:; that could be considered. However, both 

### examples in the 

### statute relate to the**11~vcl** of

### fin:mcial obHgation assumed by the carrier for the benefit ofthe airport. Those**carril~rs** 

### making a higher level offinancial commitment

- such as tenant and signatory carrier::

- may**b(~** 

### classified in a separate category from those carriers that do not accept that Hgher levd offinancial commitment.

You have not indicated that AirTran has accepted a higher leve] c,ffinancia: obligation to the airport than other tenant air carriers. You have not argued l:hat the aix carriers in thi.s 

### matter are not similarly situated in telms 

### oftheir 

### si.gnatory or tenant sta::us. The distinction you ate proposing is based on ticket pricing. Ticket priCing doer: not**reflel~t** 

### a 

### level ofcommitment carriers make to the airport 

### financially. We have**int~rpreted** 

### classifications under this statute to be limi.ted to those categories that speak to 

### the carriers' finru1ciat commitment to the airport. Therefore, we do not recogni;!:e ticket pricing as a reasonable basis for designating air carrier classifications as those classifications relate to § 

### 47107(a)(2)(B) an.d grant assurance 22.

(0) Congressional 

### Intent

You argue that 

### COl1gt'ess intended to allow the type ofdirect subsEdy 

### payments cove:rEld in the May 11, 2004, agreement between the City and AirTran as**,~videnced** 

### by the creation ofthe Small Community Air Service Development Program (pilot program).

The pilot program. you mention is a DOT pilot program designed to provide funds that may be used f(')f 

### direct air carrier subsidies as part ofa plan to bring new ser{ice to a given community. Th.e 

### pilot program limits subsidy payments to a tlU'ee-yea i.ntroductory period. Only thosc airports accepted into the pilot pT·ogram 

### are pennitted to make the direct ait: carrier subsidy payments described. The City 

### ofWicbita is no'; participating in this pilot progrrun.04/28/2008 15:45 5454355584 CELEBRATION PAGE 15/18

5

The 

### existen.ce ofthe DOT 

### pilot program does not override the 

### requiremen.ts ofthe grant

assurances and obligations accepted by airport sponsor.s. In fact" the pilot ;:>rogram specifically forbids subsidy payments to be made using airport rl:lVenUe, which would be

a 

### violation ofthe FAA 

### Policy andProcedures Concerning the 

# use ojAirp,Jr( 

### Reven.ue, 64 

### Fed. Reg. 7696 

### (February 16,1996) 

### (Revenue Use**Policy)~** 

### and discounlges the 

### airport from being involved directly in the 

### subsidy payment plan.

In a series ofquestions and answers regarding the pilot program, Docket 

### OST-2002- 11590, the DOT states,



### "It is our detemlil1ation that airports cannot use 

### airport revenues for direct air carrier subsidy and still be consistent with the FAA po.Jicy on revenue diversion. The city, county, or state airport owner may provide the :tir carrier subsidies, but from. non-airport funds. Ofcourse, c;harnber 

## 0:-

comm.erce groups and other business interests m.ay also provide tha'l type ofsubsidy. The airport, however, should not involve itselfin the 

### direct carrier s\l.bsidy, or even act as a 

### funnel for monetary contributiot:l.s b:{ 

### nonairport itlterests. The 

### airport may waive or discount fees to an airline for a 

### promotional period, but must do so in a non-discriminatory way. T(I 

### the extent that applicants intend to use airport revenues 

### as part oftheir proposal here, they should carefully review the proposed use ofthose funds against the FAA's policy guidelines on use ofairport revenue."



### We find no evidence to support your contention that Congress intended

- tbrough the DOT pilot program or any other

- to allow airport sponsors tl1e**n~xibility** 

### y)U are requesting in applying incentives to air carriers differently when using non- :J.irport funds. Marketing incentive programs

- even those in.centivc programs**aim~:d** 

### at increasing air carrier competition or encouraging low fare service

- must be**consist(~r.lt** 

### with the FAA's 

### Revenue Use Policy. the grant assurances, ru,d FAA's 

### Polic:v Regarding AirportRates and Charges, 61 Fed. Reg. 31994 (June 21, 1996).

We recognize that Congress does encourage new service and**incrl~ased** 

### competition. F

M'S 

### Revenue Use 

### Policy provides leeway for ai.rports to encourage new**s'~rvice** 

### through various marketing lllcenti.ve programs.

The City 

### ofWichita has already been given some 

### latitude in encouraging new service provided by AirTr.an in a May 8, 2002, agreement 

### in whi.ch the City providt::d direct**El.J~r** 

### carrier subsidies paid from**non~airport** 

### revenue sources. At that**time~** 

### we de:termined that no other air carrier was similarly situated to Air Tran in the route it 

### was serving. We advised the Airport Director that other similarly situated air c2LT.riers (i.e. 

### those bringing 

### in new service to destinations requested by the airport splJnsor) wOllld have to be given the same i.ncentives as AirTran.6464355684 CELEBRATION PAGE 1bf18 04/28/2008 16:46

6
Cgnclusion



### Grant assurance 22 requires the airport sponsor to ensure that 

### sir.a.ilarly sittated aeronautical enterpri.ses enjoy comparable economic conditions 'within which to operate.

Both AirTran and Delta Air Lines (Delta) are air carriers wishing to provide 

### continued schedu1ed service between Wichita and Atlanta. The FAA views these tw(, 

### air**calTic~s** 

### as similarly situated with 

### respect to this route. Treating these two similarl) situated :!lir carriers differently could constitute a violation ofgrant assurance: 22.

The arguments you present for differentiating AirTran from 

### Delt.a**l'egardi.nl~** 

### service C)n this route and fot' allowing the City to provide an economic bene:fit cxclusiHely to AirTran cannot be sustained.



### • The City ofWichita, through the Wichita Airport Authority, manag':s the airport and fUllctions as the airport sponsor.

• Air carriers cannot be treated differently under grallt 

### assw:ance 22 b.iSed on categories or classifications that are wlrelated to the air carr.iers' financial co.mmitment to the airport.

After considering the arguments raised and the additional informntion provlded, we continu.e to consider the Authority's agreement 

### with AirTran to be inconsisl ent with grant assurance 22. Economic Nondiscrimination, as a result ofp'?Jlmitting disparate economic conditions for similarly situated air carriers operating on the**sam~:** 

### route.

Please respond within 30 days explaining how the Authority will resolve this issue of unjust economic discrimination, and providing a timeline for resolution.

This letter is neither final agency action nor a final order ofthe Administrator under 49 U.S.C. § 

### 40101, et. 

### seq., OJ' 

### 49 U.S.C. § 

### 47101, ct. seq.

Ifyou have any questions, please contact me at (202) 267-3187**~** 

### or**Kathel'in~** 

### Baxter. Ajxport Compliance Analyst, at (202) 267-9024.

Char. es C. Erhard Manager, Airport CompUance Division

Cc: Mr. Bailis Bell. 

### Director ofAirports 

### Wichita Aitport Authority 

### 21 73 Air Cargo Road 

### Wichita, KS 67209AUG-02-2006 14:39 FROM: 

# o

U-S. Department ofIf.<lnsportation Federal Aviation Administration 

### AUG**~** 

### 20GB

Robert E. Colm, Esq. Hogan & Harton L.L.P. 555 13 th Street, N.W. Washington, D.C. 20004-1109

Arthur P, Berg, Esq_ Kaplan. Kirsch & Rockwell LLP 730 Fifth Avenue, Suite 900 New York, N.Y. 10019 TO:1 646 514 5440

soo Indopenc;lence Avo., S.w. WashlrlglOI1, D.C_ 20591

RE: Delta Air Lines' Informal Complaint Concerning Wichita's Air Carrier Subsidies to AirTran Ajrways. Inc.

Dear Messrs. Colm and Berg:

On July 22, 2003, Delta Air Lines, Inc. ("Delta") requested that the Federal Aviation Administration e'FAA"), Office ofAiq>orts. initiate an informal investigation concerning a transportation services agreemenl entered into on May 8, 2002 between the City ofWichita ("City" or "Wichita") and AirTran Airways, Inc. ("AirTrau"). The FAA agreed to infonnaUy investigate the City's revenue guarantees tUlder that agreement, and May 11,2004 and May 7, 2005 extensions oftlle agreement As part ofits investigation, the FAA met with Delta and the Cily, and participated in an exchange of correspondence on the legal and policy issues raised by the agreements. On Oelober 5, 2005, tbe FAA requested that each party submit a substantive leiter briefon the remaining legal issue of whether the City is Obligated under the terms ofAirport Improvement Program ( ""AIP") grants agreements. Thereafter. the partiers filed initial and reply**brief..~.**
Before the FAA completed its investigation, however, the Clty advised in a June 21. 2006 letter that the current tnmsportation services agreement between the City and AirTran expired on May 7. 2006, and that no futur.e agreements ofthis type are contemplated by the City. The City further advised lhat the recent establish.ment by the Kansas legislature ofan annual $5 million State Affordable Airfare Fund to provide annual grants to subsidize air carrier service

- and through the new fund, the replacement ofthe City by Sedgwick County in future agreements with Airiran

- moot the issue concerning the City;s revenue guarantees to AirTnm. In light ofthese developments, the City requests the FAA to close its infonnal investigation.

Upon review ofthe City's Jrule 21 letter. and consideration ofFederal law, FAA poJicies. and the record, the FAA concludes that the Wichita Airport Authority ("'Authority") is not currently in violation ofits grant assurances. Therefore, as explained below, the FAA hereby closes its infonllal investigation ofthe air carrier subsidies provided by the City to AirTran.AUG-02-2006 14:39 FROM: TO:1 646 514 5440

&ckground

On Febmary 28, 2002, the City entered into two-year revenue guarantee agreement with AirTran, under which the carrier provided air service to Atlanta and Chicago (etlcctive May 8, 2002) in exchange for a revenue guarantee based on cost ofservice. The agreement established with cap or $3 million for the first year and $1.5 million for the secoll(l 2

On July 22, 2003, Delta requested the FAA to initiate an infonnal investigation concerning the 2002 agreement. Delta alleged that the agreement violated the grant assurances and other Federal law, and that the City made payments of$3 million to AirTran between May 8, 2002, and April 30, 2003.

On November 18,2003, the FAA advised the Authority that it reviewed the agreement effective May 8, 2002 and determined that it was consistent with revenue use requirements. The FAA pointed out, however, that the promotional fee waiver or discount must be offered to a11 users wiHing to provide same type and level ofnew service, and that the sponsor may not permit one carrier to enjoy an exclusive benefit regardless ofhow the benefit is derived. The FAA warned the City that should another carrier choose to operate the same service in the same manner under the

same circumstances, the City could not lawfully deny that carrier same or similar passenger revenue guarantees.

On May 11,2004) the City council approved a one-year extension ofthe AirTran agreement through May 7, 2005, with a $2.5 million cap.

OnJuly 27,2004, Delta requested the FAA to initiate an investigation ofthc May 11,2004 Transportation Services Agreement between AirTran and City. Delta alleged that the new agreement was inconsistent with aviation law and policy and violated the grant assurances (exclusive rights, unjust discrimination, rates and charges policy). Delta advised that it had sought and was denied the ability to receive similar benefits tor service between Atlanta and Wichita. The carrier pointed out that at the time the agreement was signed, AirTran and Delta were similarly situated.

On August 11.2004, the FAA letter advised the Authority that it had received a second complaint from Delta and that the carrie..- requested similar incentives under the same program but was denied. The FAA advised that the May 11.2004 exclusive agreement resulted in economic discrimination in violation ofgrant assumnce no. 22. The FAA also advised that it considered the City and the Authority to be a single entity for purposes ofsponsorship ofAlP grants and related grant obligations. The FAA warned that the Authority may not permit one carner to receive a. benefit denied to another carrier under the same circumstances. The FAA requested the Authority to respond widlin 30 days explaining how it would resolve the issue and provide a timeline for resohllion.

On October 18, 2004. counsel for the City advised the FAA that it should reject Delta's claims because the AirTran agreement was between the City and AilTJ"'d.n and funded with City revenues. The City stated that the Authority was a separate entity from the City and was not a party to the agreement. The City further argUed that even ifthe City was subject to the unjust discrimination requirement. there was a reasonable basis for City to subsidize AirTran's new service while refusing to subsidize service by Delta. The City indicated that the Congress, through the u.s.AUG-02-2006 14:39 FROM: TO:1 646 514 5440

Department ofTransportation's ("DOT") Small Community Air Service Development Progra.m. recogniz.ed the reasonableness ofdistinguishing between legacy and new entrant, low-fare camers such as AirTran. As a result, Delta alleged that the Congress and DOT have recognized that it is
not unjustly discriminatory to distinguish between legacy and new entrant, low-cost carriers by providing the latter with financial assistance to promote increased air service and lower fares.

011 March 23, 2005, Delta wrote to the Authority advising that it had learned that the City was considering renewal ofits revenue guarantee to AirTran for a fourth year conunencing in May 3

2005, and that Delta desired a similar revenue guarantee. «There is no basis to discriminate in favor ofone carrier and not the other. We ask only that Delta be put On a level playing field with AirTran

as Grant Assurance 22 requires

...."

In an**April6~** 2005 letter to the City, the FAA affirmed its position tha.t the City and the Authority

are collectively and individually obligated by the grant assurances accepted by the Mayor. the City Manager, and the Director ofAirports as recipients ofAfP grant funds. The FAA also reiterated that the May 1t. 2004 agreement between the City and AirTran provided an economic benefit exclusively to one aeronautical user to the detriment**ofanothcr~** in apparent violation ofgrant

assurance no. 22, economic nondiscrimination. The agency also advised that the existence of DOT's Small Community Air Service Development Program did not ()Verride the requirements of the grant assurances accepted by sponsors. The FAA asked the City to respond within 30 days to advise how the unjust discrimination lssue would be resolved.

On May 7, 2005, an additional one-year extension to the transportation services agreement with AirTran became effective. The extension was approved by the Wichita City Council on ApTi119, 2005.

Ln an April 25, 2005, Dcltaurged the FAA to take immediate enforcement action, find that the Authority is in violation ofthe grant assurances, and issue an order dlrecting the Authority to cease and desist. Delta advised the FAA that the City had approved a new one-year extension to the

revenue guarantee agreement with AirTran.

On May 16, 200S. tile City replied to the FAA's April 6, 2005 letter. arguing that the City Council and ilie Airport Board were separate entities and the FAA has nojurisdiction over the City. The City alleged that the FAA aeted arbitrarily in disregarding the fact that the City Council acts as the City's legislative body and separately as the airport board. The City also argued that there was no unjust discrimination in awarding a subSidy to AirTran but not to Delta, and that the FAA should interpret grant assurances to permit discrimination between low-cost and legacy carriers.

On June l, 2005, Delta responded to the City's May 16.2005 letter, expressing its view that the FAA correctly found that the City and the Authority were one and the same for purposes of enforcing grant assurances. Delta also arb'lled that the Sarasota case had no relevance here because thal example involved the use ofallport revenue, and that for the past four years, the City has giyen
an exclusive subsidy to AirTran but has denied Delta a fair and equal opportunity to receive the

same subsidy. Delta opined that the subsidy amounts to an artificial market distortion which interferes with a competitive marketplace and provides significant economic advantage to AirTran
to Delta's detriment. Delta further argued that the City's attempt tojustify its discrimination by relying on the right ofsponsors to establish reasonable classifications has no me(it, and that the agreement violated both the discrimination and exclusive rights prohibitions in the grant assurances.AUG-02-2006 14:40 FROM: TO:1 646 514 5440

Finally, Delta submitted that the agreement also violated the Federal preemption provision, 49 U.S.C § 41713(b).

On October 5; 2005, the fAA requested that each party submit a substantive lettcr briefon this issue ofwhether the City is obligated under the tenns ofAlP grants agreements. In the lettcr, the FAA had advised that it still held the view that the Authority is part oftile Wichita City Government and that the Director ofAir.ports reports to the City Manager. The FAA therefore considered the City and the Authority to be a single entity for (he purposes ofsponsorship ofAlP grants and their related contractual obligations. The FAA concluded its letter by stating that it has
not accepted the fact that the transportation services agreement is with the City rather than the Authority as a defense for failure to comply with the sponsor's grant assurances. 4

On November 18, 2005, the City and Delta filed their letter briefs. The City expressed the view that under the U.S. Constitution. federal case law, and Kansas law, thc City and the Airport Authority are separate legal entities. The City urged the FAA to find that the Authority is a separate legal entity that has entered into the AlP grant. agreements with the FAA and that the assurances under the agreements do not apply to the City.

Delta alleged that the subsidy agreement violates the grant assurance probibitions against unjust discrimination and exclusive rights, and the Federal preemption provi.sion, 49 U.S.C. § 41713(b). Delta reallegcd that the Authority is not independent ofthe City, and is governed and controlled by the City. Delta noted that the record shows that the Mayor ofWichi.ta signed several ofthe grant agreements as the Authority's designated official representative. The carrier also argued that given the fact that the City by its own admission is the governing body ofthe Authority, and in light ofthe overlapping and interlocking relationships between the City and the Authority, the Authority calIDot avoid its grant assurance requirements "byhiding behind the artificial corporate veil wilen both the City and Authority arc effectively controlled by the same entities and individuals."

On December 22, 2005, the City and Delta filed their reply briefs. After addressing Delta's**argLiments~** the City cited an executive oTder encouraging Federal agencies to be deferential to states when taking action that affects the polieymaking discretion oftile states. The City also alleged that the FAA's position violates fundamental constitutional principles offederalism. Finally. the City argued that Delta's reliance on the Federal preemption provision is outside the scope ofthe FAA's request and has no merit.

Delta stated that while it may be true that the City and the Authority are distinct legal entities under
state law, the Authority played a significant role in the creation ofthe AirTran agreement and that thejuridical legal distinctions in practice have been blurred. Delta also reasserted past arguments including (hat the City is the governing body ofthe Airport and that the agreement violates the Fcderal preemption provision.

On May 7, 2006, the May 7,2005 one-year extension to the transportation services agreement with AirTran expired.

Analysis

As indicated in the record, the FAA has bad some significant concerns with the transportation services agreement entered into between the City and AirTrnn. Underthe agreement, the CityAUG-02-2006 14:40 FROM: TO:1 646 514 5440

promised to provide financial incentives to AirTran in exchange for providing scheduled air service between identified city pairs. The agreement

- in its various fbnns as it was renewed

- nlised a compliance issue with respect to the prohibition against unjust discrimination because it pennilled disparate economic conditions for similarly situated air carriers operating on the same route. The agreement also raised a compliance issue concerning the exclusive rights prohibition since it denied Delta the opportunity to provide service under the same conditions as guaranteed exclusively to AirTran. 5

The FAA was in the process offinalizing its investigation when it received the City's June 21,2006 letter, in which counsel for the City ofWichita advised that the last transportation services agreement between the City and AirTran expired on May 7, 2006; and that "no future agreement by the City is contemplate<t" Counsel for the City also advised that new Kansas state legislation moots the issue conceming revenue guarantees to AirTran by the City with either airport- or non-airporl

revenues. I According to the City, the state statute created an annual $5 million State Affordable Airfare Fund that provides annual grants to Regional Economic Area Partnerships to be used "to provide mOre air flight options, more competition for air travel an.d affordable airfares for Kansas, including a regional ailport in Western Kansas," House Substitute for SelL.1te Bill No. 475, "An act concerning economic development; creating the state affordable airfare fund to support certain**programs~** providing for certain studies and reports" § I (approved Apr. 18,2006). Counsel further advised that based upon a grant under tbe st.·tte statute, Sedgwick County has entered into a new transportation services agreement with AirTran, and that future agreements would continue to be entered into between the airline arld the County, not the City. The City ofWichita is situated within Sedgwick County. Counsel concludes by requesting the FAA to close its informal investigation of the City-AiTTran agreement.

Based upon the infonnation provided by the City, the FAA agrees that the outstanding legal issues relating to unjust discrimination and exclusive rights are now moot. The fact that (1) the current agreement has now expired, (2) counsel for the City represents that the City will no longer enter into such agreements, and (3) Sedgwick County, which is not an airport sponsor, has replaced the City as

a party in the agreements with AirTran, eliminates the outstanding compliance issues relating to unjust discrimination and exclusive rights. Since Sedgwick County is not an airport sponsor, it is not bound by the AlP grant assurance prohibitions against unjust discrimination and exclusive rights.

None oftho funding for the statc program should come from or be directed through the Authority'S accounts, and other Authority incentives should not be merged with the State program.

Because the current**tran.~portation** services agreement expired and the City has represented that it will no longer enter into such agreements with air carriers, there is 110 need for the FAA to make fonnal findings on the issues ofwhether or. not the City and the Authority arc separate entities, and whether the City (in addition to the Authority) is obligated under 1he grant assurances.

Based upon the City's June 211etter, Feder-allaw, FAA**policies~** and the record in this infonnal investigation, the FAA concludes that the Wichita Airport Authority is not currently in violation of

l When the FAA received the City's June 21, 2006 letter, its investigation had not yet been finalized. As a**result~** the agency had not yet made findings on whether the city revenue used to fund the agreement was airport revenue or non-airport revenue_AUG-02-2006 14:40 FROM: TO:1 646 514 5440

its grant assurances. 2 Therefore, as explained below. the FAA hereby closes its investigation ofthe legality ofthe transportation services agreement between the City and AirTran. 6

lfthe City were in the future to enter into another air transportation services agreement with AirTran (or another carrier) utili7.ing its own funds or funds from the stntc's affordable airfare fund program, and denied other air carriers a similar opportunity, the City's compliance with its grant assurance obligations would again be called into question.

Charles C. Erhard Manager Airport Compliance Branch Office ofAirports

2 The FAA Compliance Program is designed to aehiove voluntary compliance with federal obligations accepted by owners andlor operators ofpublic-use airports developed with FAA administered assistance. 1l1erefore, in addressing allegations of noncompliance, the FAA will make a detennination as to whether an airport sponsor is currently in compliance with the applicable federal obligations. Sec FAA Order S190_6A (Oct. 2, 1989),**~** 5- 1 and 5-I(b)(1)(the basis ofthe FAA's Compliance Prognun is "an educational effort to achieve voluntary compliance.").LANDING FEE WAIVER AGREEMENT

This LANDING FEE WAIVER AGREEMENT ("Agreement"), effective May 1, 2009 ("Effective Date") is between the PORT OF PORTLAND, a Port district ofthe State ofOregon ("Port"), and AIR CHINA CARGO COMPANY LTD, an entity incorporated in the People's Republic of China, and formerly doing business as Air China Limited, both foreign corporations authorized and in good standing to do business in the State ofOregon ("Airline").

RECITALS

A. The Port is the owner and operator ofthe Portland International Airport ("PDX"), located in Portland, Oregon.

B. Port and Airline are parties to a Signatory Cargo Carrier Operating Agreement (Port Agreement No. 2005-151), effective July 1, 2005 ("Lease") pursuant to which Airline provides scheduled international transoceanic air cargo service between PDX and Beijing, China, that is extremely important to the Port and the state of Oregon which is the ninth most trade dependent state in the United States ofAmerica.

C. Due to an unprecedented economic downturn resulting in what the Port anticipates will be a temporary reduction in demand for international air service, the Port has implemented a program to support carriers that provide this essential non-stop transoceanic service that will remain in effect for a period ofone (1 ) year; and

D. The Federal Aviation Administration has reviewed the Port's landing fee waiver
program. NOW, THEREFORE, the parties intending to be legally bound by the terms and conditions of this Agreement, and in consideration of the mutual covenants and the benefits accruing respectively to the Port and Airline, the Port and Airline agree as follows:
1. FEE WAIVERS

1.1 Landing Fee Waiver
The Port agrees to credit to Airline the value of all international transoceanic landing fees otherwise collectable pursuant to the Lease for a period of one (1) year, beginning May 1, 2009 ("Effective Date"). The Port will transfer funds from a Port Cost Center account to an Airline Cost Center account to ensure that the landing fee waiver will not impact the rates and charges of non-participating PDX carriers.

2. GOOD STANDING

In order to continue to qualifY for the landing fee waiver contemplated by this Agreement, the Airline must be in compliance with the Lease and all other agreements with the Port and shall be
current on all amounts owed the Port. In the event the Airline is in arrears with regard to rates, charges and other fees due the Port, the Port has the right to suspend or terminate the landing fee waivers, provided the Port first gives the Airline notice of such arrearage or failure to comply and allows the Airline no less than thirty (30) days to pay the arrearage or cure the failure to comply. Such notice shall contain reference to the Port's intention to terminate the landing fee

1 - Landing Fee Waiver Agreement Lcgal-ltdimarketingwh/Air China Fee Waiver Agreement f.docxwaivers under this Agreement if Airline fails to satisfy its payment obligations or effect the applicable cure. 3. FORCE MAJEURE
Ifthe performance by either ofthe parties oftheir respective obligations under this Agreement is delayed or prevented, in whole or in part, by any extraordinary act of terrorism, nature, explosion, epidemic, war, civil disorder, change in laws, or unexpected and unavoidable labor strike or material shortage that could not have been reasonably anticipated or avoided by the impacted party (collectively, "Force Majeure"), then that party shall be excused from performance of its obligations until the Force Majeure event has resolved without liability so long as performance occurs as soon as reasonably possible, to the extent performance can occur. 4. FEDERAL REQUIREMENTS
This Agreement is intended to satisfy the standards for airport incentive programs for promotion of air carrier service set forth in the Federal Aviation Administration's ("FAA") Statement of Policy and Procedures Concerning the Use ofAirport Revenue, 64 FR 7696, February 16, 1999.
5. MISCELLANEOUS PROVISIONS
5.1 Defined Terms Except as otherwise defined herein or where the context clearly requires otherwise, all capitalized terms used in this Agreement shall have the meanings given such terms in the Lease.
5.2 Entire Agreement Except as expressly provided in this Agreement, all of the terms and conditions of the Agreement shall remain in full force and effect.
5.3 The Law ofOregon
This Lease shall be governed, construed and enforced in accordance with the laws of the State of Oregon. Jurisdiction shall be with Multnomah County Courts or the Federal Court located in Portland, Oregon.
5.4 Counterparts
This Agreement may be executed in separate counterparts, each ofwhich is deemed to be

an original and all ofwhich taken together constitute one and the same agreement.
5.5 Assignment
This Agreement is personal to each ofthe Port and Airline and shall not be assigned.
5.6 Severability
Should any provision of this Agreement be found to be illegal or unenforceable, it is the intent ofthe parties that the remainder ofthis Agreement shall remain in full force and effect.
5.7 Notices

All notices required or desired to be given under this Agreement shall be in writing and may be delivered by electronic mail or facsimile followed by hard copy versions in the international post. Notices sent by post shall be addressed as follows:

To the Port:

2 - Landing Fee Waiver Agreement Legal-ltd/marketingwh/Air China Fce Waiver Agreement f.docxand to the Airline: The Port ofPortland 7000 N.E. Airport Way Portland, OR 97218 Attn: General Manager, Air Service Development

Air China Cargo Company, LTD No. 46, Xiaoyun Road Chaoyang District, Beijing lO0027, P.R. China

Any notice delivered by personal delivery shall be deemed received by the addressee upon actual delivery; any notice delivered by mail as set forth in this Agreement shall be deemed received by the addressee on the third (3 rd) Business Day after deposit. The addresses to which notices are delivered may be changed by giving notice of such change in accordance with this notice provision.
5.8 Survival Any covenant, condition, representation or warranty contained herein shall survive the expiration or earlier termination ofthis Agreement and shall remain fully enforceable thereafter
5.9 Modification Any modification of this Agreement shall not be valid unless reduced to writing and executed by the parties hereto.
5.10 Amendments

The parties may mutually agree to amend this agreement in writing.
5.11 Third Party Beneficiaries Nothing in this Agreement gives or shall be construed to create a benefit to any party who is not a signatory party to this Agreement.

IN WITNESS HEREOF, the parties have subscribed their names hereto effective as of the year and date first written above.

AIR CHINA CARGO COMPANY LTD

By:

Print Name:

As Its:

Date:

3 - Landing Fee Waiver Agreement Legal-ltdlmarketingwh/Air China Fcc Waiver Agreement fdocx 

### APPROVED AS TO LEGALSUffiCIENCY

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