Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 31993

The 1996 Guaranteed Access Level (GAL)

for Categories 342/642 remains unchanged.

The GALs for textile products in the

following categories shall be increased:

Category Guaranteed Access

Level

338/638 .................... 2,150,000 dozen.

339/639 .................... 2,150,000 dozen.

The Committee for the Implementation of

Textile Agreements has determined that

these actions fall within the foreign affairs

exception of the rulemaking provisions of 5

U.S.C. 553(a)(1).

Sincerely,

Troy H. Cribb,

Chairman, Committee for the Implementation

of Textile Agreements.

[FR Doc. 96–15842 Filed 6–20–96; 8:45 am]

BILLING CODE 3510–DR–F

Adjustment of Import Limits for Certain

Cotton and Man-Made Fiber Textile

Products Produced or Manufactured in

Nepal

June 18, 1996.

AGENCY: Committee for the

Implementation of Textile Agreements

(CITA).

ACTION: Issuing a directive to the

Commissioner of Customs adjusting

limits.

EFFECTIVE DATE: June 19, 1996.

FOR FURTHER INFORMATION CONTACT:

Janet Heinzen, International Trade

Specialist, Office of Textiles and

Apparel, U.S. Department of Commerce,

(202) 482–4212. For information on the

quota status of these limits, refer to the

Quota Status Reports posted on the

bulletin boards of each Customs port or

call (202) 927–5850. For information on

embargoes and quota re-openings, call

(202) 482–3715.

SUPPLEMENTARY INFORMATION:

Authority: Executive Order 11651 of March

3, 1972, as amended; section 204 of the

Agricultural Act of 1956, as amended (7

U.S.C. 1854).

The current limits for certain

categories are being adjusted for special

shift.

A description of the textile and

apparel categories in terms of HTS

numbers is available in the

CORRELATION: Textile and Apparel

Categories with the Harmonized Tariff

Schedule of the United States (see

Federal Register notice 60 FR 65299,

published on December 19, 1995). Also

see 60 FR 62410, published on

December 6, 1995.

The letter to the Commissioner of

Customs and the actions taken pursuant

to it are not designed to implement all

of the provisions of the bilateral

agreement, but are designed to assist

only in the implementation of certain of

its provisions.

Troy H. Cribb,

Chairman, Committee for the Implementation

of Textile Agreements.

Committee for the Implementation of Textile

Agreements

June 18, 1996.

Commissioner of Customs,

Department of the Treasury, Washington, DC

20229.

Dear Commissioner: This directive

amends, but does not cancel, the directive

issued to you on November 29, 1995, by the

Chairman of CITA. That directive concerns

imports of certain cotton and man-made fiber

textile products, produced or manufactured

in Nepal and exported during the twelvemonth period which began on January 1,

1996 and extends through December 31,

1996.

Effective on June 19, 1996, you are directed

to adjust the limits for the following

categories, as provided for in the current

agreement between the Governments of the

United States and the Kingdom of Nepal:

Category Twelve-month limit 1

336/636 .................... 218,569 dozen.

340 ........................... 361,280 dozen.

341 ........................... 901,769 dozen.

640 ........................... 91,312 dozen.

1The limits have not been adjusted to account for any imports exported after December

31, 1995.

The Committee for the Implementation of

Textile Agreements has determined that

these actions fall within the foreign affairs

exception to the rulemaking provisions of 5

U.S.C. 553(a)(1).

Sincerely,

Troy H. Cribb,

Chairman, Committee for the Implementation

of Textile Agreements.

[FR Doc.96–15843 Filed 6–20–96; 8:45 am]

BILLING CODE 3510–DR–F

OFFICE OF THE UNITED STATES

TRADE REPRESENTATIVE

Commission ON United States—

Pacific Trade and Investment Policy/

Office of the United States Trade

Representative

Notice of Meeting of the Commission

on United States Pacific Trade and

Investment Policy

AGENCY: Commission on United States—

Pacific Trade and Investment Policy/

Office of the United States Trade

Representative.

ACTION: Notice that the June 26, 1996,

meeting of the Commission on United

States—Pacific Trade and Investment

Policy will be held from 7:30 a.m. to

6:30 p.m. The meeting will be closed to

the public from 7:30 a.m. to 8:45 a.m.

and from 11:30 a.m. The meeting will be

open to the public from 8:45 a.m. to

11:30 a.m.

SUMMARY: The Commission on United

States—Pacific Trade and Investment

Policy will hold a meeting on June 26,

1996, from 7:30 a.m. to 6:30 p.m. The

meeting will be closed to the public

from 7:30 a.m. to 8:45 a.m. and from

11:30 a.m. to 6:30 a.m. to 6:30 p.m. The

meeting will include a review and

discussion of current issues affecting

U.S. trade policy with Asia. Pursuant to

Section 2155(f)(2) of Title 19 of the

United States Code, the USTR has

determined that this portion of the

meeting will be concerned with matters

the disclosure of which would seriously

compromise the development by the

United States Government of trade

policy, priorities, negotiating objectives

or bargaining positions with respect to

the operation of any trade agreement

and other matters arising in connection

with the development, implementation

and administration of the trade policy of

the United States. The meeting will be

open to the public and press from 8:45

a.m. to 11:30 a.m. At this time the

Commission will continue the study

phase of its work and consider: The role

of technology in our trade and

investment policy with the Pacific

region. Attendance during this part of

the meeting is for observation only.

Individuals who are not members of the

Commission will not be invited to

comment.

DATES: The meeting is scheduled for

June 26, 1996, unless otherwise notified.

ADDRESS: The meeting will be held at

Applied Materials, Inc., Bowers

Campus, Building 12, 3225 Oakmead

Village Drive, Santa Clara, CA 95054,

unless otherwise notified.

FOR FURTHER INFORMATION CONTACT:

Nancy Adams, Executive Director of the

Commission on United States—Pacific

Trade and Investment Policy, Room 400,

600 17th Street, NW, Washington, D.C.

20508, (202) 395–9679.

Nancy Adams,

Executive Director, Commission on United

States—Pacific Trade and Investment Policy.

Jeffrey Lang,

United States Trade Representative, Acting.

[FR Doc. 96–15910 Filed 6–20–96; 8:45 am]

BILLING CODE 3190–01–M
31994 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

DEPARTMENT OF TRANSPORTATION

Office of the Secretary

Federal Aviation Administration

[Docket No. 27782]

RIN 2120–AF90

Policy Regarding Airport Rates and

Charges

AGENCY: Department of Transportation,

Office of the Secretary and Federal

Aviation Administration.

ACTION: Policy statement.

SUMMARY: This document announces

Department of Transportation

(‘‘Department’’) policy on the fees

charged by Federally-assisted airports to

air carriers and other aeronautical users.

The statement of policy (‘‘Final Policy’’)

was required by the Federal Aviation

Administration Authorization Act of

1994, Public Law 103–305 (August 23,

1994). This statement of policy replaces

in its entirety the statement of policy

published in the Federal Register on

February 3, 1995 (‘‘Interim Policy’’).

This statement of policy incorporates a

substantial modification in the approach

of the Interim Policy to determining the

reasonableness of fees for facilities other

than the airfield and public use

roadways. In other respects, the

approaches of the two policies are

similar. The Department proposed the

referenced modification in a notice

published in the Federal Register on

September 8, 1995 (‘‘Supplemental

Proposed Policy’’). The Final Policy is

not significantly revised from that

proposed in the September 8 notice.

DATES: This policy is effective June 19,

1996. This agency action is a statement

of policy that relaxes restrictions

imposed on airport proprietors by the

Interim Policy. The Final Policy does

not itself impose additional burdens on

airlines and other airport users and does

not require airport proprietors to impose

such burdens.

FOR FURTHER INFORMATION CONTACT:

David L. Bennett, Director, Office of

Airport Safety and Standards, Federal

Aviation Administration, 800

Independence Ave. SW., Washington,

DC 20591, telephone (202) 267–3053;

Barry L. Molar, Manager, Airports Law

Branch, Office of the Chief Counsel,

Federal Aviation Administration, 800

Independence Avenue, SW.,

Washington, DC 20591, telephone (202)

267–3473.

SUPPLEMENTARY INFORMATION:

Summary of Policy Statement

The Final Policy requires that fees for

the use of the airfield and public-use

roadways be established on the basis of

costs, and it provides detailed guidance

on how costs are to be determined and

applied to establish fees. Airfield assets

must be valued at their historic cost to

the original airport proprietor (‘‘HCA

value’’). The cost-of-service approach is

comparable to common practice in

setting fees for regulated public utilities.

This approach also reflects the nearly

universal practice of establishing fees

for the use of the airfield at commercial

service airports. Even when airfield fees

are set by agreement, the agreement

usually reflects a cost-of-service

approach. The terms of such agreements

generally govern how costs will be

calculated.

In formulating the Final Policy, the

Department has considered and

recognized as reasonable practices that

have generally been accepted by

industry participants as producing

reasonable results. The Final Policy

does not seek to disturb those practices.

In the case of the airfield and public use

roadways, industry practice—HCAbased fees—is the approach supported

by aeronautical users as most beneficial

to them. For other facilities and

services, the Final Policy adopts a

different approach.

For those other aeronautical facilities,

the Final Policy permits fees to be set by

any reasonable method. Fees for such

facilities and services are generally

established through direct negotiations

with individual users. In these

negotiations, cost, as defined for

reasonable airfield fees, is usually but

one of a number of considerations

affecting the fees. In the Department’s

experience, this negotiating process has

in almost all cases produced reasonable

and non-controversial results. The

Department expects that these

negotiations will continue to produce

reasonable results in all but exceptional

situations. The Department has,

therefore, adopted a more flexible

approach to nonairfield fees to preserve

the discretion of airport proprietors and

aeronautical users to negotiate the terms

for using nonairfield facilities.

The Final Policy also reflects the

Department’s preference for direct

negotiation of fee issues between airport

proprietors and airport users.

Accordingly, the first of the five

fundamental principles listed in the

Final Policy states the Department’s

preference for direct negotiation and

resolution. In addition, most of the

detailed guidance on establishment of

airfield fees need not be followed if

airfield users have agreed to a different

practice.

The Final Policy retains the structure

of the Supplemental Proposed Policy

and the Interim Policy. The Final Policy

begins with a statement of applicability,

and is then organized into five general

principles with supporting guidance for

each.

As noted above, the first principle

states the Department’s preference for

direct local negotiation between airport

proprietors and aeronautical users.

The second principle restates the legal

requirement that rates, fees and charges

to aeronautical users must be fair and

reasonable, with more detailed guidance

on the practices and restrictions that

define ‘‘fair and reasonable.’’ The

detailed guidance applies for the most

part to fees charged to aeronautical

users for airfield facilities and publicuse roadways. For other aeronautical

facilities, the policy permits fees to be

established using any reasonable

methodology. Department oversight of

these fees focuses on monitoring for

progressive accumulation of surplus

aeronautical revenue. For the airfield

and public-use roadways, the policy

incorporates, among other things, the

following: flexibility to deviate from the

policy guidance based on agreement

with airfield users; recognition that both

compensatory and residual pricing

approaches are legitimate; standards for

the valuation of airfield property;

prescription of the kinds of costs that

can be reflected in the airfield rate base;

and guidance on subsidization of other

airports. The Final Policy makes certain

distinctions in the reasonable

accommodation of air carriers versus

other aeronautical users. The Final

Policy does not establish standards for

fees paid by nonaeronautical users or

limit the amount of revenues generated

by nonaeronautical fees.

The third principle restates the legal

prohibition on unjustly discriminatory

rates and charges. Guidance identifies

some practices that are required to avoid

unjust discrimination and some

practices that not considered to be

unjustly discriminatory.

The fourth principle restates the legal

obligation to maintain a fee and rental

structure that makes the airport as selfsustaining as possible under the

circumstances existing at the airport.

Supplemental guidance encourages the

sponsor of an airport that is not

currently self-sustaining to establish

long-term goals and targets to make the

airport financially self-sustaining. The

self-sustainability requirement must be

included in each sponsor’s grant

assurances pursuant to statute and is
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 31995

subject to enforcement by the FAA in

accordance with its grant compliance

procedures. However, the Department

will not consider on the merits a

complaint as to the reasonableness of an

airport fee based solely on alleged noncompliance with the self-sustainability

requirement. A complaint about

compliance with the self-sustainability

requirement would be considered by the

FAA under its administrative complaint

procedures.

The guidance under this principle

provides that the Department may

investigate the reasonableness of

aeronautical fees in a case of progressive

accumulation of surplus aeronautical

revenue.

The fifth principle restates the basic

legal requirements for the application

and use of airport revenues.

Supplemental guidance has been

proposed in the Notice of Proposed

Policy and Procedures Concerning the

Use of Airport Revenue published at 61

FR 7134 (February 26, 1995).

Finally, the Department is willing to

consider arguments that specific

provisions of the policy should not

apply to a particular airport fee due to

unusual circumstances in the context of

a proceeding to review that fee. See Los

Angeles International Rates Proceeding

(‘‘LAX I’’), Order 95–6–36, at 16 (June

30, 1995); Second Los Angeles

International Airport Rates Proceeding

(‘‘LAX II’’), Order 95–12–33, at 15

(December 22, 1995).

Background

Two federal statutes have long

imposed a reasonableness requirement

on the fees charged aeronautical users

by airports. When an airport accepts

Federal grant money for an airport

improvement, it must give certain

assurances, including the assurance that

the airport will be available for public

use on fair and reasonable terms

without unjust discrimination. Section

511 of the Airports and Airways

Improvement Act of 1982, (‘‘AAIA’’),

recodified as 49 USC § 47107. This

assurance includes an obligation to

charge aeronautical users of the airport

only reasonable fees. Similarly, section

113(b) of the Federal Aviation Act, the

Anti-Head Tax Act, recodified as 49

USC § 40116, allows a publicly-owned

airport authority to collect only

reasonable landing fees and charges

from airlines using airport facilities. See

Northwest Airlines v. County of Kent

(‘‘Kent County’’), 114 S.Ct. 855 (1994).

These statutes, however, do not

authorize the Department to regulate the

reasonableness of fees charged nonaeronautical users.

Airport fees and revenues are subject

to other legal requirements as well.

Section 511 of the AAIA also bars

airports, except for certain

grandfathered airports, from diverting

airport revenue to nonairport purposes.

49 USC § 47107(b). Section 511 also

requires each airport to provide

assurances that the airport will maintain

a fee schedule that will make the airport

as self-sustaining as possible under the

circumstances existing at the airport. 49

USC § 47107(a)(13). In addition, the

Chicago Convention and many of the

United States’ bilateral air services

agreements obligate the United States to

ensure that airports charge foreign

airlines the same fees as the U.S.

airlines that operate similar services.

On June 9, 1994, the Office of the

Secretary of Transportation (‘‘OST’’) and

the Federal Aviation Administration

(‘‘FAA’’) issued two related notices on

the subject of Federal requirements for

airport rates and charges. The

Department took this action largely in

order to better implement its

responsibility to enforce the reasonable

fee requirements. A notice of proposed

policy entitled ‘‘Proposed Policy

Regarding Airport Rates and Charges’’

listed and explained the principles that

the Department believes define Federal

policy on the rates and fees that an

airport proprietor can charge to

aeronautical users of the airport. Docket

No. 27782 (59 FR 29874, June 9, 1994).

Notice 94–18, a notice of proposed

rulemaking entitled ‘‘Rules of Practice

for Federally Assisted Airports,’’

proposed detailed procedures for the

filing, investigation, and adjudication of

complaints against airports for alleged

violation of Federal requirements

involving fees and other airport-related

requirements. Docket No. 27783 (59 FR

29880, June 9, 1994).

The FAA Authorization Act of 1994,

Public Law 103–305 (‘‘1994

Authorization Act’’) was signed into law

on August 23, 1994. Section 113 of that

legislation, 49 U.S.C. § 47129,

specifically addresses airport fees.

Section 47129 directs the Secretary of

Transportation (‘‘Secretary’’) to

determine whether an airport fee

imposed on an air carrier is reasonable,

upon written request by the airport

proprietor or upon complaint filed by an

affected carrier within 60 days after the

carrier receives written notice of the

establishment or increase of the fee. 49

USC § 47129(a)(1). An airport fee subject

to section 47129 ‘‘may be calculated

pursuant to either a compensatory or

residual fee methodology’’ or a

combination thereof. 49 U.S.C.

§ 47129(a)(2). Further, in determining

the reasonableness of a fee, the

Department ‘‘may only determine

whether the fee is reasonable or

unreasonable and shall not set the level

of the fee.’’ 49 USC § 47129(a)(3).

Section 47129 also directs the

Secretary to publish in the Federal

Register final regulations, policy

statements or guidelines establishing (1)

procedures for acting on written

requests or complaints; and (2) ‘‘the

standards or guidelines that shall be

used * * * in determining under

[section 47129] whether an airport fee is

reasonable.’’ 49 USC § 47129(b)(1),(2).

Pursuant to 49 USC 47129(e), the

section does not apply to : (1) a fee

imposed pursuant to a written

agreement with air carriers; (2) a fee

imposed ‘‘pursuant to a financing

agreement or covenant entered into

prior to the date of enactment of [section

47129];’’ or (3) any other existing fee not

in dispute on the date of enactment. In

addition, nothing in section 47129 shall

adversely affect: (1) the rights of any

party under an existing written

agreement between an air carrier and

the airport proprietor; or (2) the ability

of the airport to meet its obligations

under a financing agreement, or

covenant that is in force on the date of

enactment. 49 USC § 47129(f).

In response to provisions in the 1994

Authorization Act, the Department

issued a supplemental notice of

proposed policy with revisions to reflect

relevant provisions of that legislation.

Docket No. 27782 (59 FR 51835, October

12, 1994).

After reviewing all comments

received in response to the notices, the

OST and the FAA, on January 30, 1995,

issued a ‘‘Policy Regarding Airport

Rates and Charges,’’ the Interim Policy,

and requested further public comment.

Docket No. 27782 (60 FR 6906, February

3, 1995). Two airport owners are seeking

judicial review of the Interim Policy.

City of Los Angeles et al. v. U.S.

Department of Transportation et al.,

D.C. Cir. Nos. 95–1188 and 95–1190

(argued March 4, 1996).

After reviewing the comments

received in response to the February 3

request for comments, the OST and the

FAA published on September 8, 1995 a

supplemental notice of proposed policy,

the Supplemental Proposed Policy.

Docket No. 27782 (60 FR 47012).

The procedural rules required by

section 47129(b)(1) were published in

the Federal Register on the same date as

the Interim Policy. Docket No. 49830 (60

FR 6919, February 3, 1995). The 1994

Authorization Act also required that the

Secretary issue a statement of policies

and procedures for the enforcement of

Federal restrictions on the use of airport

revenue. On February 20, 1996, the FAA
31996 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

issued a Notice of Proposed Policy and

Procedures Concerning the Use of

Airport Revenue. Docket No. 28472 (61

FR 7134, February 26, 1996).

Comments on the Supplemental

Proposed Policy

The Department received more than

50 comments on the Supplemental

Proposed Policy. Comments were

received from almost all segments of the

aviation community, including: airport

operators and representative

organizations; associations representing

U.S. and foreign air carriers and

commuter airlines; representatives of

other aeronautical businesses at

airports; general aviation

representatives; a representative of

airport concessionaires; individuals

with experience in airport operations;

and a law firm. In addition, the

Department held two public meetings to

solicit public input on the

Supplemental Proposed Policy.

Verbatim transcripts of the meetings

have been included in the docket of this

proceeding.

The two major US representative

organizations for airport operators—

Airport Operators Council International/

North America (‘‘ACI’’) and American

Association of Airport Executives

(‘‘AAAE’’)—filed joint comments. Many

individual airport operators endorsed

the joint comments of their

representative organizations, but some

larger airport operators commented

independently. Many airport operators’

comments were similar, and all of the

comments tended to focus on a common

group of issues.

On the airline side, the Air Transport

Association of America (‘‘ATA’’) and

Regional Airline Association (‘‘RAA’’)

filed joint comments. These comments

and those of the International Air

Transport Association (‘‘IATA’’) also

tended to focus on the same issues and

generally took the same position.

Accordingly, the following discussion

of comments is organized by issue, not

by commenter. Issues are discussed in

the order they arise in the Final Policy.

Airport proprietors and their

representatives who took the same

position on an issue are collectively

referred to as ‘‘airport proprietors.’’

ATA/RAA and IATA are referred to as

‘‘carriers’’ when the organizations took

common positions. The summary of

comments is intended to represent the

general divergence or correspondence in

industry views on various issues. It is

not intended to be an exhaustive

restatement of the comments received.

All comments received were considered

by the Department, even if not

specifically identified in this summary.

After the comment period closed,

ACI/AAAE filed reply comments to the

comments filed by ATA/RAA. ATA/

RAA in turn objected to the reply

comments. ATA/RAA requested that the

Department reopen the comment period

to allow for the filing of reply comments

generally, if we accepted the ACI/AAAE

reply. The Department has accepted the

reply comments for the record.

However, we determined that reopening

the comment period was not necessary

because ACI/AAAE’s reply comments

were largely repetitions of arguments

presented in earlier comments. In no

case are the reply comments the sole

basis for any decision.

In addition to specific changes noted

in the discussion of the issues, the

Department has made editorial changes

throughout the Final Policy to enhance

readability and clarity.

The Department’s Authority to Regulate

Aeronautical Fees

As noted above, airports have been

required by two Federal statutes—the

AAIA and the Anti-Head Tax Act—to

charge only reasonable fees to

aeronautical users. The Department has

the responsibility for enforcing these

requirements, and the courts have held

that a Department decision on the

reasonableness of an airport fee is

entitled to substantial deference. Kent

County, 114 S.Ct. at 864, n. 14; New

England Legal Foundation v.

Massachusetts Port Authority, 883 F.2d

157, 169 (1st Cir. 1989). Section 113 of

the 1994 Reauthorization Act, codified

as 49 USC § 47129, requires the

Department to resolve significant

disputes over the reasonableness of new

or increased airport fees on an

expedited basis. In that statute Congress

also required the Secretary to establish

standards for determining the

reasonableness of an airport fee.

Congress did not limit the Secretary’s

discretion in any way, except by stating

that the Department may not actually set

an airport fee.

Given the statutory authority vested

in the Secretary, we find that we are

empowered both to adopt the guidelines

contained in this Final Policy and, in

cases heard under section 47129, to

examine the fee methodology used by

an airport. See LAX I, Order 95–6–36 at

14–15.

ACI/AAAE argue that we must give an

airport’s fee judgments a presumption of

validity, since the decisions of state and

local governments are normally entitled

to such a presumption. The Final

Policy, however, gives airport

proprietors substantial discretion in

establishing a fee structure. In addition,

the airlines challenging an airport fee

have the burden of proof. LAX I, Order

95–6–36 at 17–18. We do not agree that

we should include an additional

presumption in favor of airport

judgments on fees in the final Policy.

There is a substantial Federal interest in

ensuring that aeronautical users pay

only reasonable fees, as shown by

Congress’ directive that we determine

on an expedited basis whether such fees

are reasonable when carriers file

complaints against new or increased

airport fees that meet the jurisdictional

requirements of section 47129.

Congress’ requirements that we publish

guidelines for determining the

reasonableness of airport fees further

indicates that we should carefully

examine an airport’s fee methodology

without presuming that the airport’s

judgment is likely to be correct.

We also note that we did not use such

a presumption in the two LAX cases or

in our earlier investigation of fees

charged by the Massachusetts Port

Authority (‘‘Massport’’) under its PACE

program. Investigation into Massport’s

Landing Fees, FAA Docket 13–88–2,

Opinion and Order (December 22, 1988)

(‘‘Massport Order’’), aff’d New England

Legal Foundation v. Massachusetts Port

Authority, 883 F.2d 157 (1st Cir. 1989).

1. Applicability to General Aviation and

Foreign Air Carriers

The Supplemental Proposed Policy

would apply to aeronautical uses of any

airport, including a general aviation

airport. However, the Department

proposed to take into account

differences in methodologies and

mechanisms that airport proprietors

may use to charge for different facilities

and for different category of users.

Proposed Applicability of Policy,

section A. The Department also

proposed that, at airports where fees

high enough to achieve selfsustainability would be too high to

permit viable commercial operations,

the Department would not object to

lower fees to assure that the public had

access to commercial aeronautical

services. Proposed para. 4.1.2. In the

explanatory statement, the Department

proposed to add language clarifying that

in situations not covered by section

47129, the FAA would apply the policy

in its role as administrator of grants

under the Airport Improvement Program

(‘‘AIP’’), assuring that an AIP grant

applicant is in compliance with its grant

assurances. The FAA would not provide

a forum for resolving private disputes.

Airport proprietors: Airport

proprietors generally oppose application

of the policy to general aviation airports

and to general aviation facilities. ACI/

AAAE consider the Supplemental
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 31997

Proposed Policy to be an improvement

over the interim policy. However, a

policy is not needed for general aviation

airports and facilities because section

47129 was enacted to respond to airline

concerns. If the Department disagrees,

ACI/AAAE prefer a separate policy.

Some individual airport proprietors

argue that the terms of section 47129

preclude adoption of a policy applicable

to any fees except those charged to air

carriers and not otherwise excluded by

the terms of section 47129. The

provisions of section 47129 indicate a

belief by Congress that, to minimize the

adverse effects of Departmental

involvement, certain aeronautical fees

should be completely exempt from

challenge. Others argue only that such

an extension is unwise, based on the

differences between commercial service

and general aviation airports.

In addition, some airport proprietors

object to the application of the policy

and the expedited procedures to

complaints brought by foreign air

carriers on the same grounds.

General aviation: The Aircraft Owners

and Pilots Association (‘‘AOPA’’)

explicitly objects to exclusion of general

aviation airports from the scope of the

policy, and the National Air

Transportation Association (‘‘NATA’’)

supports applying at least some

elements of the policy to general

aviation airports.

Other commenters: One individual

commenter observed that at many

compensatory airports, general aviation

pays less than its allocated costs and is

subsidized by airlines and their

passengers, who suffer congestion

caused by these below-cost fees.

The Final Policy: The Final Policy

statement applies to general aviation

airports and fees charged to general

aviation users. However, in response to

the comments, we have exercised our

discretion to further limit the

circumstances in which we will

consider a complaint about the

reasonableness of fees imposed at a

general aviation airport. In addition, the

Department reaffirms its earlier decision

that foreign air carriers have the same

rights as U.S. air carriers under section

47129.

As noted in the preamble to the

Supplemental Proposed Policy, the

Department has ample authority under

other provisions of the Airport and

Airway Improvement Act of 1982, as

amended (‘‘AAIA’’)—49 USC

§§ 47107(a), 47122—to adopt policies

and guidance defining reasonable fees to

be charged by general aviation airports

and for general aviation use of

commercial service airports. We find

nothing in the statute that exempts fees

imposed for general aviation uses of any

airport from the requirement that airport

proprietors charge all aeronautical users

reasonable and not unjustly

discriminatory fees. The commenters

have not provided any other persuasive

reason for using one set of standards to

judge the reasonableness of landing fees

charged to air carriers and a different set

of standards to judge the reasonableness

of landing fees charged to other users.

However, as noted previously, the

Department recognizes that airport

proprietors, especially proprietors of

general aviation airports, may use

different methods for setting fees for

general aviation users than those

commonly used for setting fees paid by

airlines. The Department reiterates its

commitment to apply the policy flexibly

in evaluating general aviation fees. The

narrowing of the detailed guidance on

establishing fees to the airfield and

public-use roadways should itself

provide increased flexibility to general

aviation airports over the Interim Policy.

Even as to the airfield, the Department

does not anticipate that application of

the policy will be unduly burdensome.

The Department understands that many

general aviation airports operate at a

loss, calculated according to generally

accepted accounting principles. By

definition, such airports are not

generating excessive surpluses. The

Department would not expect such

airports to increase their losses by

paying for sophisticated cost allocation

and accounting systems to prove that

they are losing money. Similarly, the

Department understands that many

airport proprietors apply a single

charge, e.g., a fuel flowage fee, to

general aviation users for their use of all

aeronautical facilities. The Department

does not intend to disturb this practice.

Further, a charge that covers the cost of

providing nonairfield facilities would be

evaluated under paragraph 2.6 of the

Final Policy, as discussed below.

The Department notes the concern

that general aviation users are being

subsidized by other users at many

airports. The Department emphasizes

that an airport proprietor generally may

not charge any aeronautical user or user

group more than its allocated costs

based on a reasonable, transparent and

not unjustly discriminatory cost

allocation methodology. Our general

approach in this policy is to refrain from

disturbing common and noncontroversial industry practice.

Therefore, the Department will not

object when an airport proprietor

charges particular user groups less than

their allocated costs, if other

aeronautical users are not required to

finance the shortfall. The applicable

Federal requirements do not compel

airport proprietors to set fees so high

that they become a financial bar to the

use of the airport.

The Department is making three

modifications to the Final Policy in

response to concerns raised in the

comments. First, we will strengthen the

language of the applicability section that

distinguishes the FAA’s role in

processing complaints about general

aviation fees from the Department’s role

in processing complaints under section

47129. Second, because the threat of

unreasonably high fees is remote at most

general aviation airports, the Final

Policy provides that the FAA will not

ordinarily undertake an investigation of

the reasonableness of a general aviation

airport’s fees absent evidence of a

progressive accumulation of surplus

aeronautical revenues. The general

aviation airport segment of the industry

should not be burdened with the cost of

developing sophisticated accounting

systems to address a problem that will

occur, rarely, if at all. An allegation of

unjust discrimination would be

considered by the FAA in accordance

with the Final Policy. Third, proposed

par. 3.4.1 would require common costs

to be allocated ‘‘according to a

reasonable, transparent and not unjustly

discriminatory cost allocation formula’’

that meets the conditions specified in

that paragraph. Because many smaller

airports cannot afford to develop

sophisticated cost allocation formulae,

the reference to ‘‘cost allocation

formula’’ is being modified to ‘‘cost

allocation methodology.’’ If the airport

proprietor elects to develop a cost

allocation formula, the formula must

meet the conditions specified in that

paragraph.

As to the application of the policy to

foreign airlines, the relevant statutes

make it clear that the policy must apply

equally to U.S. and foreign airlines.

First, we are adopting the Final Policy

primarily because Congress directed us

in 49 USC § 47129 to establish

guidelines or standards for determining

the reasonableness of a new or increased

airport fee in cases heard under that

statute. The Department analyzed the

statute’s applicability and determined in

LAX I that 49 USC § 47129 must be read

as giving foreign airlines the same right

as U.S. airlines to file complaints and

obtain relief. Order 95–6–36 at 53–56.

We reaffirmed that determination in

LAX II. Order 95–12–33 at 52. Since

section 47129 is the principal basis for

the adoption of the Final Policy, the

Final Policy must apply to foreign

airlines.

Even if Section 47129 did not cover

foreign airlines, the Final Policy would
31998 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

have to govern the assessment of the

reasonableness of fees charged to foreign

airlines. The airport grant statute

specifically requires the Department to

obtain assurances from each airport

sponsor obtaining federal funds that the

airport will not unjustly discriminate

against any aeronautical user. 49 USC

§ 47107(a)(1). This provision requires an

airport to charge foreign airlines the

same fees as similarly situated U.S.

airlines. In addition, the United States’

obligation under many international

agreements to ensure that foreign

airlines are treated the same as U.S.

airlines would require us to adopt the

same standards for determining the

reasonableness of airport fees, whether

the fees are paid by U.S. airlines or

foreign airlines, even if Congress had

not enacted 49 USC § 47129.

Several airport parties now object to

the Department’s adoption of procedural

rules allowing foreign airlines to obtain

an expedited investigation under

section 47129. However, only the City of

Los Angeles objected to the inclusion of

foreign airlines during the rulemaking

proceeding that led to adoption of the

Rules of Practice for airport rates and

charges cases. 59 FR 53380, 53383

(October 24, 1994); 60 FR 6919

(February 3, 1995). At that time, the

Department determined as a matter of

discretion that foreign airlines should

have the ability to request an expedited

investigation, even though it assumed

that they did not have such rights under

section 47129. The Department’s later

decision that foreign airlines are

covered by 49 USC § 47129 means that

foreign airlines by statute have the same

procedural rights as U.S. airlines.

2. Applicability to Fees Set by

Agreement

Section 47129(e), 49 USC § 47129(e),

provides that the section does not apply,

inter alia, to fees imposed pursuant to

a written agreement with air carriers.

Section 47129(f), 49 USC § 47129(f),

provides , inter alia, that the section

shall not adversely affect the rights of

parties to an existing agreement between

an air carrier and airport proprietor.

In the applicability section of the

Supplemental Proposed Policy, the

Department stated that section 47129

did not repeal or narrow the scope of

the reasonableness requirement for

airport fees. The Department proposed

to apply the policy in the case of a

dispute over the reasonableness of any

aeronautical fee. However, disputes over

matters described in sections 47129 (e)

and (f) would not be processed under

the procedures mandated by section

47129. In the explanatory statement, the

Department proposed to take into

account the existence of any agreement

between U.S. and foreign air carriers

and the airport proprietor in making its

determination of reasonableness.

The comments: Airport proprietors

generally argue that the policy should

not apply to fees set by agreements with

carriers. ACI/AAAE argue that

application of the policy to such fees

would frustrate the direction given by

Congress and would adversely affect

airports that rely on agreements that

produce steady and predictable revenue

flows. ACI/AAAE and individual airport

commenters also argue that the

Department is legally barred from

applying the policy to fees set by

agreement because sections 47129(e)

and (f) limit the application of all

section 47129, not just the provisions

governing the expedited procedures.

ACI/AAAE refer to numerous court

decisions overturning agency actions

that have not properly adhered to

statutory exceptions.

Other commenters did not address

this issue.

The Final Policy: The Final Policy

applies to fees set by agreement, to the

extent discussed below. We do not

interpret section 47129 to preclude an

investigation of fees set by agreement or

the application of the policy in such an

investigation. However, in keeping with

our policy of encouraging direct

negotiation of fees, the Department does

not expect to investigate routinely fees

set by agreement. Moreover, the

Department has decided not to consider

complaints about the reasonableness of

fees set by agreement if filed by parties

to the agreement. The Final Policy is

modified to reflect this decision.

However, we do not believe that

Congress intended to deprive non-party

carriers of the opportunity to have their

airport fees reviewed by the FAA, solely

because the fees are included in an

agreement between the airport

proprietor and other airlines. While

section 47129 directed the Secretary to

establish a policy on reasonable fees, the

Secretary already had authority to

publish such a policy. Section 47129

did not repeal this authority or the

underlying requirement of

reasonableness. The existence of an

agreement may be a critical factor in

evaluating the reasonableness of a fee,

but section 47129 does not, by its terms,

exempt fees set by agreement from the

requirement of reasonableness.

However, the Department agrees that

section 47129(e) was enacted to

preclude carriers from improving on

their bargain by bringing an

administrative complaint after they have

reached agreement with an airport

proprietor. That outcome would be

unfair to airport proprietors who bargain

in good faith. The threat of a complaint

could discourage airport proprietors

from putting forward their best offers in

negotiations. The Department is

reluctant to interpret section 47129(e) in

a way that would discourage effective

negotiations.

Complaints about fees charged to nonparties to the agreement brought by nonparties to the agreement would be

considered under provisions of the

policy applicable to non-signatory

carriers, if significant, as discussed

below under the heading ‘‘Charges to

Non-Signatory Carriers.’’ By giving

notice that non-parties may challenge

fees imposed on them by agreement, the

Department expects that airport

proprietors and airport users will be

able to achieve reasonable results in

their negotiations and obviate a full

investigation and determination of

reasonableness by the Department.

3. Applicability to Fees Imposed

Pursuant to Financing Agreements

Section 47129(e)(2), 49 USC

§ 47129(e)(2), provides that the section

does not apply to fees imposed pursuant

to a financing agreement or covenant

entered into before the date of

enactment of the statute (August 23,

1994). Section 47129(f)(2), 49 USC

§ 47129(f)(2), provides that the section

shall not adversely affect the ability of

an airport proprietor to meet its

obligations under a financing agreement

or covenant in effect on August 23,

1994.

In the applicability section of the

Supplemental Proposed Policy, the

Department stated that section 47129

did not repeal or narrow the scope of

the reasonableness requirement for

airport fees. The Department proposed

to apply the policy in the case of a

dispute over the reasonableness of any

aeronautical fee. However, disputes over

matters described in sections 47129 (e)

and (f) would not be processed under

the procedures mandated by section

47129. The treatment of financing

agreements was not otherwise discussed

in the Supplemental Proposed Policy.

However, in its order setting for

hearing under section 47129, carrier

complaints against fees imposed by the

Puerto Rico Port Authority, the

Department further interpreted the

financing agreement exceptions. Puerto

Rico Ports Authority Rates Proceeding,

Order 95–4–6 (April 3, 1995). The

Department stated that:

[I]n order to successfully invoke the

exception in subsection (e)(2), the

airport must show more than

generalized language in a financing
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 31999

agreement as the source of the

imposition of the fee upon the air

carrier. The airport must demonstrate

that the agreement specifically required

the airport to increase directly the fees

to air carriers or that it so circumscribed

other alternatives that the airport had to

impose a new fee or to increase an

existing fee. Order 95–4–6 at 13.

The Department explained that this

interpretation of section 47129(e)(2) was

necessary so that the provision would

not make the statute a nullity. Id. at 12.

The comments: Airport proprietors

urge the Department to revise its

interpretation of section 47129(e) to

recognize generalized rate covenant

language. The airport proprietors argue

that Congress was well aware of the

broad terms of typical rate covenants

and drafted section 47129(e)(2) to cover

the typical situation. They further argue

that the legislative history makes clear

that section 47129(e)(2) was enacted to

avoid disrupting existing financing

agreements.

The airport proprietors also argue that

their preferred interpretation will not

render section 47129 a nullity. They

assert that airport proprietors do not

routinely invoke a rate covenant as a

justification for a fee increase. Doing so

would signal dire financial

circumstances. Further, if an airport

proprietor must raise fees to comply

with a rate covenant, it will not single

out airlines or other aeronautical users,

but will raise the fees for all airport

users.

Other commenters did not address

this issue.

The Final Policy: The Department will

not modify the interpretation of the

financing agreement exceptions. As

noted in Order 95–4–6, the airport

proprietors’ preferred interpretation

could turn section 47129(e)(2) into the

proverbial exception that swallows the

rule.

Moreover, the Department’s

interpretation does not threaten to

disrupt existing financing agreements.

Under the Final Policy, debt-service

expenses, including reasonable amounts

for debt-service coverage, may be

included in the rate-base. In an

investigation into the reasonableness of

a fee, the airport proprietor is free to

show that a challenged fee is needed to

meet debt-service expenses associated

with a general rate covenant. However,

the airport proprietor may not rely on a

general rate covenant to invoke section

47129(f)(2) as a procedural bar to an

investigation of the reasonableness of

the disputed fee. See, Order 95–4–6 at

13.

4. Definition of Exclusive/Nonexclusive

use Aprons for HCA Valuation

The Supplemental Proposed Policy

proposed that airfield assets would be

valued using the HCA valuation

methodology. Proposed par. 2.5.1.

Airfield assets would include ramps or

aprons not leased on an exclusive use

basis and associated land. Proposed

Applicability, Section D.

The comments: The State of Alaska,

which operates most public airports in

Alaska, expressed concern that the HCA

valuation requirement for aprons might

adversely affect its charging practices.

The State’s lease lots typically abut the

side of a public-use apron and include

a portion of the apron for exclusive

aircraft parking. Treating the lease lots

as a non-exclusively leased apron

subject to the HCA valuation

requirement would devastate the airport

system’s revenue situation.

The Department did not receive any

other comments on this issue.

The Final Policy: No modification to

the Supplemental Proposed Policy is

required to address the concerns of the

commenter. As described in the

comments, the portion of the apron

included in each lease lot is available

for exclusive use. Accordingly, this

portion of the apron and the remainder

of the lease lot would be considered

exclusively leased, even though the

remainder of the apron is a public-use

facility.

The Department has, however,

decided to modify the definition to

avoid potential confusion. We are

modifying the provision to exclude from

the definition of airfield assets an apron

or ramp which is the subject of a

preferential, as well as an exclusive

lease or use agreement.

Aprons or ramps that are treated as

airfield assets are subject to the general

HCA valuation requirement. In contrast,

the airport proprietor may use any

reasonable method to establish the fee

for any other apron or ramp. The

Department originally proposed this

disparate treatment because exclusively

leased facilities have more in common

with terminals and other aeronautical

facilities than with runways and

taxiways. In particular, their use and the

fees for their use are ordinarily the

subject of individual negotiations.

On further consideration of the issue,

the Department has concluded that the

preferential use agreements are as likely

as exclusive use agreements to be the

result of individual negotiations and to

give rise to the characteristics that make

a ramp or apron more like a terminal

than a runway. Many lease and use

agreements may provide for only

preferential use. The Department is

therefore modifying the Final Policy to

exclude from the definition of airfield

assets, aprons and ramps that are subject

to a preferential or exclusive lease or

use agreement.

5. Cross Crediting Aeronautical Users

With Nonaeronautical Revenues

The Supplemental Proposed Policy

proposed that aeronautical users be

entitled to a cross-credit of

nonaeronautical revenues only if the

airport proprietor agrees, and that the

airport proprietor could agree to a crosscredit even if aeronautical users do not

agree to cover nonaeronautical losses.

Proposed para. 2.1.1. The Supplemental

Proposed Policy also proposed that the

airport proprietor could not require

aeronautical users to cover

nonaeronautical losses, except by

agreement. Id.

Airport proprietors: Airport

proprietors did not address this issue.

Carriers: IATA argues that crosscrediting should be required based on

the policy on airport fees set forth by the

International Civil Aviation

Organization (‘‘ICAO’’), laid down in

the Statements by the Council to

Contracting States on Charges for

Airports and Air Navigation Services

(ICAO Doc. 9082/4). IATA argues that

cross-crediting satisfies the ICAO

principle of cost-relatedness, because

airport users bring customers to the

airport through their operations.

General aviation: AOPA supports

mandatory cross-crediting because

nonaeronautical businesses thrive due

to the ready-made market for their

services. AOPA also argues that the

Supreme Court’s decision in Kent

County does not preclude the

Department from requiring crosscrediting.

Other commenters: One law firm

involved in public finance objects to the

proposed requirement that aeronautical

users agree to cover nonaeronautical

losses. This commenter argues that the

proposal is inconsistent with the airport

proprietor’s right to set fees unilaterally

by ordinance or regulation established

elsewhere in the policy. The proposal is

also inconsistent with the airport

proprietor’s unconditional right to

employ a residual methodology

established by 49 USC § 47129(a)(2),

according to this commenter.

The Final Policy: The Department is

adopting Paragraph 2.1.1, as proposed.

The Department will not require cross

crediting of nonaeronautical revenues to

aeronautical users, because section

47129 does not permit us to do so.

Section 47129(a)(2) preserves the

discretion of airport proprietors to use
32000 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

the compensatory methodology. The

essence of the compensatory

methodology is that fees to aeronautical

users reflect the costs of serving them

with no cross-crediting of

nonaeronautical profits or losses.

Moreover, it would be unfair to

require airport proprietors to share

nonaeronautical profits with

aeronautical users, if we did not also

require aeronautical users to share

nonaeronautical losses with airport

proprietors. The aeronautical users

requesting cross-crediting have not

indicated that they are willing to accept

such a requirement. More importantly,

they have not identified a legal basis for

imposing cross-crediting.

By authorizing the residual

methodology, section 47129(a)(2) does

not authorize unilateral increases in

aeronautical charges to cover

nonaeronautical losses. The Department

is not aware of any airport proprietor

who, at the time of enactment, charged

aeronautical users to cover aeronautical

losses without the aeronautical users’

agreement to do so. No airport

proprietor has asserted a unilateral right

to do so in this proceeding docket.

Moreover, one of the fundamental

concepts of reasonableness is that users

should not, without their consent, be

burdened with paying for facilities they

do not benefit from or use. The law

firm’s proposal clearly conflicts with

this concept.

6. Rate of Return

The Supplemental Proposed Policy

did not propose a separate rate of return

to be earned by public entities for

airfield facilities and public-use

roadways. However, the Department

recognized that permitting airport

proprietors to use any reasonable

methodology to determine the fees for

other facilities (proposed para 2.6)

might allow an airport proprietor to earn

a reasonable rate of return for those

facilities. The Department also proposed

to allow private equity owners of

airports to earn a reasonable return on

investment in airfield facilities and

public-use roadways. Proposed para.

2.4.

Airport proprietors: Airport

proprietors argue that they are entitled

to earn a rate of return on investment in

all facilities, including the airfield. ACI/

AAAE point out that public utilities are

compensated for forgoing the

opportunity to charge market prices by

including a rate of return in their rates.

The City of Los Angeles and the Port

Authority of New York and New Jersey

(‘‘PANYNJ’’) argue that the denial of a

rate of return amounts to an

unconstitutional taking of property. The

PANYNJ also argues that a rate of return

is needed to provide for accumulation of

cash reserves for investment, to

compensate for the risks of those

investments, and to meet cash-flow tests

of bond indentures.

Carriers: ATA/RAA did not

specifically address this issue. IATA

prefers allowing airport proprietors a

reasonable return on investment, in lieu

of an allowance for imputed interest and

reasonable reserves.

General aviation: General aviation

commenters did not address this issue.

Other commenters: One individual

argues that imputed interest is the

functional equivalent of a return on

investment. This commenter asks the

Department to clarify whether a

privately-owned airport may include

both imputed interest and a return on

investment in the airfield rate base.

The Final Policy: The Final Policy

does not authorize a separate rate of

return for public airport owners. In

addition, a new paragraph 2.4.1(a),

prohibiting a private equity owner of an

airport from charging for both imputed

interest and a rate of return on its equity

investment in the airfield, is added to

the Final Policy.

The Final Policy allows public airport

proprietors to include an imputed

interest charge in fees for the airfield

and public-use roadways. Therefore, a

separate return on investment is not

justified, and would run counter to

traditional concepts of reasonableness.

As discussed below under ‘‘Application

of HCA Requirement to Airfield and

Public Use Roadways,’’ the imputed

interest charge compensates the airport

proprietor for the opportunity costs of

its investment in the airfield. The

imputed interest charge, therefore,

serves the function of a return on

investment. In addition, as discussed

below, a state or municipal airport

proprietor does not have the same

entitlement to a return on investment

under the Constitution as a private

investor.

The Final Policy follows the approach

of the Supplemental Proposed Policy for

publicly-owned airports. Proprietors of

publicly-owned airports may charge

imputed interest on their airfield

investments in accordance with the

Final Policy. However, allowing an

airport proprietor to include an imputed

interest charge and a return on

investment in its rates could allow for

a double recovery of the airport

proprietor’s capital costs. Therefore,

proprietors of publicly-owned airports

may not charge an additional rate of

return on investment.

Private equity owners may include a

reasonable return on equity investment.

Para 2.4. However, under new

paragraph 2.4.1, they may not include

an imputed interest charge on this

investment as well. This new provision

is intended to avoid possible double

recovery of capital costs by a private

equity owner.

In light of other provisions in the

Final Policy, the Department does not

agree with the PANYNJ’s claim that a

separate allowance for a return on

investment is needed to provide for

accumulation of reserves to fund capital

projects or to meet cash-flow

requirements in financing agreements.

The imputed interest charge will

provide cash flow for these purposes,

and the Final Policy allows the airport

proprietor to impose reasonable charges

to met cash-flow requirements in

financing agreements. Para. 2.4.4.

7. Imputed Interest

The Supplemental Proposed Policy

proposed to allow the airport proprietor

to charge imputed interest, at a

reasonable rate, on funds invested in the

airfield, with two exceptions. First,

imputed interest could not be charged

on funds obtained by debt-financing, if

the debt-service costs are included in

the rate base. Second, imputed interest

could not be charged on funds generated

by fees charged for the use of airfield

assets and airfield services. The

Supplemental Proposed Policy did not

propose a specific imputed interest rate.

Proposed para. 2.4.1.

Airport proprietors: With one

exception, airport proprietors argued

that imputed interest should be allowed

on all internally generated funds

invested in the airfield, including funds

derived from airfield revenues. ACI/

AAAE and many individual airports

argue that the proposed limitation will

encourage airport proprietors to borrow

funds for airfield investment, rather

than use internally generated funds.

Borrowing may be the most expensive

way to obtain financing. One airport

proprietor asserts that the Supplemental

Proposed Policy is inconsistent with its

own long-standing practice, and it

argues that the distinction is arbitrary.

In addition, one airport proprietor

noted that the Department’s approach

could be troublesome due to the

difficulty of tracing the source of

internal funds invested in the airfield.

This airport proprietor noted that

requiring airport proprietors to trace the

source of funds would make them

unable, as a practical matter, to charge

imputed interest whenever funds could

not be traced.

Carriers: Carrier commenters

generally object to allowing airport

proprietors to charge imputed interest
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 32001

on any investment made with surplus

aeronautical revenues. ATA/RAA argue

that the imputed interest allowance

serves only to permit the accumulation

of excess revenues. According to ATA/

RAA and USAir, the Supplemental

Proposed Policy would allow airport

proprietors to force carriers to first

invest in the airport (by paying fees in

excess of costs) and then to pay interest

on that forced investment through the

imputed interest charge. ATA/RAA

argue that the U.S. Government

strenuously objected to this practice

when it was attempted at Heathrow

Airport. ATA/RAA further argue that

public airport operators (state or city

governments or authorities) do not have

the same profit motives as private

businesses. Therefore, they do not need

the financial incentive of imputed

interest to trigger investments in the

airfield.

IATA also argues that an imputed

interest charge serves only to generate

surplus aeronautical revenues.

Elsewhere in its comments, however,

IATA supports allowing airport

proprietors to earn a reasonable rate of

return on investment.

ATA/RAA and IATA also argue that

if imputed interest is allowed, the

Department should provide guidelines

for the computation of interest. ATA

supports use of an airport’s bond

interest investment rate based on the

following reasoning. Interest rates are in

part determined by the risk of the

investment, and investments that are

riskier than airport capital projects

might generate higher interest rates.

However, by law, public airport

proprietors must apply airport revenue

to the capital or operating costs of the

airport. Given this legal limit on the

airport proprietor’s investment options,

the airport proprietor should not be able

to claim a higher imputed interest rate

base on alternative investments that are

theoretically available.

General aviation: General aviation

commenters did not address this issue.

Other commenters: One individual

commenter suggests that imputed

interest is in practical terms the same as

a profit or payment for lost income. The

commenter argues that lost income is

not a cost. This commenter also suggests

that the imputed interest charge is a

device for airports to circumvent the

prohibition on charging depreciation for

Federally-financed assets.

The Final Policy: The Department is

adopting the provision of the

Supplemental Proposed Policy, as

proposed. The Department’s approach

strikes a reasonable balance between

legitimate concerns of airport users, on

the one hand, and airport proprietors,

on the other.

Airport proprietors do have discretion

to choose where on the airport to invest

surpluses generated by aeronautical

fees, as well as nonaeronautical fees. In

choosing between two investment

options, airport proprietors have an

incentive to select the option that

provides more revenue for reinvestment

in the airport. Barring an imputed

interest charge on all funds invested in

the airfield would encourage airport

proprietors to invest elsewhere on the

airport, and would thereby defeat the

Department’s long-range objective of

assuring adequate investment in airport

airfield capacity.

However, the carriers’ concerns have

some justification. Under the Final

Policy, airfield fees potentially could

generate revenues in excess of an airport

proprietor’s cash needs. This excess

may arise from various sources: imputed

interest charges; allowances for various

reserves; debt-service coverage charges;

or simply financial performance that

exceeds the projections on which

airfield fees are based. There is merit to

the carrier position that charging

imputed interest on funds derived from

airfield revenues could require airfield

users to finance airfield investment

twice: once in the form of the excess

revenue that their otherwise reasonable

fees generate and once in the form of the

imputed interest charge on the

investments made with that revenue.

For this reason, the policy does not

permit airport proprietors to charge

imputed interest on funds that are

attributable to airfield operations.

However, the carriers’ argument that

airport proprietors may not charge

imputed interest on any investment in

the airfield goes too far. This argument

would deny the airport proprietor any

compensation for the opportunity costs

of its investment in the airfield.

The Department recognizes that

disallowing imputed interest on sums

attributable to airfield fees may

encourage airport proprietors to invest

elsewhere on the airport. However, the

impact on choice of investments should

be less pronounced than disallowing all

imputed interest. The limit on imputed

interest could also encourage bond

financing for airfield investment, but the

limit would apply only in the absence

of an agreement to the contrary. If an

airport proprietor can persuade airfield

users that charging imputed interest is

less costly than borrowing to finance

airfield improvements, the airport

proprietor is free to impose an imputed

interest charge by agreement.

The Department’s approach to

imputed interest is consistent with the

position taken by the U.S. government

regarding airport fees at Heathrow. In

that dispute, the U.S. government did

not object to landing fees set to provide

a reasonable rate of return on

investment, or to the application of that

return to new capital projects. Rather,

the U.S. government objected to

financing new capital development at

the London airports by: (1) directly

including the full capital costs of

projects under construction in the rate

base and (2) charging a rate of return for

those projects before they came on-line.

The Department will not provide

further guidance on a reasonable rate for

assessing imputed interest at this time.

In many cases, a rate based on the

airport proprietor’s own interest rate on

borrowed funds may be reasonable.

However, the airport proprietor’s

borrowed-fund rate may be but one of a

number of relevant factors in

determining a reasonable rate of

interest. A policy that defines the

borrowing rate as the only reasonable

rate would not allow for consideration

of these factors. In the event of a

complaint, the Department would

expect the airport proprietor to justify

the reasonableness of its imputed

interest rate. The Department would not

accept an imputed interest rate that is

justified solely as a device to recover a

depreciation charge for the Federal

share of grant-funded facilities.

As we noted in the explanatory

statement to the Supplemental Proposed

Policy (60 FR 47013), under the

Administrative Procedure Act, a carrier

complaining about charging imputed

interest on funds generated by airfield

fees would bear the burden of proving

the source of funds. The airport

proprietor need not trace the funds in

order to claim imputed interest.

However, if the airport proprietor has

data available that would enable a

complainant to trace the funds, that data

should be disclosed during the fee

negotiations or during a proceeding to

resolve a fee dispute.

8. Limitation of Airfield Rates to Land

and Facilities Currently in Use

The Supplemental Proposed Policy

proposed that, absent agreement, airport

proprietors may include in the rate base

all capital costs associated with the

provision of airfield facilities and

services currently in use and current

costs of planning future aeronautical

facilities and services. Proposed para.

2.4. The Supplemental Proposed Policy

further proposed that the costs of

facilities not yet built and operating

could not be included in the rate base.

However, debt service and carrying

costs of an asset under construction
32002 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

could be capitalized and amortized

when the asset is put in service. In

addition the airport proprietor could

include in the rate base the costs of land

that facilitates current operations of the

airport. Proposed para. 2.5.3.

Airport proprietors: Airport

proprietors consider these provisions

unduly restrictive and inconsistent with

the public interest. ACI/AAAE comment

that the prohibition on expensing

interest payments during construction is

inconsistent with current practice of

some airports. In addition, ACI/AAAE

and individual airport commenters

argue that applying the in-use provision

to acquisition of land for future runway

development will encourage airport

proprietors to delay land acquisition as

long as possible. This delay could drive

up the cost and reduce the availability

of land as development encroaches on

the airport.

The City of Chicago points out that

land for future development may be

funded with AIP grants under

circumstances outlined in the FAA’s

Airport Improvement Program (AIP)

Handbook, FAA Order 5100.38A, Para.

603 (October, 1989). According to

Chicago, Paragraph 603 demonstrates

that land acquisition for future

development is appropriate in certain

circumstances.

The Port of Portland suggests that the

currently-in-use language may not

reflect current industry practice for

another reason. Portland notes that at

the request of the carriers, it is

amortizing a terminal upgrade at

Portland International Airport for longer

than the useful life of the project to

lessen the cost impact on carriers.

Portland requests that the policy permit

this approach at the discretion of the

airport proprietor. This commenter also

requests clarification on how the term

‘‘currently’’ would be applied in

different situations.

Airport Users: Airport users did not

address this issue.

Other commenters: A law firm

specializing in public debt-financing

asserts that many public airport

proprietors are precluded by local law

from capitalizing interest during

construction. Such entities would be

effectively precluded from financing

new facilities, because the policy would

not permit the expensing of

construction financing and interest.

This commenter recommends that the

policy allow interest during

construction and the cost of land for

future development to be included in

the rate base.

The Final Policy: The Department is

modifying the Final Policy to permit an

airport proprietor to show, on an

individual basis, that it is reasonable to

allow the costs of land acquired for

future airfield development to be

included in the rate-base, if the

conditions of FAA Order 5100.38A are

met, and if the airfield development is

included in the airport proprietor’s

currently effective five-year capital

improvement plan. The circumstances

listed in FAA Order 5100.38A include

rising land costs, encroachment on

available land by incompatible uses,

and the probable unavailability of land

for airport use in the future. The

provision on construction interest is

adopted without modification. In

addition, the Final Policy does not

allow an airport proprietor unilaterally

to depreciate an asset for longer than its

projected useful life.

In addressing this subject, the

Department must strike a balance

between conflicting concerns. On the

one hand, when fees are based on cost,

it is generally unreasonable to charge

users for facilities they do not benefit

from or use. Based on this principle,

current users generally should not be

charged, as a cost item, the capital costs

of projects not yet in operation. Of

course, this principle does not preclude

assessment of reasonable imputed

interest charges just because the

proceeds of those charges might fund

future capital projects. On the other

hand, the policy should not work a

financial hardship on airport proprietors

or unduly interfere with cost-effective

airport expansion by precluding timely

acquisition of property needed for

future airport development.

In addition, the restriction on

charging for facilities not yet in use is

effectively limited to airfield facilities.

Moreover, the restriction does not apply

in the case of agreements with airfield

users. If the airport proprietor can

persuade airfield users that it is less

expensive in the long run to deviate

from the Final Policy, the airport

proprietor is free to do so by agreement.

Likewise if users request a depreciation

period that is longer than an asset’s

useful life, the airport proprietor may

agree to it. In these circumstances, an

additional modification to the policy is

not warranted.

The comments on charging for future

facilities address two distinct issues.

The first is the treatment of construction

interest. As to interest paid during

construction, the Department is not

modifying the approach proposed in the

Supplemental Proposed Policy. This

approach is commonly used in

determining the reasonableness of rates,

and permits the airport proprietor to

fully recover all construction interest

costs, once the facility is in use.

The comments have not persuaded us

that this approach will cause a

substantial hardship in the industry.

ACI/AAAE have not alleged that the

practice of expensing interest is widespread. Moreover, landing fees at most

airports are set by agreement. Under the

terms of Paragraph 2.4 of the Final

Policy, construction interest may be

expensed if users have agreed.

Similarly, the law firm comment

regarding legal restrictions on

capitalizing interest does not state that

such local restrictions are wide-spread,

and does not explain the basis for them.

It is not clear that local laws that

prohibit the capitalization of interest

would permit the direct expensing of

interest, because direct expensing

would be more burdensome to users.

Moreover, airport proprietors

themselves have not raised legal

restrictions to capitalizing interest as a

serious concern.

The second issue is the treatment of

land acquired for future development.

On this issue, some modification to the

Supplemental Proposed Policy is in

order. As the FAA has recognized in

administering the AIP program, when

the factors specified in paragraph 603 of

Order 5100.38A are present, it may be

prudent to acquire and hold land for

future development. Moreover, there

may be circumstances in which such a

land acquisition cannot be carried out if

the costs are not included in the current

airfield rate-base. However, based on the

standard of reasonableness, the

Department must be careful not to

burden unduly present users with the

costs of land acquired for future

development. Therefore, the Department

is modifying the final policy to permit

an airport proprietor to show that the

inclusion of the costs of land needed for

future airfield development is

reasonable, if the factors specified in

FAA Order 5100.38A are present, and if

the airfield development is included in

the airport’s currently effective five-year

capital investment program. The latter

condition is intended to assure that the

land being acquired will actually be

used for airfield development. This

condition should also increase the

likelihood that the airport users paying

for the land will actually benefit from its

purchase. The Department would

decide the reasonableness of charging

for the cost of land for future

development on an individual basis. In

reviewing the reasonableness, the

Department would consider, among

other factors, the feasibility and costs of

alternative means of financing the land

acquisition.

The Department will not permit

airport proprietors to depreciate an
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 32003

airfield asset for longer than its useful

life, absent user agreement. Such a

policy would force airfield users who

never used or benefited from the asset

in question to pay for a share of its

costs. As noted, however, the airport

proprietor may provide for a longer

amortization period by agreement with

airfield users.

In addition, the Department does not

consider further guidance on the

meaning of ‘‘currently in use’’ to be

necessary at this time. The meaning of

the term should in ordinary

circumstances be self-evident—in use

during the period when the charge is in

effect. See, LAX II, Order 95–12–33 at

50–51. There may be circumstances in

which the application of the phrase is

not straight-forward, and the

Department will address those

situations if they arise.

9. Allowance For Environmental Costs

The Supplemental Proposed Policy

proposed that an airport proprietor

could include the costs of

environmental mitigation and

remediation to the extent it incurs a

corresponding actual expense. Proposed

para. 2.4.2. The Supplemental Proposed

Policy also proposed that the airport

proprietor could charge for the costs of

insuring against future liability for

environmental contamination. However,

the costs of self-insurance could be

included in the rate-base only if

incurred pursuant to a self-insurance

program that conforms to applicable

standards for self-insurance practices.

Proposed para. 2.4.2(d).

The comments: One airport proprietor

has requested that the Department

provide additional flexibility to charge

for environmental cleanup costs. It

suggests that if an activity is expected to

generate predictable environmental

cleanup costs, e.g., operation of a fuel

tank farm, today’s airport users may be

reasonably charged for those costs, even

if the cleanup occurs in the future.

Other commenters did not address

this issue.

The Final Policy: The Department will

not modify the provisions on allowable

environmental costs. The commenter’s

concern is already addressed by the

provision of the Final Policy governing

reasonable reserves.

If the use of the airfield today

generates predictable environmental

remediation expenses in the future, the

principle of cost causation would allow,

if not encourage, the airport proprietor

to charge today’s users for those

expenses. The policy need not be

modified to permit this result.

The policy already permits the airport

proprietor to include in the airfield rate

base amounts needed to fund debt

service and other reserves and to fund

reasonable cash reserves to protect

against other contingencies. Para. 2.4.4.

This provision is sufficiently broad to

permit the funding of reserves for

predictable costs of environmental

remediation caused by current

operations. However, if an airport

proprietor establishes a reserve for this

purpose, the Department would expect

the reserve to be separately identified.

In reviewing the reasonableness of the

reserve, the Department would consider,

inter alia, whether the reserve applies to

activities that industry experience has

shown generate future environmental

remediation costs; and whether the

reserve reflects industry experience in

costs of remediation. Arbitrary reserves

or reserves to fund unknown future

potential liability would not be

acceptable. The latter would be subject

to the provision on self-insurance.

10. Debt-Service Coverage

The Supplemental Proposed Policy

proposed that the airport proprietor

could include in the rate base, inter alia,

amounts ‘‘needed to fund debt service

and other reserves and to meet cash

flow requirements as specified in

financing agreements or covenants (for

facilities in use), including, but not

limited to, debt-service coverage.’’

Proposed para. 2.4.4.

In the LAX II proceeding, the parties

disputed the meaning of the term

‘‘needed’’ as it appeared in the Interim

Policy. Airport parties argued that the

coverage was ‘‘needed’’ if financing

agreements included a debt-service

coverage requirement and if the airport

was seeking to recover a share of

coverage reflecting the airfield’s pro rata

share of outstanding debt. Carriers

argued that no coverage charge would

be ‘‘needed’’ if the airport’s net cash

revenues from nonairfield sources were

large enough to satisfy the airport’s

coverage obligation. Comments on the

Supplemental Proposed Policy were due

before the Department addressed this

issue in the final decision in the LAX II

proceeding. Order 95–12–33 (December

22, 1995).

The comments: In this proceeding,

several airport proprietors, but no

airlines, filed comments on the issue.

The Massachusetts Port Authority

(‘‘Massport’’) argues that debt-service

coverage should be permitted in the rate

base in proportion to the allowable debt

service for the airfield, regardless of

whether an agreement governing airfield

fees exists. Massport has adopted

compensatory rates by resolution, not by

agreement. Massport, Los Angeles and

the City of San Francisco argue that the

carrier position in LAX II—that coverage

is not a cost and therefore cannot be

included in the rate base absent

agreement—is inconsistent with the

terms of proposed paragraph 2.4.4 and

with the Department’s explanatory

statement. Massport argues that the

Department clearly signaled its

intention that debt-service coverage

could be included in the rate base even

though it is not a cost in the traditional

accounting sense.

Massport, Los Angeles and San

Francisco also dispute the carrier

position that debt-service coverage is

needed only if revenues from other

sources are insufficient to meet coverage

requirements. These commenters argue

that this approach amounts to

mandatory residual treatment of debtservice coverage; therefore this

approach is inconsistent with the

airport proprietor’s right to adopt a

compensatory fee methodology.

Massport argues that by using the term

‘‘needed,’’ the Department sought to tie

the amount of debt-service coverage

allowed in the rate base to the terms of

applicable bond documents.

Massport further argues that

compensatory airports should not be

compelled to give a refund or credit to

carriers for debt-service coverage, but

should be permitted to use the coverage

for any lawful purpose. Massport argues

that under the terms of its Trust

Agreement, Massport devotes the debtservice coverage charge to its

Improvement and Extension fund,

which finances the costs of airfield

improvements.

Los Angeles also argues that many

airports that include debt-service

coverage in the rate base retain the

coverage funds for discretionary

purposes.

Other commenters did not address

this issue.

The Final Policy: The Department is

modifying paragraph 2.4.4 so that it

allows airport proprietors to include

amounts reasonably needed to meet

debt-service coverage requirements. We

are not changing the proposed policy on

debt-related charges insofar as it allows

airports to include charges for debtservice expense.

We are modifying the provision on

debt-service coverage charges to address

the ambiguity created by the provision

of the Interim Policy (which was not

resolved in the Supplemental Proposed

Policy) and to clarify the Department’s

position on such charges. When the

Department considers charges for debtservice coverage, the Department will

not limit its inquiry to determining

whether the charge is limited to the

airfield’s pro rata share of the airport’s
32004 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

overall debt-service coverage

requirement. The Department instead

will consider a number of factors.

Debt-service coverage is different from

debt-service expense, an airport capital

cost. Debt-service expense refers to the

payment of interest and financing

charges and the repayment of principal.

Debt-service coverage, in contrast, is a

cash flow requirement, not an expense.

Airport bonds typically require that

the airport’s net cash receipts exceed its

debt-service expense by 25 to 50

percent, at a minimum. Many airports

include charges for debt-service

coverage in their landing fee

calculations. However, as shown by the

record in LAX II, their use of funds

generated by debt-service coverage is

almost always subject to substantial

restrictions. Typically the airport must

refund (or roll over) the funds obtained

under the coverage charge if they were

not needed during the year for which

they were paid, or the airport proprietor

must use the funds for capital projects

benefiting the airlines. See, LAX II,

Order 95–12–33 at 45. Not all airports

impose such a charge. For example, the

landing fees charged at LAX from July

1993 through June 1995 included no

debt-service coverage charge. See Order

95–12–33 at 42.

Airlines have not objected to charges

for debt-service expense, but the airline

complainants in LAX II objected to Los

Angeles’ charge for debt-service

coverage, as outlined above.

We are modifying the provision on

debt-service coverage charges to permit

reasonable amounts needed to meet

debt-service coverage requirements,

with due regard to the characteristic of

a bond coverage requirement as a

minimum requirement that must be met

or exceeded at all times. In future

airport fee cases involving a charge for

debt-service coverage, we will

determine whether the charge is

permissible on the basis of the facts in

the case. In considering the

reasonableness of such a charge, the

Department may consider a number of

factors. For example, in LAX II, the

Department found that Los Angeles’

debt-service coverage charge was

unreasonable since the record showed

that the airfield’s net cash revenues

greatly exceeded the airfield’s share of

the airport’s debt-service coverage

obligation. Given that evidence, the

Department did not have to address the

airlines’ claim that the charge was

unreasonable because the airport’s

overall net cash revenues would satisfy

the airport’s coverage obligation without

the inclusion of an additional charge in

the landing fee rate base.

Another factor likely to be considered

will be whether carriers using the

airport receive any benefit from a debtservice coverage charge. For example,

the airport may show that the inclusion

of the charge improves the airport’s

credit rating and therefore reduces the

airport’s overall debt expense. The

airport proprietor might show, instead,

that the restrictions on the airport’s use

of the funds may ensure that the funds

are used only for projects benefiting the

airlines. An airport proprietor’s

commitment to refund or roll over

unneeded funds in the year following

payment also would be relevant to

determining the reasonableness of the

charge.

We are unwilling in this proceeding

to adopt more specific standards for

determining the reasonableness of a

debt-service coverage charge, in part

because the comments do not give us an

adequate basis for resolving the issue.

The Department will therefore resolve

the airports’ ability to impose a debtservice coverage charge on a case by

case basis. The decision will be

governed by whether the particular

charge challenged is reasonable.

11. Allowance For Reasonable Reserves,

Definition of Reasonable

The Supplemental Proposed Policy

proposed that the airport proprietor may

include in the rate base ‘‘reasonable

cash reserves’’ to protect against

contingencies other than those listed in

the policy. Proposed para. 2.4.4. The

Department did not propose to further

define reasonable reserves.

The comments: ATA/RAA do not

object to reasonable reserves for short

term fluctuation in revenues or for other

emergencies. They are concerned that,

without more detailed guidance, airport

proprietors will be able to establish

reserves well in excess of actual needs.

ATA/RAA suggest that the policy allow

reserves of no more than one month’s

average revenue, unless the users agree

to a higher reserve or the airport

proprietor shows that special

circumstances justify one.

IATA opposes the allowance of a

reserve as a separate cost item. It urges

the Department to limit fees to the

airport’s total costs plus ‘‘a reasonable

return on assets (before tax and interest

charges) to contribute toward necessary

capital improvements,’’ based on ICAO

Doc. 9082/4, pp. 3–4.

Other commenters did not address

this issue.

The Final Policy: The Department is

adopting the provision of the

Supplemental Proposed Policy without

modification.

The Department is not persuaded that

a more specific definition for reasonable

reserves is needed or appropriate for

national application. The requirement

that reserves be reasonable is intended

to prevent arbitrary requirements. The

Department would expect the airport

proprietor to be able to justify its

decision on reserve requirements if a

dispute arose.

However, defining a reasonable

reserve requirement for any particular

airport depends largely on the financial

and operating circumstances of the

airport at the time the airport proprietor

establishes the reserve. A uniform

definition for reasonable reserves would

unduly limit both the airport

proprietor’s flexibility to tailor its

reserve requirements to meet those

circumstances and the Department’s

flexibility to consider those

circumstances in reviewing a fee.

12. Allocation of Shared Costs

The Supplemental Proposed Policy

proposed that capital costs of facilities

used by aeronautical and

nonaeronautical users could be

allocated to those aeronautical users

who use the shared facility in a

proportion that reflects the aeronautical

purpose and proportionate aeronautical

use. Proposed para. 2.4.5(b). Roadways

would also be subject to the HCA

valuation requirement. Proposed Para.

2.5.1(b).

Airport Proprietors: ACI/AAAE

request clarification that

notwithstanding the valuation

requirement for public-use roadways,

the Department is not mandating a

particular cost allocation formula for

determining the aeronautical portion of

roadway costs.

The City of Chicago expresses concern

that an allocation based strictly on use

could be difficult to implement for some

airports and could be burdensome. The

City of Chicago urges the Department to

modify the policy to explicitly provide

more flexibility in cost allocation or to

at least interpret the existing provisions

of the policy as flexibly as we did in the

LAX I decision.

Airport users: Airport users did not

address this issue.

Other commenters: One individual

suggested that, to minimize the risk that

airports are improperly allocating costs

to the airfield cost center, the

Department should establish criteria for

defining cost centers. This commenter

suggests that the Final Policy require

that any facility that generates revenue

be defined as a cost center. In addition,

the policy should require that if the

facilities generate substantial revenue by

direct charges, the full costs should be
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 32005

covered by those charges. Under this

approach, roadway costs would be

assigned to a landside access cost center

apart from the terminal. Further, the

costs in this cost center would be

recovered entirely from parking garages

and lots, rental car companies and

commercial limousine, van and taxi

operators.

The Final Policy: The Department is

not modifying the provisions of the

Supplemental Proposed Policy in

response to the comments. However,

consistent with the decision in LAX II,

the Department is modifying the

provision to apply to allocation of costs

of shared services as well as shared

facilities.

The Supplemental Proposed Policy

did not propose allocation of shared

capital costs based strictly on use.

Rather, it proposed consideration of

both purpose and proportionate use of

the shared facility. This provision of the

Supplemental Proposed Policy is being

adopted as proposed. The Department

determined in LAX II that the possible

difficulty of quantifying purpose is not

a reason to allocate shared costs based

solely on use. LAX II, Order 95–12–33

at 24. Accordingly, no change in the

Final Policy is needed to accommodate

Chicago’s concern.

In reviewing the reasonableness of an

allocation, the Department would

consider, among other things, whether

the allocation had a rational basis and

was supported by factual evidence in

the record. In addition, the Department

would not preclude an airport

proprietor from using a reasonable

method of allocation just because

another method might produce a more

precise result. Id. at 33.

We will not adopt the suggestion of

the commenter that airport proprietors

be required to adopt a separate landside

access cost center, which is not funded

at all by charges to the aeronautical

users. The airport proprietor has

discretion in defining cost centers other

than the airfield, so long as its cost

allocations are reasonable, transparent

and not unjustly discriminatory.

Furthermore, the Department

specifically determined, in LAX I, that

an airport proprietor may allocate a

portion of access road costs to the

airfield. Order 95–6–36 at 31. As the

Department found in LAX I, carriers,

other aeronautical businesses and their

customers use (or benefit from) terminal

area access roadways. Id. Airport

proprietors may reasonably allocate a

share of roadway costs to the carriers

and other aeronautical users. The

commenter’s proposal would not assure

that all passengers who use the

roadways are charged for that use—

directly or through the charges they pay

to commercial enterprises. Many

passengers are dropped off by private

vehicles that pay no charge for the using

the roadways.

In addition, given the Department’s

reliance on local decisionmaking, the

Department is not prepared to dictate

how shared roadway costs are allocated

to the carriers, so long as the basic

requirements of the policy are met. The

share allocated to aeronautical use must

reflect the purpose and proportionate

use of the facility, and the allocation

methodology must be reasonable,

transparent and not unjustly

discriminatory.

Finally, the Supplemental Proposed

Policy was silent on the treatment of the

costs of shared services. As a result of

the deliberations in LAX II, the

Department has concluded that there is

no reason to treat these costs differently

than the costs of shared facilities.

Therefore, the applicable provisions of

the Final Policy are being modified to

apply to services and facilities.

13. Asset Valuation, Limiting HCA

Valuation to Airfield and Eliminating

the Aeronautical HCA Cost Cap

The Interim Policy required that

airport assets included in the

aeronautical rate base be valued at

historic cost to the original owner

(‘‘HCA value’’), absent agreement to the

contrary. Para. 2.4.1. However, the

Interim Policy further provided that, for

facilities other than airfield and all

airport land employed in providing

aeronautical use, other reasonable

valuation methods could be used, so

long as total aeronautical revenues do

not exceed total aeronautical costs,

based on HCA accounting. Para. 2.4.1(a).

The Supplemental Proposed Policy

proposed to limit the HCA requirement

to airfield assets and public use

roadways, and to eliminate the HCA

cost cap for total aeronautical revenues.

Proposed para. 2.5.1. For other

aeronautical assets, the Supplemental

Proposed Policy would permit the

airport proprietor to use any reasonable

methodology to establish fees, so long as

the methodology is applied on a

consistent basis to comparable facilities

and is justified. Proposed para. 2.6.1.

However, the Department proposed that

the progressive accumulation of

substantial amounts of surplus

aeronautical revenue may warrant an

FAA inquiry into whether aeronautical

fees are consistent with the airport

proprietor’s obligations to make the

airport available on fair and reasonable

terms. Proposed para. 4.2.1.

Airport proprietors: Airport

proprietors support the proposed

modifications. Among other reasons,

these commenters assert that the change

would eliminate concerns regarding

valuation of tenant-built facilities that

revert to the airport proprietor. Further,

this proposed modification will address

a number of additional concerns of ACI/

AAAE, including the following:

inconsistency between HCA valuation

of nonairfield facilities, on the one

hand, and industry practices and local

laws and regulations, on the other;

potential windfalls for airport tenants

that sublease aeronautical facilities;

higher landing fees paid by signatory

airlines at some residual airports; and

inconsistency of the HCA cost cap with

the requirement that airports be as selfsustaining as possible, as interpreted by

the Office of Inspector General (‘‘OIG’’).

Airport proprietors further assert that

application of the HCA cap to general

aviation airports would be particularly

burdensome, as those airports as a class

have limited nonaeronautical revenue

streams.

Airport commenters dispute the

carrier claims that terminal facilities

should be treated like the airfield

because airport proprietors possess

market power. ACI/AAAE note that they

accepted HCA valuation for airfield

facilities reluctantly because the policy

would not disrupt existing practices.

Airport proprietors point out that

terminal facilities are typically leased

on preferential or exclusive use basis.

They argue that the facilities are,

therefore, more analogous to hangars

and cargo facilities than to public use

airfields. They further argue that

airports compete with each other for

designation as international gateways

and as airline hub locations and for

origin and destination (‘‘O&D’’) traffic.

The airport proprietors note that

initiation of low-fare service at a given

airport can draw O&D passengers from

other airports in the region.

ACI/AAAE assert that recent increases

in airport charges to carriers do not

show airport market power and do not

show that airport proprietors lack

incentives to manage airports

efficiently. Factors contributing to

increases include the following:

compliance with federal mandates and

noise mitigation projects; expansion

necessitated by increases in passenger

activity and airline hubs; replacement of

passenger terminals constructed 30–45

years ago; and construction and

financing by airport proprietors of

airport facilities that had been financed

previously by the airlines directly. As

evidence that airports face real-world

pressures to reduce airline costs, one

airport proprietor points to its decision

to refinance airport revenue bonds to
32006 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

reduce debt-service expense and thereby

reduce airline rates and charges.

Another airport proprietor argues that

elimination of the HCA cap will

facilitate using price to allocate scarce

resources efficiently.

Finally, one airport proprietor

suggests that, if the HCA valuation

requirement is limited to the airfield

and public use roadways, references in

paragraphs 2.3, 2.4.1, 2.4.2, 2.4.4, 2.4.5,

2.5, 2.5.1, 2.5.3 and 2.7 should be

changed to ‘‘airfield/public use roadway

rate base.’’

Carriers: Carriers argue that the

Interim Policy’s provisions governing

asset valuation are needed to protect

against the exploitation of locational

monopoly power by airport proprietors

in pricing ‘‘essential facilities.’’

Essential facilities are not limited to the

airfield and include facilities for

baggage, cargo and passenger handling.

ATA/RAA contend that airport

proprietors exercise monopoly power in

pricing airport facilities in addition to

the airfield, because of the airports’

locational advantages and the barriers to

entry of new competitive airports. In

addition, ATA/RAA contend that

carriers’ investments in airport facilities

often preclude them from relocating

when an airport proprietor imposes

excessive fees. ATA/RAA point to

dramatic increases in fees at Los

Angeles, Orlando, El Paso and

Allentown as evidence of the existing

monopoly power of airports.

Carriers argue that, without clear

guidelines providing a foundation for

negotiations, the policy will not

promote direct resolution of disputes. In

addition, it will be difficult for airport

users to justify the burden of analyzing

the airport’s cost and revenue

calculation to prepare a legal challenge

to nonairfield fees.

The past absence of complaints over

fees does not provide a basis for relying

on effective competition, according to

ATA/RAA. They argue that, in the past,

negotiations were successful because

there was a balance of power between

airport proprietors and airport users.

Airport proprietors needed airport user

support for their financial bond issues.

Airport users needed airport

proprietors’ cooperation to develop

needed airport facilities. That balance

has been disturbed at many airports,

which can successfully issue bonds

without carrier support. In addition, the

claimed airport monopoly power was

constrained by a number of other

factors, including: common use of HCA

valuation and residual agreements; and

the expectations of airlines and airports

that fee disputes would be resolved in

Federal court.

The carriers argue that the threat of

investigation of sustained accumulation

of aeronautical surpluses will not curtail

abuse of monopoly power. Rather, the

policy would encourage airports to

overallocate costs to aeronautical cost

centers other than the airfield so as to

show break-even in accounting terms.

This problem is compounded by the

lack of record-keeping requirements.

ATA/RAA are particularly concerned

that airport proprietors will overallocate

the costs of municipal services provided

to the airport. IATA argues that the

Department’s decision to retain

authority to investigate an accumulation

of aeronautical surpluses is an implicit

admission that reliance on negotiation

and effective competition is doomed to

fail.

The carriers also argue that the

Interim Policy properly balances the

interests of airport users and airport

proprietors. The carriers assert that the

overall cap on aeronautical revenues

based on HCA costs protects carriers

from abuse of monopoly power. Within

the overall cap, the Interim Policy

provides ample flexibility to airport

proprietors to price individual facilities.

ATA/RAA also argue that the

concerns expressed by ACI/AAAE in

their earlier comments on the Interim

Policy are misplaced. ATA/RAA argue

that, if the HCA requirement is

inconsistent with a state or local law,

the state or local law is preempted.

USAir asserts that airports may prevent

airport tenants from earning windfalls

by exercising their rights to approve

subleases. USAir is also prepared to

assume the risk, as a signatory carrier,

that, under a residual system, it would

be required to pay higher fees under the

Interim Policy than non-signatories.

ATA/RAA also assert that the

Supplemental Proposed Policy will

permit airport proprietors to generate

surplus revenues from aeronautical

activities. To the extent that the

surpluses are used for capital

investment, current users would be

required to pay for future capital assets,

in contravention of the policy and the

position of the U.S. government in the

dispute with the United Kingdom over

Heathrow airport user fees. The carriers

also argue that the prohibition on

diversion of airport revenue is not

sufficient to prevent unjustified

accumulation of surplus airport

revenues. ATA/RAA point to the

findings of a Congressional investigation

that airport revenue diversion is widespread and that airport proprietors

increasingly view financially successful

airports as a potential source of funds to

alleviate general budgetary shortfalls.

IATA also argues that the

Supplemental Proposed Policy would

be inconsistent with the ICAO policy

that all airport charges are to be set in

relation to the costs of facilities and

services provided, citing ICAO Doc.

9082/4. As IATA points out, the ICAO

guidelines permit the airport proprietor

to earn a reasonable return. IATA argues

that the approach of the Supplemental

Proposed Policy to pricing of

nonairfield assets will permit airport

owners to establish fees according to

arbitrary and unreasonable standards.

General Aviation: While the NATA

does not recommend that the

Department establish accepted charging

practices for facilities leased by aviation

businesses, the NATA disagrees with

the Department’s assertion that disputes

over charges for nonairfield assets focus

on unjust discrimination. For the NATA

members negotiating leases, the level of

their fees, rather than unjust

discrimination, is the area of

disagreement. Therefore, the NATA

recommends that proposed paragraph

2.6 be expanded to outline areas for

consideration in establishing fees. The

NATA acknowledges that each

negotiation presents unique

circumstances. However, the NATA

suggests that the Final Policy identify as

relevant the following considerations:

physical variables of the airport and

leasehold; functional variables of the

airport and leasehold; and economic

variables of the area served by the

airport.

The AOPA asserts that the Interim

Policy balanced the needs of airport

operators and users. It argues that the

approach of the Supplemental Proposed

Policy could lead to unreasonable fees.

The AOPA is not persuaded that

effective competition exists for

nonairfield aeronautical assets. Further,

neither possible investigation of

accumulation of aeronautical surpluses,

nor the limitations on use of airport

revenue adequately protect against

excessive fees.

Other commenters: Two individual

commenters object to limiting the HCA

requirement to the airfield. They argue

that doing so will allow airports to

generate substantial surpluses.

The Final Policy: The Department is

following the approach of the

Supplemental Proposed Policy on this

issue. However, we are adding a

provision specifying that, if an airport

proprietor bases nonairfield fees on cost,

the airport proprietor must follow the

policy guidance on allocation of shared

costs (Paragraph 2.4.5). This addition

will assure that, when a cost-based

methodology is employed, shared costs

will be treated consistently across all
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 32007

cost centers. In addition, we are

modifying proposed paragraph 3.1.1

governing allocation of costs among

users and user groups to conform to the

Final Policy’s approach to nonairfield

fees.

The approach of the Final Policy is

justified by differences between airfield

assets and public-use roadways, on the

one hand, and other aeronautical assets,

including passenger terminals, on the

other. The airfield and the public-use

roadways are common use facilities, and

their use is more or less fungible.

Generally speaking no single user

derives more or less benefit from a

particular use. To the extent that this

general principal does not hold true

during peak times at congested airports,

the Final Policy allows for reasonable

and not unjustly discriminatory peakpricing systems. Otherwise, a detailed,

cost-based definition of reasonableness

is appropriate for such fungible assets

and would not disturb industry

practices or prevent airport proprietors

from allocating resources efficiently.

In contrast, other facilities are

generally leased on an exclusive or

preferential use basis. In addition, such

facilities, including terminals, are much

less fungible. For example, carriers

typically take responsibility for

outfitting their passenger terminal areas

and can reasonably be expected to view

that responsibility as an opportunity for

promotion. The value of gates to carriers

may depend in part on their location in

the terminal or the intensity of their use.

Other non-terminal facilities may be

perceived by users to have different

values based on a variety of factors,

including the following: proximity to

runways and taxiways; source of

construction financing; ownership of

improvements at the end of lease terms;

and expected use of facilities, including

rights to exclusive or preferential use. A

requirement that revenues from these

facilities not exceed an amount

determined by a cost-based formula

could prevent these differences from

being fully recognized in establishing

fees. A policy that gives preeminence to

the free play of negotiation and

exchange of benefits to assure that fees

for nonairfield facilities are reasonable

would permit these differences to be

fully recognized and would continue

current industry practices. Accordingly,

the latter approach is preferable.

The record contains numerous

examples of nonairfield fees set on a

basis other than HCA valuation. For

example, in the public meeting on the

Supplemental Proposed Policy held in

Washington, DC, all of the airport

proprietors testified that they use

methods other than HCA valuation for

at least some nonairfield facilities.

Supplemental Proposed Policy

Regarding Airport Rates and Charges,

Public Meeting (October 17, 1995),

(‘‘October 17 Public Meeting’’)

Transcript pp. 31–33, 36–37, 39, 79–80,

81. Further, in their comments on the

Interim Policy, ACI/AAAE reported that

some airports establish fees for leased

property by competitive bid or

solicitation, often by operation of state

law. Comments of ACI and AAAE in

response to the Policy Regarding Airport

Rates and Charges, Docket No. 27782

(‘‘ACI/AAAE May 4 Comments’’) at 6

(May 4, 1995). Their comments also

provided other examples of nonairfield

facilities that are priced on some other

basis than HCA valuation. Id. 12–13.

The limited evidence to the contrary

offered by the carriers is insufficient to

overcome that offered by the airport

proprietors. See, October 17 Public

Meeting Tr., pp. 77–78. Thus the record

demonstrates that requiring HCA

valuation for all aeronautical facilities

would substantially disrupt current

practices that have not been the subject

of complaints.

The Interim Policy was intended to

preserve that flexibility for establishing

rates for nonairfield facilities. Our

experience under the Interim Policy,

however suggests that the Interim Policy

had altered the status quo. For example,

in their comments on the Interim Policy,

ACI/AAAE reported instances in which

airlines informed an airport proprietor

that the maximum rental payments it

could require must be based on historic

costs. ACI/AAAE May 4 Comments at

24–25. In one case, a carrier had agreed

to a new hangar lease at rates exceeding

HCA rates but then refused to execute

the agreement following publication of

the Interim Policy. An airport proprietor

also testified to concerns that HCA

valuation would be used as the starting

point for all negotiations under the

Interim Policy. Supplemental Proposed

Policy Regarding Airport Rates and

Charges, Public Meeting (September 20

1995), (‘‘September 20 Public Meeting’’)

Docket No. 27782, Transcript at 23–25.

The carriers’ claims that airport

proprietors exercise monopoly power in

pricing essential aeronautical facilities

are not supported by the Department’s

experience. Many U.S. carriers have

benefited from airports’ competition

with each other to be the location of

aeronautical facilities, including

facilities for passenger and cargo hubs.

Moreover, as ATA/RAA themselves

argue, in their objections to the

treatment of imputed interest, publiclyowned airports do not operate under the

same profit motive as private investors.

Public airports are operated, for the

most part, as public facilities to serve

the public good by enhancing local

access to the national air transportation

system. Airport proprietors generally

seek to improve air services for their

communities. This objective would be

frustrated by charging exorbitant fees for

aeronautical facilities. There may be

isolated exceptions to this general rule.

However, the Department is not

prepared to require the vast majority of

airports to change their methods of

doing business to address the

extraordinary situation. In the

extraordinary situation, the Department

would consider airline complaints

concerning significant disputes through

an expedited administrative procedure

(14 CFR Part 302). Other cases would be

processed under the FAA’s investigative

and enforcement procedures (14 CFR

Part 13).

The Supplemental Proposed Policy

did not propose to permit every method

for establishing fees for nonairfield

assets, but only any reasonable method.

Users are still free to demonstrate that

in the circumstances of a particular

airport, a particular method is

unreasonable. For example, users may

demonstrate that the method is not

justified in the circumstances or applied

on a consistent basis.

As we noted in publishing the

Supplemental Proposed Policy, our

decision to take a flexible approach to

the pricing of nonairfield facilities is

based in part on the relative lack of

disputes between carriers and airport

proprietors over the reasonableness of

fees for such facilities, even those

deemed essential by the carriers. The

widespread acceptance of these industry

practices indicates their reasonableness

and general fairness. By relying on

industry practices in formulating our

policy, the Department is fulfilling the

Supreme Court’s expectation that the

Department would in large measure

base its standards for reasonable airport

fees on the relevant facts and

circumstances of the industry. Kent

County, 114 S.Ct. at 863, 864 n. 14. We

are not persuaded by carriers’ arguments

that this experience is unreliable.

First, while residual agreements have

been common in the industry, so were

compensatory agreements. A 1984

Congressional Budget Office study

reported that 42 percent of large hub

airports (10 out of 24) and 42 percent of

medium hub airports employed a

compensatory approach to rate-setting.

Financing U.S. Airports in the 1980s,

Congressional Budget Office (April

1984). The Kent County litigation

stemmed in part from the airport

proprietor’s decision to continue its
32008 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

historic compensatory approach to

landing fees.

Second, based on the comments and

testimony in this docket, airport

proprietors commonly use methods

other than HCA valuation to establish

fees for passenger terminal, cargo

handling and other ‘‘essential’’

nonairfield facilities, as discussed

above.

Third, the examples of airport bond

financing cited by the carriers do not

show that airport proprietors are readily

able to obtain debt-financing for

nonairfield facilities without carrier

agreement. Denver International Airport

involved construction of an entire

airport in conjunction with the closure

of Denver’s then existing air carrier

airport. Moreover, Denver was unable to

maintain investment grade status for the

bonds. The Grand Rapids experience

involved bond financing for a new

runway. Under the Final Policy,

runways must be priced based on HCA

valuation, absent agreement by the

users.

Likewise, the examples of airports

that have dramatically raised fees cited

by the carriers (Los Angeles, El Paso and

Allentown) do not support the claim

that airport proprietors exercise market

power in establishing fees for

nonairfield facilities. First, all three

examples involved landing fees, which

remain subject to the HCA valuation

requirement and detailed guidance of

the policy. Second, the conversion from

residual to compensatory methodology

accounts for much of the increase at two

of the airports (Los Angeles and El

Paso). ATA/RAA’s other example,

Orlando, has not yet established new

fees. ATA/RAA relies on a projection of

what Orlando might do when existing

agreements lapse. Moreover, it assumes

that the airport will convert from a

residual to a compensatory

methodology. October 17 Public

Meeting Transcript at 38. The selection

of either methodology has been deemed

reasonable by Congress through

enactment of section 47129(a)(2).

Finally, the Department is not

convinced that the threat of judicial

review of fees for nonairfield facilities

was a significant factor in preventing

excessive charges. Relatively few

airline/airport disputes over airport fees

have been resolved by litigation. Of

those few, only one or two did not

involve charges for use of the airfield. In

these circumstances, it is doubtful that

the threat of litigation would have

proved a significant deterrent to abuse

of monopoly power, assuming that

power existed.

We have also concluded that, on

balance, the approach of the Interim

Policy could have additional

undesirable results outlined by ACI/

AAAE in their joint comments. For

example, if market-based rates exceed

HCA-based rates, the Interim Policy

would have allowed airlines through

their subleasing to enjoy the additional

revenue, but would have effectively

precluded airport proprietors from

earning that additional revenue. Thus,

that additional revenue would have

been unavailable for investment in the

national airport system. At a time when

Federal resources for airport

infrastructure investment are severely

strained, we are loathe to restrict unduly

the ability of airport proprietors to

generate funds for such investment.

The Department agrees that the threat

of a Department investigation of

accumulation of surplus aeronautical

revenue by itself may not be a perfect

check against unreasonably high fees for

nonairfield facilities. However, we are

not relying solely, or even primarily, on

this threat. Rather, in our experience,

the market generally functions to

prevent excessive charges, and airport

proprietors have not routinely imposed

unreasonably high fees for nonairfield,

aeronautical facilities. Moreover, the

limitations on the use of airport

revenue, including the actions

mandated by section 112 of the

Reauthorization Act, diminish one

possible incentive to generate excessive

surplus aeronautical revenue—use of

the surplus to fund general

governmental activities. At this time, we

are not prepared to impose rigid

industry-wide pricing criteria for

nonairfield facilities to address

speculative concerns about a few

airports. In explicitly reserving our right

to investigate, the Department is

signaling its intention to act in those

rare situations where intervention

would be appropriate. Further, we are

signaling our intent to consider the

reasonableness of nonairfield fees over

the long term and not on the basis of a

single year’s results. We are, of course,

prepared to revisit this issue if

experience shows that our approach is

not effective in preventing contention,

controversy, and unreasonable practices

in the pricing of nonairfield

aeronautical facilities.

For these reasons, we expect that

pricing of nonairfield aeronautical

facilities and services under the Final

Policy will produce results consistent

with the policy guidance that

aeronautical charges should not produce

unreasonable returns.

The Final Policy merely allows

airport proprietors to continue current

pricing practices that have not resulted

in excessive charges.

Our policy on this issue is consistent

with the position of the U.S.

government in the dispute over landing

fees at Heathrow. In that case, the U.S.

government did not argue that the

British Airports Authority and (later)

BAA plc were not entitled to earn any

surplus. Rather, the objections stemmed

from circumstances that are unlikely to

arise in the United States.

The BAA establishes fees each year

following consultation with the users,

but without their agreement. The BAA

imposed separate landing fees, aircraft

parking charges and passenger terminal

charges. During the period in dispute,

BAA had unilaterally increased its

airport user charges at Heathrow to

finance on a pay-as-you-go basis

substantial new capital improvements at

London’s Heathrow and Gatwick

airports. The BAA had also sought to

earn a rate of return on the funds

invested in the new projects during

construction. Nothing in the Final

Policy precludes the Department from

determining that an airport proprietor

that is financing on a pay-as-you-go

basis significant new capital

development through unilaterally

imposed terminal rents is charging

unreasonably high terminal fees. Rather,

we are relying on the market mechanism

and negotiating process to prevent such

an occurrence in the first instance.

Nothing in our experience with the US

airport industry indicates that a U.S.

airport would be able to duplicate the

BAA’s approach to charging for terminal

facilities.

Likewise, the results of our approach

to nonairfield assets is consistent with

ICAO guidelines. First, the Final Policy

does not permit fees to be established

for these facilities by any method.

Rather, the method must be reasonable.

In addition, we rely on market

discipline to assure that these fees,

which are largely negotiated, are

reasonable, and do not result in the

generation of excessive profits (or rate of

return). As IATA acknowledges

elsewhere in its comments, the ICAO

guidelines permit an airport proprietor

to earn a reasonable return on its

investment.

We do not agree with carrier

arguments that our approach to

enforcing the prohibition on airport

revenue diversion will provide

incentives to airport proprietors to

charge excessive fees for nonairfield

facilities and services to obtain

additional funds for general municipal

purposes. Our approach to nonairfield

assets will not undermine enforcement

of the requirements on the use of airport

revenues. The Department is committed

to ensuring that airport revenues are
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 32009

used for airport purposes, as required by

law under 49 USC § 47107(b). Moreover,

in section 112 of the FAA Authorization

Act of 1994, codified at 49 U.S.C

§ 47107(l), Congress added new

requirements relating to both legal and

illegal diversion of airport revenue in

response to carrier concerns, as well as

new sanctions for violations of the

revenue diversion prohibition. On

February 20, 1996, the FAA issued a

Proposed Policy and Procedures

Concerning the Use of Airport

Revenues, Docket 28472 (61, FR 71344,

February 26, 1996). In addition, on

March 18, 1996, the FAA published

formats for the preparation and filing of

two reports by airport sponsors. One

report would list amounts paid and

services provided by the airport to other

units of government, as well as

explanations for claims of lawful

diversion. The other report would detail

the total revenue and expenditures at

each commercial airport, including

revenue surplus. These reports were

required by section 111 of the 1994

Reauthorization Act.

In addition, the statute prohibiting

revenue diversion excludes from the

prohibitions certain arrangements that

were in place when the statute was

enacted. Many instances of airport

revenue diversion identified in the

Congressional Report cited by the

carriers involved ‘‘legal diversion’’

under this statutory exception.

To date, our experience does not

indicate that the statutory provisions

and FAA’s actions in implementing

them are ineffective in assuring that

airport revenue is used for lawful

purposes. At this time, concerns about

airport revenue diversion do not justify

curtailing airport proprietors’ customary

flexibility to establish fees for non

airfield facilities.

We are not adopting the NATA’s

suggestion that additional guidance be

given for lease negotiations. As the

NATA acknowledges, each lease

negotiation will involve unique

considerations and circumstances. A

factor that is important in one

negotiation may have no relevance in a

second. Moreover, the Department is

committed to applying the Final Policy

to general aviation fees in a flexible

way. By delineating criteria to be

considered in negotiating leases, the

policy would decrease, not increase,

flexibility.

Finally, the Department has reviewed

the detailed guidance under Principle 2

and modified the provisions as

appropriate to reflect the narrowing of

the requirement for HCA-based fees. Not

all of the paragraphs suggested by the

commenter have been modified. In some

cases the unrevised paragraphs

implement statutory requirements in

addition to the reasonable fee

requirement.

14. Application of HCA Requirement to

Airfield and Public Use Roadways

The Supplemental Proposed Policy

proposed that airfield facilities, airfield

land and public-use roadways, be

valued according to their historic cost to

the original airport proprietor, except by

agreement with users. Proposed para.

2.5.1. In addition, in proposed

Paragraph 2.5.1(a), the Department

proposed methods for charging for land

dedicated to the airfield and public use

roadways (‘‘airfield/roadway land’’).

This provision is discussed separately

below. The Department also proposed to

allow airport proprietors to charge more

than a pro rata share of airfield costs to

particular users to encourage efficient

use of the airfield. Proposed Para.

2.5.1(b). This provision is also discussed

separately below.

Airport Proprietors: ACI/AAAE point

out that their earlier acceptance of HCA

valuation for airfields was not based on

analogy to other industries, but based on

their conclusion that vast majority of

members would not be greatly

disadvantaged. ACI/AAAE do not

accept the carrier position that airports

possess market power with respect to

any airport facilities. ACI/AAAE urge

the Department to implement the HCA

valuation requirement flexibly, to

permit direct resolution of disputes.

ACI/AAAE also argue that, to be

effective, peak-pricing systems must

incorporate landing fees that are high

enough to balance supply and demand,

regardless of the airfield’s historic cost.

ACI/AAAE request the Department to

clarify that an airport using an

otherwise acceptable peak-hour pricing

system may charge landing fees that are

not based on historic cost.

Massport asserts that in some cases,

the HCA valuation requirement for the

airfield is inconsistent with sound

economic theory and efficient allocation

of scarce airport resources. Massport

suggests that the policy should define

HCA valuation for the airfield as

presumptively reasonable, but permit an

airport proprietor to show that other

valuation methods are reasonable.

Los Angeles and San Francisco

request that the HCA requirement for

the airfield and public-use roadways be

eliminated. Los Angeles argues that

market-based rents are inherently

reasonable, as the Department itself

recognized in proposing to narrow the

HCA requirement. Market-based rates

also reflect economic reality better. Los

Angeles further argues that the

reasonableness of market-based pricing

has been sustained in judicial decisions,

including Blum v. Stenson, 465 U.S.

886, 892–95 (1984); Harmon City, Inc. v.

United States, 733 F.2d 1381–1382–84

(10th Cir. 1984); and Telesat

Cablevision, Inc. v. City of Riviera

Beach, 773 F.Supp. 383, 407 (S.D. FL

1991).

Los Angeles and the City of San

Francisco argue that market-based

pricing for the airfield is most consistent

with the requirement that airport

proprietors establish a fee and rental

structure that will make the airport as

self-sustaining as possible. Both airport

proprietors rely on the determination of

the OIG that airports must receive no

less than fair market value for

aeronautical land and improvements in

order to meet this mandate. Los Angeles

also argues that its proposed method of

determining FMV, based on the land’s

next best use, avoids any risk that the

FMV determination will reflect the

exercise of market power.

Los Angeles further argues that even

though the Supplemental Proposed

Policy would allow the airport

proprietor to amortize the costs of

acquired land, the HCA requirement

would not allow the airport proprietor

to compensate itself for the opportunity

costs of maintaining its investment in

the airfield rather than using the

property for other purposes. Los

Angeles asserts that the courts now

recognize opportunity costs as a real

cost, citing among other decisions,

Afram Export Corp. v. Metallurgiki

Halyps, S.A., 772 F.2d 1358, 1369 (7th

Cir. 1985); Duff v. Marathon Petroleum

Co., 985 F.2d 339, 340 (7th Cir. 1993).

Los Angeles also complains that the

HCA valuation requirement fails to

compensate the airport proprietor for

the costs of inflation. At a minimum, the

policy should be modified to permit

adjustments to HCA valuation to reflect

general inflation.

Los Angeles also argues that the HCA

valuation requirement results in an

unconstitutional taking of the airport

proprietor’s property, because it

precludes the airport proprietor from

earning a fair return on investment. Los

Angeles argues that, under Duquesne

Light Co. v. Barasch, 488 U.S. 299, 307,

310 (1989), a rate set at a level that is

confiscatory is unconstitutional. A rate

that does not allow for a rate of return

is per se confiscatory, according to Los

Angeles, and therefore,

unconstitutional. Los Angeles also

suggests that the fair return must be

based on the present value of the assets,

citing Smyth v. Ames, 169 U.S. 466,

547; Denver Union Stockyard Co. v.

United States, 304 U.S. 470, 473 (1938).
32010 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

Los Angeles also argues (in its

comments on the Interim Policy) that

the property of public as well as private

entities is protected by the takings

clause of the Constitution, citing United

States v. 50 Acres of Land, 469 U.S. 24,

31 (1984).

Los Angeles further argues that

requiring HCA valuation for airfield

land subsidizes air carriers needlessly

by transferring the value of the airfield

assets to the carriers.

In addition, Los Angeles argues that

the HCA valuation requirement would

make the charge for airfield land in the

rate-base a function of happenstance—

whether land is owned or leased. If land

is leased, the airport proprietor would

be able to charge its full rental

payments—reflecting fair market

value—to the airfield users.

Finally, the Metropolitan Airport

Commission (‘‘MAC’’) requests the

Department to modify the policy to

permit any reasonable method for

valuing public-use roadways. MAC

asserts that off-airport commercial

enterprises may attempt to use the

provision to pay no more than the

roadways’ historic costs, even though

these enterprises are not aeronautical

users. MAC operates the MinneapolisSt. Paul International Airport.

Carriers: Carriers support retaining

the HCA valuation requirement for the

airfield and public-use roadways

consistent with their arguments against

elimination of the HCA cost cap for total

aeronautical revenues.

General aviation: AOPA expressed

general support for HCA valuation of

airfield assets.

Other commenters: The American Car

Rental Association (‘‘ACRA’’) considers

the HCA valuation requirement to be

inconsistent with fees based on cost

recovery. The HCA valuation

requirement would, in ACRA’s view,

perpetuate a subsidy to airfield assets

from other parts of the airport.

The Final Policy: The Department is

adopting the provisions of the

Supplemental Proposed Policy without

substantive change. After reviewing all

comments, the Department has

determined that the HCA valuation

requirement for the airfield and publicuse roadways should be retained. The

requirement reflects nearly universal

industry practice. See LAX I, Order 95–

6–36 at 21. It is acceptable to the

overwhelming majority of airport

commenters who addressed the issue

and has the unanimous support of

aeronautical users. While we are willing

to allow airports to use other reasonable

methods for establishing fees for nonairfield facilities, the rationale for that

decision does not apply to fees for

airfield assets, as outlined in the

previous section. Among other things,

airfield fees have resulted in several

major controversies.

Moreover, HCA valuation is

recognized as an acceptable method of

valuing assets when determining

reasonableness, even if it is not the only

one. In this regard it is simpler than

other methods, especially market

valuation techniques. HCA valuation

can generally be determined from

accounting records. FMV methodologies

would invite disputes over appraisals

for the value of airfield land. Unlike

typical commercial real estate, there is

no generally acceptable methodology for

identifying and valuing comparable uses

for land dedicated to an airfield.

Permitting FMV valuation for the

airfield would turn landing fee disputes

into debates between real estate

appraisal experts with the Department

in the role of referee. The Supreme

Court has noted that the difficulties of

calculating FMV caused regulatory

agencies to abandon the use of FMV for

valuing capital investments by public

utilities. Duquesne Light, supra, 488

U.S. at 308–309.

In addition, the HCA valuation

requirement allows airport proprietors

to fully recover their out-of-pocket costs

of providing airfield facilities and

services. The policy allows the airport

proprietor to fully recover all of its

capital expenditures —through

depreciation and, for land, through

amortization or imputed interest

charges. For debt-financed

expenditures, the airport proprietor may

fully charge airfield users with the costs

of paying principal and interest. Other

provisions of the policy permit recovery

of opportunity costs, and the costs of

inflation, to the extent that an airport

proprietor is entitled to such recovery,

as discussed below. Thus, the HCA

valuation requirement for the airfield is

not inconsistent with the statutory

requirement on self-sustainability. For

these same reasons, the HCA

requirement is consistent with the

principle of cost recovery urged by

ACRA and does not result in a subsidy

to airfield users.

The Department notes that the

Inspector General (in numerous audits

of the FAA’s monitoring of airport

revenue) has recommended that

aeronautical leases must be set at fair

market value to comply with the selfsustainability requirement. This

recommendation is not, as Los Angeles

asserts, a basis for eliminating the HCA

requirement for the airfield. The

Secretary of Transportation, not the

Inspector General, is responsible for

establishing policy and interpreting the

requirements of the AAIA. In

promulgating this policy, the Secretary

of Transportation has determined that

the requirement of self-sustainability

does not mandate FMV-based valuation

of airfield assets and of other

aeronautical assets. The pricing of these

assets is also subject to the standard of

reasonableness.

The standard of reasonableness and

the standard of self-sustainability are

not identical in application. The

requirement of a fee and rental structure

that will make the airport as selfsustaining as possible does not apply to

the setting of a particular fee. Rather, the

requirement applies to managing the

airport’s revenues and establishing a

schedule of fees that generates sufficient

earnings to meet current expenditures,

to offset future deficits, and avoid the

necessity of reliance on taxation. See,

e.g., Clifton v. Passaic Valley Water

Commission, 557 A.2d 299 (N.J. 1989).

Even if we interpreted the selfsustainability requirement to apply to

individual fees, that requirement does

not override the requirement of

reasonableness. A fee set to maximize

revenue (as the OIG assumes FMV-based

fees do) may be consistent with the

requirement of self-sustainability.

However, if the fees resulted in

surpluses, those fees might be

unreasonable. Congress has declared as

a matter of policy that airport

proprietors should not seek to create

revenue surpluses that exceed the

amounts to be used for system purposes

and other lawful purposes. 49 USC

§ 47101(13).

The Department has carefully

considered the other objections to the

HCA valuation requirement, particularly

those expressed by Los Angeles.

However, Los Angeles has failed to

show that the Department’s approach is

wrong. While the FMV technique has

been sustained in judicial decisions as

meeting the standard of reasonableness,

Los Angeles has cited no authority

establishing that the FMV technique is

the only reasonable method for

determining rates. Indeed, as Los

Angeles acknowledges, the Supreme

Court in Federal Power Commission v.

Hope Natural Gas Co., 320 U.S. 591, 605

(1944), held that HCA valuation is also

a valid basis for determining

reasonableness. In that case, the Court

abandoned its earlier preference for

present valuation of assets expressed in

the Smyth v. Ames and Denver Union

Stock Yard cases cited by Los Angeles.

The courts have recognized that

regulatory agencies normally use

historic costs for rate cases. Duquesne

Light, supra, 488 U.S. at 309–310; Jersey

Central Power & Light Co. v. FERC, 810
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 32011

F.2d 1168, 1175 (D.C. Cir. 1987) (en

banc).

The Department likewise is not

persuaded that FMV-based landing fees

are required to compensate airport

proprietors for the opportunity costs of

airfield investments. Los Angeles’ claim

for opportunity costs assumes that

airport proprietors are free to disinvest

in the airfield and put their capital to

other uses. Most airport proprietors

subject to this policy, including Los

Angeles, are not. These airport

proprietors have accepted Federal

financial assistance or free Federal land

for airport development. Los Angeles

has accepted both. In exchange for this

Federal assistance, they have committed

to continue to operate their airports as

airports. Los Angeles’ compensation for

devoting the LAX airfield for use as an

airfield was the Federal financial

assistance and donated Federal land.

In any event, to the extent that the

airport proprietor is entitled to recover

any opportunity costs in the airfield rate

base, these costs may be recovered

through the imputed interest charge

under the Final Policy. The imputed

interest charge is intended to

compensate the airport proprietor for

the use of internally generated funds

invested in the airfield and not

elsewhere on the airport.

Similarly, an airport proprietor may

look to the imputed interest allowance

to be compensated for inflation. The

Final Policy permits an airport

proprietor to charge imputed interest at

a reasonable rate. The airport

proprietor’s adoption of an appropriate

and reasonable market-based rate

should compensate the airport for

inflation. Investors in capital markets

expect to be compensated for inflation,

as well as the opportunity cost of

investment. Therefore, market-based

imputed interest rates ordinarily reflect

investors’ expectations on the future

rate of inflation.

The HCA valuation requirement will

not violate the Constitutional rights of

airport proprietors by denying their

right to earn a return on their

investment or by taking their property

without just compensation.

The requirement does not deny

airports—whether privately or publiclyowned—their Constitutional right to a

rate of return on their investment. The

Supreme Court, after all, has held that

a regulatory agency’s use of HCA

valuation in rate-making cases does not

violate the Constitutional principle that

regulated firms must be allowed the

opportunity to earn a return on their

investment. See, Duquesne Light, supra,

488 U.S. at 308–310.

In addition, paragraph 2.4 of the Final

Policy explicitly allows private owners

of airports to earn a rate of return.

Assuming that state and local

government agencies operating airports

were entitled to earn a rate of return, the

Final Policy does not deny them that

right. The Final Policy allows an airport

proprietor to charge imputed interest on

its investment in the airfield, except to

the extent those investments were made

with funds derived from fees paid for

the use of the airfield. This imputed

interest represents compensation for the

airport proprietor’s capital invested in

the airport, as would a return on

investment.

The HCA valuation requirement thus

does not violate the takings clause of the

Constitution. The Supreme Court

considers three factors in determining

whether government action constitutes a

taking: the action’s character, its

economic impact, and the extent to

which the action interferes with

investment-backed expectations. See

Connolly v. Pension Benefit Guaranty

Corp., 475 U.S. 211, 224–225(1986);

Concrete Pipe & Products v.

Construction Laborers Pension Trust,

508 U.S. 602; 113 S.Ct. 2264, 2291

(1993). The Final Policy’s limits on

airfield fees cannot constitute a taking

under these standards.

First, the HCA valuation requirement

causes no physical invasion or

permanent appropriation of an airport’s

property. Instead, as is typical of many

regulatory programs, the HCA valuation

requirement adjusts the benefits and

burdens of economic life in order to

promote the common good. That type of

regulation is not normally deemed a

taking of property.

Second, the economic impact on

airports is not severe. As admitted by

Los Angeles’ expert witness in LAX I,

every airport in the United States except

LAX has valued airfield land at historic

cost in setting fees. Order 95–6–36 at 21.

Even LAX used HCA valuation before

1993, when it implemented the FMVbased fees found unreasonable, in part,

by the Department in LAX I. Moreover,

the HCA valuation requirement enables

airports to recover the actual costs of

their investment in airfield facilities,

and airports may also obtain imputed

interest on their investment, unless the

invested funds were derived from

airfield fees.

Third, requiring HCA valuation

cannot interfere with any airport’s

investment expectations, as

demonstrated by the Court’s analysis in

Connolly, 475 U.S. 226–227. The HCA

requirement merely ratifies the airports’

existing practices for pricing airfield

assets. In addition, as both ATA/RAA

and ACI/AAAE point out, state and

local governments invest in airports in

order to further the well-being and

general welfare of their citizens, not in

order to make a profit. Furthermore,

federal statutes have limited airport

aeronautical fees for many years and

imposed other restrictions on the use of

airport funds and property by airport

owners.

Los Angeles’ concern about

anomalous treatment between leased

and owned airfield land does not justify

abandoning the HCA valuation

requirement for the airfield. First, the

situation in which an airport proprietor

leases an airfield from an independent

entity, rather than owns it, is extremely

rare. The Department is aware of only

two airport proprietors that lease their

airfields—the Port Authority of New

York and New Jersey and the

Metropolitan Washington Airports

Authority. In both cases the airport

proprietor is leasing from other

governmental entities. Second, even as

between two airport proprietors that

own their airfields, the Final Policy may

well require one airport to charge lower

fees than the other, because the former

has lower costs. Two airports could

have different costs for a number of

reasons, including the following:

differences in land costs at the time of

acquisition; differences in the acreage of

the respective airfields; differences in

the interest rates payable on bonds used

to finance the airfield;, and even

differences in the salary and benefit

structure of the two airport proprietors.

Moreover, even with airfield assets

valued at FMV, airfield rates could be

determined by a factor that could be

deemed ‘‘happenstance’’—the market

conditions at the time each airport’s fees

are established. However, the

Department would consider each airport

proprietor’s costs in determining the

reasonableness of its airfield fees

because each airport’s costs vary. This

variation is not a reason to ignore those

costs, or to avoid using HCA valuation.

The Department will not adopt the

suggestion that the HCA valuation

requirement be adopted as a rebutable

presumption. The practice of using HCA

valuation for the airfield is wide-spread

and long-standing. Therefore, the

Department does not see a need to allow

airport proprietors to argue routinely

that a different valuation methodology

is reasonable. Such arguments could

greatly add to the burden of processing

complaints under section 47129.

However, the Department, on a case-bycase basis, has allowed airport

proprietors to argue that the HCA

valuation requirement should not be
32012 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

applied to them because of unusual

circumstances. See, e.g., LAX I, Order

95–6–33 at 15–17. We would continue

to do so.

In addition, the Department is

retaining the HCA valuation

requirement for the public-use

roadways. Public-use roadways are

more like the airfield than like

terminals. Roadways are common use

facilities, like the airfield. An

aeronautical user cannot derive

commercial or competitive benefit vis-a`-

vis competitors through the use of the

roadways, and aeronautical users do not

separately bargain for the use of the

roadways.

MAC acknowledges that the

provisions of the Final Policy governing

reasonable fees do not apply to fees paid

by nonaeronautical users. Therefore,

nonaeronautical users may not rely on

the Final Policy to claim a right to

roadway access charges based on HCA

valuation.

Airport proprietor concerns about the

relationship between the HCA valuation

requirement and peak pricing are

addressed in the disposition of

comments on peak pricing.

15. Airfield Revenue Cap Based on HCA

Valuation

The Supplemental Proposed Policy

proposed that airfield revenues may not

exceed airfield costs (proposed para.

2.2) and included detailed guidance on

how airfield costs may be determined.

Among other things, airfield assets must

be valued based on their historic cost to

the original airport proprietor. Proposed

para. 2.5.1. Together, these provisions

would create a cap on total airfield

revenue based on HCA valuation of

airfield assets.

The comments: Los Angeles and San

Francisco oppose the cap on airfield

revenues based on HCA costs. Both

airport proprietors assert that the cap

provision violates section 47129(a)(3),

which directs that the Secretary ‘‘shall

not set the level of the fee.’’ Los Angeles

argues that the cap deprives the airport

proprietor of substantial latitude to set

fees. Los Angeles further argues that the

cap is inconsistent with the airport

proprietor’s right to use fair market

values for airfield land. In addition, the

cap would serve no purpose but to

encourage airport proprietors to tinker

with fees to keep them in sync with

costs. San Francisco also argues that the

cap amounts to a subsidy to airfield

users.

Carriers and general aviation

commenters generally support the HCA

cap for the airfield.

The Final Policy: The Department is

adopting the provisions of the

Supplemental Proposed Policy without

modification.

The contention that the HCA cap

requirement illegally ‘‘sets’’ the fee for

airfield use within the meaning of

section 47129(a)(3) is wrong. The Final

Policy provides detailed guidance on

the total costs that may be recovered

through airfield fees, but it does not

establish a single, comprehensive

formula for determining the amount of

total airfield revenues. For example, the

policy does not establish a single

methodology to allocate common costs

between the airfield and other cost

centers, or to allocate indirect costs.

Likewise, the policy does not establish

a single permissible time-frame over

which to depreciate and amortize

airfield assets or a single permissible

rate for the imputed interest charge.

Each of these decisions is left to the

discretion of the airport proprietor and

will affect the total amount of revenue

that the airfield may generate.

Moreover, the Final Policy does not

establish a mandatory formula for

charging individual airfield users.

Rather, the airport proprietor also has

some latitude in setting individual fees

to recover total airfield revenue. The

airport proprietor has some discretion to

allocate costs among airfield users and

to establish the basis of the charge.

Airport proprietors can and do establish

weight-based charges, operations-based

charges, or charges based on a

combination. Each of these decisions

will affect the level of fee that an

individual user pays.

In these circumstances, the HCA

revenue cap cannot be said to ‘‘set’’ the

level of an airfield fee. Furthermore,

Congress has directed the Department to

develop reasonableness guidelines.

Since the Department has determined

that airfield fees must be based on costs

to assure that fees are reasonable, the

required guidelines must set forth cost

standards for those fees.

The Department has concluded that

airport proprietors do not have a right

to value airfield land at fair market

value. Therefore, the HCA revenue cap

cannot violate that purported right.

Assuming, for the sake of argument, that

an airport proprietor has a right to be

compensated for the opportunity costs

of its investment in the airfield, the

Final Policy permits an imputed interest

charge to be included in the rate-base.

Moreover, as discussed above, the HCA

cap does not provide a subsidy to

airfield users, because it permits the

airport proprietor to fully recover the

costs of providing airfield services and

facilities.

The airfield cost cap merely

implements the Department’s approach

to pricing the airfield. As noted

previously, the fundamental

requirement of reasonableness for

airfield fees is that the fees reflect the

costs of providing services and facilities

for users. The Department has chosen to

impose a specific requirement to

achieve that result and provide detailed

guidance on acceptable methods for

determining costs. The HCA cap follows

logically from this approach.

The HCA cap on airfield revenue does

not require a constant tinkering with

fees to assure that fees never exceed

costs in any charging period. The

Department expects airport proprietors

to set fees prospectively based on their

reasonable projections of traffic and of

costs determined in accordance with the

policy. The Department also expects

that airport proprietors will periodically

review their fees and adjust them, on a

prospective basis, based on projected

changes in costs and traffic. This

expectation is based on the standard of

reasonableness; it is reflected in a

separate provision of the Final Policy

(paragraph 2.3), which is independent

of the HCA cost cap. Moreover, Los

Angeles has chosen to set fees on an

interim basis and to make periodic

adjustments based on actual results.

This approach renders its concerns

about tinkering moot.

16. Amortization of HCA Value of

Airfield Land

The Supplemental Proposed Policy

included provisions describing how the

airport proprietor might recover the cost

of airfield land through airfield fees.

The Department proposed that, if land

was acquired with debt financing, the

airport proprietor may include a charge

for all related debt-service costs,

including principal, interest and debt

service coverage. For land acquired with

internally generated airport funds or

donated by the sponsor, the

Supplemental Proposed Policy

proposed that the airport proprietor

could amortize the land. The

Department further proposed that upon

completion of the amortization or

retirement of the debt, the land may no

longer be included in the rate base.

Proposed para. 2.5.1(a). The Department

did not propose to allow any other

treatment.

Airport proprietors: Two individual

airport proprietors specifically endorse

the approach of the Supplemental

Proposed Policy on this issue. Other

airport proprietors did not comment. In

addition, one airport proprietor argues

that the amortization provisions should

apply to facilities as well as land.

Carriers: Carriers object to the

amortization of the cost of land acquired
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 32013

by means other than bond financing,

because land is not a wasting asset.

Therefore, amortization of land is not

permitted by accounting or tax rules,

and there is no reasonable basis for

determining an amortization schedule

for land. The carriers argue that if the

Department permits amortization of

land, the Department should set forth

clear guidelines for the period of

amortization. ATA/RAA argue that this

period should be considerably longer

than 39 years, which is the minimum

depreciation period for commercial

buildings under the Internal Revenue

Code.

General aviation: Other aeronautical

users did not comment on this issue.

Other commenters: One individual

commenter requests the Department to

limit the meaning of the term

amortization to recovery of expenditures

for land. This commenter points out that

some airport proprietors define

amortization as recovering the costs of

land plus imputed interest.

The Final Policy: The Final Policy

adopts the approach of the

Supplemental Proposed Policy on

recovering the cost of debt-financed

land without modification. The Final

Policy is being modified to permit an

airport proprietor to choose one of two

options for recovering the airport

sponsor’s cost of other land used for the

airfield and public-use roadways. First,

the airport proprietor may impose a

reasonable amortization charge based on

the HCA valuation of the land, and

remove the land from the rate base upon

completion of the amortization. Second,

the airport proprietor may retain the

original HCA value of the land in the

rate-base indefinitely and charge

imputed interest, to the extent permitted

by this policy. To avoid

overcompensation for this land, the

airport proprietor may not alternate

between methodologies. Amortization is

being permitted, in part, because it is

used by some airport proprietors and

appears to be a reasonable alternative, as

discussed below.

The ATA/RAA position on land that

was not acquired with debt financing is

unreasonable, because ATA/RAA would

not permit the airport proprietor to

charge either amortization or imputed

interest on amounts invested in such

land. Thus, ATA/RAA would deny any

form of compensation to airport

proprietors for their investment in

airfield/roadway land.

However, as the carriers argue, land is

not a wasting asset. Utility regulators do

not generally permit a regulated entity

to amortize the cost of land, but permit

the regulated industry to include the

value of land in the investment base on

which it earns a rate of return.

For this reason, the Department has

concluded that the Policy should not

mandate amortization as the sole means

of cost recovery. However, the

Department is not persuaded that

amortization should be precluded.

While objecting to the practice, ATA/

RAA did not argue that the practice is

uncommon. Amortization is used at

some airports in the United States and

has not generated significant

controversy at individual airports.

Further, over the long run, it is not

clear that the two approaches would

produce substantially different results.

During the amortization period,

amortization would produce higher

annual charges. However, eventually,

the land would be removed from the

rate base and charges would be reduced.

In contrast, if the full HCA value of land

is retained in the rate base, airfield fees

would include an imputed interest

charge indefinitely. Over the long run,

the imputed interest charges imposed

indefinitely may balance out the higher

charges imposed for a fixed period

under amortization.

In addition, while the Final Policy

may contain some provisions that favor

debt-financing over internal financing,

the Department seeks to avoid providing

unnecessary incentives for debtfinancing. The Department is concerned

that prohibiting the amortization of

airfield land that is not financed with

debt could bias some airport proprietors

toward using debt-financing for land

acquisition.

Finally, the Final Policy precludes

charging imputed interest on funds

generated by airfield fees that are

invested in the airfield. If funds

attributable to airfield fees were

invested in airfield land and the airport

proprietor could not amortize the value

of that investment, the airport proprietor

would have no means of being

compensated for its investment in the

land.

Based on these considerations, the

Final Policy permits either

methodology. The airport proprietor

may include a reasonable amortization

charge, provided that the land is

removed from the rate base upon

completion of the amortization period.

Alternatively, the airport proprietor may

retain the HCA value of the land in the

rate base and impose a reasonable

imputed interest charge, to the extent

permitted by the Final Policy. The Final

Policy also prohibits an airport

proprietor from alternating between

methodologies, to obtain undue

compensation.

The Final Policy requires that when

an airport proprietor elects to amortize

its investment the charge must be

reasonable. One factor in determining

reasonableness is the amortization

period. The Final Policy does not

specify a particular period because what

is reasonable will depend on the

individual circumstances of a case. In

reviewing the reasonableness of an

amortization period, the Department

will consider, among other things,

whether the airport proprietor has

selected a period that gives appropriate

recognition to land’s character as a nonwasting asset.

The Department will neither permit,

nor prohibit, in this policy, the

inclusion of an imputed interest

element in the amortization charge. The

Department would consider an airport

proprietor’s decision to include an

imputed interest element as part of its

review of the reasonableness of the

amortization charge.

The Department is not adopting the

suggestion to expand the provision on

amortization to capital assets other than

land. Other capital assets are subject to

depreciation under generally accepted

accounting principles (‘‘GAAP’’), and no

specific provision in the Final Policy is

required to permit depreciation charges.

The Final Policy addresses land

specifically because land is treated

differently than other capital assets

under GAAP.

17. Costs of Airport Systems

The Supplemental Proposed Policy

proposed that the rate base of one

airport could include the costs of a

second airport currently in use only if

the airport proprietor owns both

airports; the second airport is currently

in use; and the costs of the second

airport to be included in the rate base

are reasonably related to the benefits

that the second airport provides to the

aeronautical users of the first airport.

Proposed Para. 2.5.4. The Department

also proposed that the latter element

would be presumed satisfied if the

second airport has been designated as a

reliever airport for the first airport by

the FAA. Proposed para. 2.5.4(a).

Airport proprietors: The PANYNJ

objects to the common ownership

requirement. The PANYNJ argues that

the owner of a commercial service

airport should be able to contribute to

the costs of an airport that serves a

critical reliever function, even if the

reliever is under separate ownership.

The PANYNJ would make benefits the

sole criterion.

The State of Alaska argues that by

limiting the multiple airport system rate

base to airports that have a direct traffic
32014 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

relationship, the approach of the

supplemental notice is more restrictive

than the airport system approach

provided in the FAA’s grant assurances,

and is excessively restrictive for the

operator of a large system, like Alaska.

The State operates 253 airports and

seaplane bases.

Carriers: IATA opposes the approach

of the Supplemental Proposed Policy.

IATA argues that pricing must be airport

specific to promote transparency and

that carriers should not be required to

pay for airport facilities that they do not

or could not use.

General aviation: General aviation

users did not comment on this issue.

Other commenters: One commenter—

a law firm involved in bond financing—

argues that the Department’s approach

does not give adequate consideration to

the obligation of owners of airport

systems to operate their systems in a

financially self-sufficient way, as

reflected in 49 USC § 47107(a)(13). This

commenter stated that some airport

proprietors may operate systems that are

financially linked, but that are

operationally distinct.

The Final Policy: The Department is

adopting the provision of the

Supplemental Proposed Policy without

substantive modification. However, we

are making editorial revisions to clarify

that the provisions apply to systems of

more than two airports. In addition, the

Department will permit an airport

proprietor to show that its existing

practice of subsidizing an airport from

another airport’s airfield fees is

reasonable, even if all of the criteria

required by the Final Policy are not met.

The Department does not wish to

disrupt existing practices that have not

generated controversy.

The approach of the Final Policy is

based on the requirement of

reasonableness. Generally speaking, the

standard of reasonableness permits an

airport proprietor to charge only for the

facilities that it provides that are used

by the rate-payer or that benefit the ratepayer. If an airport proprietor does not

own the other airport, it cannot be

providing those facilities. If the other

airport is not currently in use, airfield

users cannot be using the other airport

or benefiting from it. For these reasons,

the common ownership and currentlyin-use requirements are retained. The

requirement of benefit will be retained

as well. It can be reasonable to charge

a rate-payer for the costs of a facility

from which it benefits, even if the rate

payer does not directly use that facility.

This principle may be especially true

in the case of a commercial airport/

reliever airport system. The reliever

airport’s function is to draw general

aviation traffic away from the

commercial service airport. If the airport

proprietor had to charge the full cost of

the reliever airport to general aviation

users, the increased price might cause

those users to elect the commercial

service airport—increasing congestion

and the carriers’ costs of operating there.

However, the requirement of benefit

does not mean that a direct traffic

relationship is required in all cases. An

airport’s status as a designated reliever

creates a presumption of benefit.

However, an airport proprietor is free to

show a benefit exists even when the

subsidized airport is not a designated

reliever.

The State of Alaska’s argument

regarding the treatment of airport

systems appears to refer to the grant

assurance on the use of airport revenue.

The assurance permits airport revenue

from any source to be used for any

airport in a local airport system.

However, charges to aeronautical users

are subject to a separate and more

stringent standard of reasonableness.

Similarly, the comment about airport

financial systems overlooks the

reasonableness requirement. Financial

self-sufficiency is also a Federal grant

obligation. However, the Final Policy is

clear that this obligation does not justify

charging the users of the airfield more

than the costs of operating the airfield

to cover the losses incurred elsewhere at

an airport. It follows that this standard

does not independently justify charging

the users of the airfield more than its

costs to cover losses incurred at a

separate airport. Moreover, section

47107(a)(13) in fact refers to charges that

will make the airport, not the airport

system, self sufficient.

In response to the State of Alaska’s

concerns about its approach to financing

its airport system, the Department is

modifying the Final Policy to provide

for consideration, on a case-by-case

basis, of the reasonableness of an

existing practice that does not satisfy all

three criteria listed in the Final Policy.

This modification also furthers another

Department goal: minimizing disruption

of existing, non-controversial practices.

In addition, the policy on this issue

does not preclude an airport proprietor

from supporting another airport when

the conditions specified in the policy

are not met. It only precludes adding the

cost of that support to the airfield rate

base. Even this limitation can be waived

by agreement with airfield users. Thus,

the airport proprietor has the

opportunity to persuade airfield users

that the benefits of the second airport

justify including some of its costs in the

landing fee.

The Department’s approach to airport

systems is not inconsistent with our

policy favoring transparency. An airport

proprietor seeking to charge the users of

one airport for the costs of another must

justify the charge. The Department

expects that as part of that justification,

the costs of the other airport will be

separately identified and the basis for

the cost allocation explained.

18. Charging For Closed Airports

The Supplemental Proposed Policy

proposed that, if an airport proprietor

closes an airport as part of an approved

plan for the construction and opening of

a new airport, reasonable costs of

disposition of the closed airport could

be included in the rate base of the new

airport, to the extent that the costs of

disposition exceed the proceeds.

Proposed para. 2.5.4(b).

Airport proprietors: The City of

Chicago requests the Department to

clarify that, if an airport is closed and

its costs could be included in the ratebase of another airport, then the

environmental remediation costs of the

closed airport can be included in the

rate-base. The City and County of

Denver supports the approach of the

Supplemental Proposed Policy, because

that approach recognizes that an airport

proprietor cannot dispose of an airport

overnight.

The PANYNJ suggests that the policy

should not be limited to airports closed

as part of a plan to open a new airport.

Rather, the charges also should be

permitted if the FAA decides that

continued operations at the airport

being closed interfere with operations at

an existing airport.

Carriers: ATA/RAA urge the

Department to delete proposed

paragraph 2.5.4(b) from the final policy.

ATA/RAA argue that the provision is

inconsistent with the fundamental

principle that charges be just and

reasonable and the requirement in

proposed paragraph 2.5 that costs be

limited to the capital and operating

costs directly and indirectly associated

with facilities currently in use. ATA/

RAA also argue that by permitting

airports to fund facilities not in use (the

old airport), the provision is

inconsistent with the principle

underlying the prohibition of

prefunding facilities not yet built. ATA/

RAA also argue that the Supplemental

Proposed Policy would provide a

disincentive to airport proprietors to

dispose of airports swiftly and

efficiently.

General aviation: General aviation

commenters did not address this issue.

Other commenters: Other commenters

did not address this issue.
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 32015

The Final Policy: The Department is

adopting the provision of the

Supplemental Proposed Policy with one

modification. The Final Policy would

permit an airport proprietor to add to

the rate base of the new airport the

reasonable costs of maintenance of the

old airport while disposition is pending,

so long as proceeds of disposition are

applied first to credit or refund fees

previously paid. This provision would

not, however, apply if the terms of the

Department’s approved plan or user

agreement provide otherwise.

The Department has determined that

where an airport closure is part of an

approved plan for a new airport,

reasonable disposition costs, in excess

of proceeds, may be included in the rate

base of the new airport.

While ATA/RAA argue that the

Department’s approach requires airport

users to pay for the costs of a facility

they do not use, the Department

considers its approach to be analogous

to a situation in which structures must

be acquired and demolished to make

way for construction of new airfield

improvements at an operating airport.

The costs of acquiring those structures

and demolishing them could be

included in the airfield rate base, once

the new facilities are in use, even

though the demolished structures are

never used by the carriers. Where the

FAA has determined that an existing

airport must be closed in connection

with the opening of a new airport, the

FAA has determined that the new

airport, and hence its users, will benefit

from that closure. Because the new

airport users will benefit, it is

reasonable to include in the rate base

reasonable disposition costs, to the

extent that they exceed the proceeds

from disposition.

The requirement of reasonableness is

intended to encourage swift and

efficient disposition. While not defining

reasonableness in detail, the Department

states that it would not ordinarily

consider redevelopment costs to be

reasonable. The Department would also

consider the diligence with which the

airport proprietor pursues disposal.

After reviewing the comments, the

Department has determined that

additional clarification is appropriate.

The Department recognizes that in some

circumstances disposition expenses may

be incurred before an airport’s

disposition. A new provision is added

to the Final Policy permitting an airport

proprietor to charge reasonable

maintenance costs to airfield users

before disposition, only if those costs

are credited or refunded to the users

upon receipt of the proceeds from a

whole or partial disposition. In

reviewing the reasonableness of a charge

in this circumstance, the Department

would also consider the reasonableness

of the airport proprietor’s disposal

efforts. The Department would

ordinarily consider it unreasonable to

continue charging for maintenance of

the closed airport beyond the time the

airport proprietor could have reasonably

disposed of that airport. The

Department’s approach assures that the

airport proprietor is not burdened with

the costs of maintaining the old airport

until the completion of a long

disposition process, while also assuring

that the users of the new airport are not

burdened with the costs of disposition,

when disposition proceeds ultimately

exceed the airport proprietor’s

disposition costs.

The Department will not adopt the

suggestion that environmental

remediation costs of disposed airports

be singled out for special treatment. The

Department confirms that

environmental remediation may qualify

as a disposition cost, as discussed above

under Issue 9, ‘‘Allowance For

Environmental Costs.’’ However, the

commenter has not offered any

explanation for treating environmental

remediation differently than any other

disposition cost.

The PANYNJ suggests that the policy

should permit the disposition costs of a

closed airport to be added to the ratebase of an existing airport when the

FAA determines that the closure is

required to accommodate the operations

of the existing airport. The Department

is not adopting this suggestion. The

PANYNJ’s proposed modification would

be a solution in search of a problem.

The PANYNJ has not offered any

examples of this problem arising in the

past, and the Department is unaware of

any instance in which operations at

existing airports have necessitated the

closing of nearby airports. Should the

situation arise in the future, the

Department will address the issue in the

context of that specific situation.

19. Charges to Non-Signatory Carriers

The Supplemental Proposed Policy

proposed that the prohibition on unjust

discrimination would not prevent an

airport proprietor from establishing

reasonable classifications of carriers,

such as signatory and non-signatory

carriers, and charging higher fees based

on these distinctions. Proposed para.

3.1.1.

The comments: The City of Chicago

argues that the historic cost requirement

for the airfield could lead to some

anomalies as applied to existing

arrangements. Some rate agreements

provide for signatory carriers to pay,

under a residual system, for facilities in

addition to the airfield. Thus, they are

paying more than the HCA-based rates

for the airfield. Non-signatory carriers

are required to pay even higher rates.

Chicago argues that non-signatory

carriers may claim that they are entitled

to a compensatory HCA-based rate that

is lower than the signatory rate. The

City of Chicago requests that the

Department clarify that an airport

proprietor may impose a surcharge on

non-signatory carriers, even if the

signatory rates exceed HCA-based

compensatory rates.

Other commenters did not address

this issue.

The Final Policy: The Department will

adopt the provision of the Supplemental

Proposed Policy without modification.

The Department agrees that the Final

Policy should not make non-signatory

status more attractive to carriers than

signatory status. Such a result would

conflict with the first principle of the

Final Policy, reliance on direct

negotiation and agreement to establish

reasonable fees. In addition, it is

accepted industry practice to charge

non-signatory carriers higher rates than

signatory carriers, based on the decision

of the former not to assume all of the

obligations associated with signatory

status. The Airport and Airway

Improvement Act expressly permits the

establishment of classifications based on

status as a signatory carrier. See, 49

U.S.C. § 47107(a)(2)(B)(ii).

The Department has concluded that

the provisions of the Supplemental

Proposed Policy on signatory/nonsignatory fees provide adequate

flexibility to airport proprietors to

charge reasonable surcharges to nonsignatory carriers. No modifications are

necessary to address Chicago’s

concerns.

The costs of serving a non-signatory

carrier would ordinarily be higher than

a compensatory rate reflecting the costs

of serving exclusively signatory carriers.

For example, non-signatory carriers may

increase an airport proprietor’s risk of

revenue fluctuation. The increased risk

in turn would justify higher reserves. In

addition, the administrative costs of

dealing with non-signatory carriers

would ordinarily be higher. Further, an

airport proprietor might be able to argue

that due to their irregularity, or relative

infrequency, operations by nonsignatory carriers cost more to serve

than a corresponding number of

operations performed on a regular basis

by signatory carriers. Each of these

considerations would provide a

justification for imposing a surcharge, in

some amount, on non-signatory carriers.
32016 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

In addition, signatory carriers usually

assume obligations or responsibilities

that non-signatory carriers do not

undertake. Airport proprietors receive

intangible benefits from having carriers

at the airport undertake these additional

responsibilities. A surcharge for nonsignatory carriers may be justifiable, in

part, as compensation to the airport

proprietor for the reduction in these

intangible benefits when a carrier elects

non-signatory status.

The Department is not prepared at

this time to modify the Final Policy to

permit on a routine basis non-signatory

charges that cause total airfield revenues

to exceed airfield costs. However, we

will review the reasonableness of such

non-signatory charges on a case-by-case

basis in light of the considerations

outlined above.

20. Peak Period Charges

The Supplemental Proposed Policy

proposed that under certain conditions,

a properly structured peak pricing

system would not be considered

unjustly discriminatory. Proposed para.

3.2. The Supplemental Proposed Policy

did not list prerequisites for peak

pricing and did not propose a method

for determining peak charges or peak/off

peak differentials.

In addition, the Department proposed

to permit airport proprietors to charge

some segments of airfield users more

than their pro rata share of accounting

costs based on HCA valuation, to

enhance efficient use of the airfield, if

the airport proprietor uses a reasonable

and not unjustly discriminatory

methodology. Proposed para. 2.5.1(b).

Airport proprietors: ACI/AAAE and

the PANYNJ argue that, to be effective,

peak prices must be set without regard

to HCA valuation. ACI/AAAE request

the Department to clarify the meaning of

proposed par. 2.5.1 and specify that an

otherwise acceptable peak-pricing

system may charge landing fees that are

not based on HCA valuation.

Carriers: ATA/RAA argue that the

subject of peak-period pricing is too

complicated and potentially injurious to

users to be addressed as one element in

the larger policy on airport fees. ATA/

RAA urge the Department to delete all

references to peak pricing.

IATA argues that peak pricing cannot

enhance the efficient utilization of

airports, especially for international

East-West operations.

General aviation: AOPA expresses

concerns that the standard proposed—

enhancing the efficient utilization of the

airport—may provide sufficient latitude

to invite abuse. AOPA doubts that many

airports are sufficiently congested to

justify peak pricing. AOPA suggests that

the Supplemental Proposed Policy

could serve as an excuse for

unreasonable ratesetting.

Other Commenters: Other

commenters did not address this issue.

The Final Policy: The Department is

adopting the provisions of the

Supplemental Proposed Policy without

substantive modification.

The Department’s policy regarding

peak pricing was established in its

decision in the Massport PACE fee case.

Massport Order, supra. In that decision,

the Department concluded that a

properly structured peak pricing system

could be found reasonable and not

unjustly discriminatory. Massport Order

at 8–9. The Department’s purpose in

referring to peak pricing in this policy

is not to break new ground or expand

on the Department’s earlier decision.

Rather, it is to confirm our support for

that decision.

The Department understands the

concerns of airport users regarding

abuse. The Department does not intend

the policy statement to function as a

blanket authorization for peak pricing.

In reviewing a peak pricing system, the

Department would scrutinize it

carefully to determine first whether the

airport in fact suffers from congestion,

and whether the peak-pricing system is

an appropriate response.

Regarding the linkage between peak

pricing and HCA valuation, Paragraphs

3.2 and 2.5.1(b) each address the

allocation of costs among users or user

groups. The purpose of these provisions

is to make clear that if a properly

structured and justified congestion

pricing system is in place, the airport

proprietors may, during periods of

congestion, charge airfield users more

than their allocated share of accounting

costs determined using HCA valuation.

These provisions do not exempt airport

proprietors from the requirement that

total airfield revenues not exceed total

airfield costs as determined in

accordance with the Final Policy. Of

course, the peak charge may also reflect

any additional accounting costs the

airport proprietor incurs in serving

traffic during peak periods.

21. Reservation of Authority to

Investigate Progressive Accumulation of

Aeronautical Surpluses

In connection with the proposal to

eliminate the HCA cost cap for all

aeronautical revenue, the Supplemental

Proposed Policy included a new

provision on accumulation of surplus

aeronautical revenue. The Department

proposed that the progressive

accumulation of substantial surplus

aeronautical revenue may warrant an

FAA inquiry into whether aeronautical

fees are consistent with the airport

proprietor’s obligation to make the

airport available on fair and reasonable

terms. Proposed para. 4.2.1. In

discussing the treatment of nonairfield

fees, we explained that the Department

expects nonairfield aeronautical fees,

over, time, to reflect aeronautical costs,

including the airport’s capital

investment needs. 60 FR 47013.

Airport proprietors: Some individual

airport proprietors objected to this

provision. They are concerned that this

provision combined with the referenced

explanatory statement means that the

Department may be introducing an

implicit aeronautical cost cap.

Carriers: Carriers argue that tying the

investigation of the reasonableness of

aeronautical fees to the sustained

accumulation of surpluses does not

provide adequate protection against the

exercise of market power in pricing

nonairfield facilities. The carriers argue

that without clear accounting and cost

allocation guidelines, the policy will

encourage airports to overallocate costs

to aeronautical users to mask

aeronautical profits. In addition, they

contend that the policy will not provide

an adequate mechanism to monitor the

accumulation of surplus revenues.

ATA/RAA also object that a Department

investigation would be triggered only

after years of surplus accumulation.

General aviation: AOPA also suggests

that the protection will be ineffectual

because the investigation would only be

triggered after a long period of

accumulation.

Other commenters: ACRA requests

the Department to clarify that it will

investigate the disposition of all airport

revenues, not just aeronautical

revenues, and that an investigation

would be triggered by the accumulation

of surplus airport revenues.

The Final Policy: The Department is

adopting the provision of Supplemental

Proposed Policy without modification.

As discussed above, in the

Department’s experience, the setting of

fees for the use of aeronautical facilities

other than the airfield—whether by

negotiation or otherwise—has generally

produced reasonable results. Further,

we do not accept the carriers’ argument

that those reasonable results were a

function of circumstances that are no

longer present. Given the low risk of

unreasonable results, the Department

considers its approach to involve an

appropriate level of intervention.

We reiterate that the decision to

eliminate the HCA cap for all

aeronautical revenue is based in part on

our determination that a rigid HCA cap

is not necessary to assure that fees for
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 32017

nonairfield aeronautical facilities and

services are reasonable.

Furthermore, the Department has

recently made available standard

financial reporting formats for airports.

Notice of Availability and Request for

Comments on Airport Financial Reports,

Docket No. 28495 (61 FR 11077, March

18, 1996). These formats, once in use,

should assist in monitoring nonairfield

aeronautical revenues. In addition, to

further enhance the consultation

process envisioned by Paragraphs 1.1.1

and 1.1.2, Appendix 1 of the Final

Policy is modified to include the

Airport Financial Reports with the

information the Department expects

airport proprietors to make available in

user-charge consultations.

As to the concerns of airport

proprietors, the Department has

recognized that a reasonable charge for

nonairfield facilities may include a

reasonable rate of return on the airport

proprietor’s invested capital. An airport

proprietor would not be entitled to more

under the common understanding of the

standard of reasonableness and the

limits imposed by international

obligations, regardless of whether the

Department had promulgated a policy

statement. In stating the expectation

that, over time, aeronautical revenues

would not exceed reasonable

aeronautical costs, including reasonable

capital costs, the Department is not

foreclosing the generation of returns—at

reasonable levels.

In addition, the Department

emphasizes that an inquiry would be

focused on the progressive

accumulation of surpluses. The

Department would not consider a single

year’s surplus in isolation. Thus, an

airport proprietor need not fear that,

over time, losses generated by

nonairfield assets in some years cannot

be balanced out against profits earned in

other years.

Further, if the Department determined

that nonairfield fees were unreasonably

high, and that airfield fees were

reasonable, the Department would not

ordinarily specify corrective action

involving airfield fees. In addition, the

corrective action would ordinarily be

prospective in nature.

Finally, with respect to the comment

by ACRA, progressive accumulation of

surplus airport revenue from all sources

is governed by Paragraph 5.2 of the

Final Policy. In an inquiry conducted

pursuant to Paragraph 5.2, the FAA

would not be investigating the

reasonableness of fees charged to

nonaeronautical users.

Policy Statement Regarding Airport

Fees

For the reasons discussed above, the

Department adopts the following

statement of policy for airport fees

charged to aeronautical users:

Policy Regarding the Establishment of

Airport Rates and Charges

Introduction

It is the fundamental position of the

Department that the issue of rates and

charges is best addressed at the local

level by agreement between users and

airports. The Department is adopting

this Policy Statement on the standards

applicable to airport fees imposed for

aeronautical use of the airport to

provide guidance to airport proprietors

and aeronautical users, to encourage

direct negotiation between these parties,

to minimize the need for direct Federal

intervention to resolve differences over

airport fees and to establish the

standards which the Department will

apply in addressing airport fee disputes

under 49 USC § 47129 and in addressing

questions of airport proprietors’

compliance with Federal requirements

governing airport fees.

Applicability of the Policy

A. Scope of Policy

Under the terms of grant agreements

administered by the Federal Aviation

Administration (FAA) for airport

improvement, all aeronautical users are

entitled to airport access on fair and

reasonable terms without unjust

discrimination. Therefore, the

Department considers that the

principles and guidance set forth in this

policy statement apply to all

aeronautical uses of the airport. The

Department recognizes, however, that

airport proprietors may use different

mechanisms and methodologies to

establish fees for different facilities, e.g.,

for the airfield and terminal area, and

for different aeronautical users, e.g., air

carriers and fixed-base operators.

Various elements of the policy reflect

these differences. In addition, the

Department will take these differences

into account if we are called upon to

resolve a dispute over aeronautical fees

or otherwise consider whether an

airport sponsor is in compliance with its

obligation to provide access on fair and

reasonable terms without unjust

discrimination.

B. Aeronautical Use and Users

The Department considers the

aeronautical use of an airport to be any

activity that involves, makes possible, is

required for the safety of, or is otherwise

directly related to, the operation of

aircraft. Aeronautical use includes

services provided by air carriers related

directly and substantially to the

movement of passengers, baggage, mail

and cargo on the airport. Persons,

whether individuals or businesses,

engaged in aeronautical uses involving

the operation of aircraft, or providing

flight support directly related to the

operation of aircraft, are considered to

be aeronautical users.

Conversely, the Department considers

that the operation by U.S. or foreign air

carriers of facilities such as a

reservations center, headquarters office,

or flight kitchen on an airport does not

constitute an aeronautical use subject to

the principles and guidance contained

in this policy statement with respect to

reasonableness and unjust

discrimination. Such facilities need not

be located on an airport. A carrier’s

decision to locate such facilities is based

on the negotiation of a lease or sale of

property. Accordingly, the Department

relies on the normal forces of

competition for nonaeronautical

commercial or industrial property to

assure that fees for such property are not

excessive.

C. Applicability of § 113 of the FAA

Authorization Act of 1994

Section 113 of the Federal Aviation

Authorization Act of 1994

(‘‘Authorization Act’’), 49 U.S.C.

§ 47129, directs the Secretary of

Transportation to issue a determination

on the reasonableness of certain fees

imposed on air carriers in response to

carrier complaints or a request for

determination by an airport proprietor.

Section 47129 further directs the

Secretary to publish final regulations,

policy statements, or guidelines

establishing procedures for deciding

cases under § 47129 and the standards

to be used by the Secretary in

determining whether a fee is reasonable.

Section 47129 also provides for the

issuance of credits or refunds in the

event that the Secretary determines a fee

is unreasonable after a complaint is

filed. Section 47129(e) excludes from

the applicability of § 47129 a fee

imposed pursuant to a written

agreement with air carriers, a fee

imposed pursuant to a financing

agreement or covenant entered into

before the date of enactment of the

statute (August 23, 1994), and an

existing fee not in dispute on August 23,

1994. Section 47129(f) further provides

that § 47129 shall not adversely affect

the rights of any party under existing air

carrier/airport agreements or the ability

of an airport to meet its obligations

under a financing agreement or
32018 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

covenant that is in effect on August 23,

1994.

The Department interprets § 47129 to

apply to fees imposed on foreign as well

as U.S. air carriers.

In addition, the Department does not

interpret § 47129 to repeal or narrow the

scope of the basic requirement that fees

imposed on all aeronautical users be

reasonable and not unjustly

discriminatory or to narrow the

obligation on the Secretary to receive

satisfactory assurances that, inter alia,

airport sponsors will provide access on

reasonable terms before approving

Airport Improvement Program (‘‘AIP’’)

grants. Moreover, the Department does

not interpret sections 47129(e) and (f) to

preclude the Department from adopting

policy guidance to carry out the

Department’s statutory obligation to

assure that aeronautical fees are being

imposed at AIP-funded airports in a

manner that is consistent with the

obligation to provide airport access on

reasonable terms.

Therefore, the Department will apply

the policy guidance in all cases in

which we are called upon to determine

if an airport sponsor is carrying out its

obligation to make the airport available

on reasonable terms. However, a dispute

that is not subject to processing under

the expedited procedures mandated by

§ 47129, including a dispute over

matters described by §§ 47129 (e) and

(f), will be processed by the FAA under

procedures applicable to airport

compliance matters in general. In

considering such a dispute, the FAA’s

role is to determine whether the airport

proprietor is in compliance with its

grant obligations and statutory

obligations relating to airport fees. The

FAA proceeding is not intended to

provide a mechanism for adjudicating

the respective rights of the parties to a

fee dispute.

In addition, the Department will not

entertain a complaint about the

reasonableness of a fee set by agreement

filed by a party to the agreement setting

the disputed fee. In the case of a

complaint about the reasonableness of a

fee set by agreement filed by an

aeronautical user who is not a party to

the agreement, the Department may take

into account the existence of an

agreement between air carriers and the

airport proprietor, in making a

determination on the complaint.

Further, the FAA will not ordinarily

investigate the reasonableness of a

general aviation airport’s fees absent

evidence of a progressive accumulation

of surplus aeronautical revenues.

D. Components of Airfield

The Department considers the airfield

assets to consist of ramps or aprons not

subject to preferential or exclusive lease

or use agreements, runways, taxiways,

and land associated with these facilities.

The Department also considers the

airfield to include land acquired for the

purpose of assuring land-use

compatibility with the airfield, if the

land is included in the rate base

associated with the airfield under the

provisions of this policy.

Principles Applicable to Airport Rates

and Charges

1. In general, the Department relies

upon airport proprietors, aeronautical

users, and the market and institutional

arrangements within which they

operate, to ensure compliance with

applicable legal requirements. Direct

Federal intervention will be available,

however, where needed.

2. Rates, fees, rentals, landing fees,

and other service charges (‘‘fees’’)

imposed on aeronautical users for

aeronautical use of airport facilities

(‘‘aeronautical fees’’) must be fair and

reasonable.

3. Aeronautical fees may not unjustly

discriminate against aeronautical users

or user groups.

4. Airport proprietors must maintain

a fee and rental structure that in the

circumstances of the airport makes the

airport as financially self-sustaining as

possible.

5. In accordance with relevant Federal

statutory provisions governing the use

of airport revenue, airport proprietors

may expend revenue generated by the

airport only for statutorily allowable

purposes.

Local Negotiation and Resolution

1. In general, the Department relies

upon airport proprietors, aeronautical

users, and the market and institutional

arrangements within which they

operate, to ensure compliance with

applicable legal requirements. Direct

Federal intervention will be available,

however, where needed.

1.1 The Department encourages

direct resolution of differences at the

local level between aeronautical users

and the airport proprietor. Such

resolution is best achieved through

adequate and timely consultation

between the airport proprietor and the

aeronautical users about airport fees.

1.1.1 Airport proprietors should

consult with aeronautical users well in

advance, if practical, of introducing

significant changes in charging systems

and procedures or in the level of

charges. The proprietor should provide

adequate information to permit

aeronautical users to evaluate the

airport proprietor’s justification for the

change and to assess the reasonableness

of the proposal. For consultations to be

effective, airport proprietors should give

due regard to the views of aeronautical

users and to the effect upon them of

changes in fees. Likewise, aeronautical

users should give due regard to the

views of the airport proprietor and the

financial needs of the airport.

1.1.2 To further the goal of effective

consultation, Appendix 1 of this policy

statement contains a description of

information that the Department

considers would be useful to the U.S.

and foreign air carriers and other

aeronautical users to permit meaningful

consultation and evaluation of a

proposal to modify fees.

1.1.3 Airport proprietors should

consider the public interest in

establishing airport fees, and

aeronautical users should consider the

public interest in consulting with

airports on setting such fees.

1.1.4 Airport proprietors and

aeronautical users should consult and

make a good-faith effort to reach

agreement. Absent agreement, airport

proprietors are free to act in accordance

with their proposals, subject to review

by the Secretary or the Administrator on

complaint by the user or, in the case of

fees subject to 49 U.S.C. § 47129, upon

request by the airport operator, or, in

unusual circumstances, on the

Department’s initiative.

1.1.5 To facilitate local resolution

and reduce the need for direct Federal

intervention to resolve differences over

aeronautical fees, the Department

encourages airport proprietors and

aeronautical users to include alternative

dispute resolution procedures in their

lease and use agreements.

1.1.6 Any newly established fee or

fee increase that is the subject of a

complaint under 49 U.S.C. § 47129 that

is not dismissed by the Secretary must

be paid to the airport proprietor under

protest by the complainant. Unless the

airport proprietor and complainant

agree otherwise, the airport proprietor

will obtain a letter of credit, or surety

bond, or other suitable credit instrument

in accordance with the provisions of 49

U.S.C. § 47129(d). Pending issuance of a

final order determining reasonableness,

an airport proprietor may not deny a

complainant currently providing air

service at the airport reasonable access

to airport facilities or services, or

otherwise interfere with that

complainant’s prices, routes, or services,

as a means of enforcing the fee, if the

complainant has complied with the

requirements for payment under protest.
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 32019

1.2 Where airport proprietors and

aeronautical users have been unable,

despite all reasonable efforts, to resolve

disputes between them, the Department

will act to resolve the issues raised in

the dispute.

1.2.1 In the case of a fee imposed on

one or more U.S. air carriers or foreign

air carriers, the Department will issue a

determination on the reasonableness of

the fee upon the filing of a written

request for a determination by the

airport proprietor or, if the Department

determines that a significant dispute

exists, upon the filing of a complaint by

one or more U.S. air carriers or foreign

air carriers, in accordance with 49

U.S.C. § 47129 and implementing

regulations. Pursuant to the provisions

of 49 U.S.C. § 47129, the Department

may only determine whether a fee is

reasonable or unreasonable, and may

not set the level of the fee.

1.2.2 The Department will first offer

its good offices to help parties reach a

mutually satisfactory outcome in a

timely manner. Prompt resolution of

these disputes is always desirable since

extensive delay can lead to uncertainty

for the public and a hardening of the

parties’ positions. U.S. air carriers and

foreign air carriers may request the

assistance of the Department in advance

of or in lieu of the formal complaint

procedure described in 1.2.1.; however,

the 60-day period for filing a complaint

under § 47129 shall not be extended or

tolled by such a request.

1.2.3 In the case of fees imposed on

other aeronautical users, where

negotiations between the parties are

unsuccessful and a complaint is filed

alleging that airport fees violate an

airport proprietor’s federal grant

obligations, the Department will, where

warranted, exercise the agency’s broad

statutory authority to review the legality

of those fees and to issue such

determinations and take such actions as

are appropriate based on that review.

Other aeronautical users may also

request the assistance of the Department

in advance of, or in lieu of, the filing of

a formal complaint with the FAA.

1.3 Airport proprietors must retain

the ability to respond to local conditions

with flexibility and innovation. An

airport proprietor is encouraged to

achieve consensus and agreement with

its aeronautical users before

implementing a practice that would

represent a major departure from this

guidance. However, the requirements of

any law, including the requirements for

the use of airport revenue, may not be

waived, even by agreement with the

aeronautical users.

Fair and Reasonable Fees

2. Rates, fees, rentals, landing fees,

and other service charges (‘‘fees’’)

imposed on aeronautical users for the

aeronautical use of the airport

(‘‘aeronautical fees’’) must be fair and

reasonable.

2.1 Federal law does not require a

single approach to airport rate-setting.

Fees may be set according to a

‘‘residual’’ or ‘‘compensatory’’ ratesetting methodology, or any

combination of the two, or according to

another rate-setting methodology, as

long as the methodology used is applied

consistently to similarly situated

aeronautical users and conforms with

the requirements of this policy. Airport

proprietors may set fees for aeronautical

use of airport facilities by ordinance,

statute or resolution, regulation, or

agreement.

2.1.1 Aeronautical users may receive

a cross-credit of nonaeronautical

revenues only if the airport proprietor

agrees. Agreements providing for such

cross-crediting are commonly referred to

as ‘‘residual agreements’’ and generally

provide a sharing of nonaeronautical

revenues with aeronautical users. The

aeronautical users may in turn agree to

assume part or all of the liability for

non-aeronautical costs. An airport

proprietor may cross-credit

nonaeronautical revenues to

aeronautical users even in the absence

of such an agreement, but an airport

proprietor may not require aeronautical

users to cover losses generated by

nonaeronautical facilities except by

agreement.

2.1.2 In other situations, an airport

proprietor assumes all liability for

airport costs and retains all airport

revenues for its own use in accordance

with Federal requirements. This

approach to airport rate-setting is

generally referred to as the

compensatory approach.

2.1.3 Airports frequently adopt ratesetting systems that employ elements of

both approaches.

2.2 Revenues from fees imposed for

use of the airfield (‘‘airfield revenues’’)

may not exceed the costs to the airport

proprietor of providing airfield services

and airfield assets currently in

aeronautical use unless otherwise

agreed to by the affected aeronautical

users.

2.3 The ‘‘rate base’’ is the total of all

costs of providing airfield facilities and

services to aeronautical users (which

may include a share of public-use

roadway costs allocated to the airfield in

accordance with this policy) that may be

recovered from aeronautical users

through fees charged for providing

airfield aeronautical services and

facilities (‘‘airfield fees’’). Airport

proprietors must employ a reasonable,

consistent, and ‘‘transparent’’ (i.e., clear

and fully justified) method of

establishing the rate base and adjusting

the rate base on a timely and predictable

schedule.

2.4 Except as provided in paragraph

2.5.3(a) below or by agreement with

aeronautical users, costs properly

included in the rate base are limited to

all operating and maintenance expenses

directly and indirectly associated with

the provision of airfield aeronautical

facilities and services, including

environmental costs, as set forth below,

(and may include a share of public-use

roadway costs allocated to the airfield in

accordance with this policy); all capital

costs associated with the provision of

airfield aeronautical facilities and

services currently in use, as set forth

below; and current costs of planning

future aeronautical airfield facilities and

services. In addition, a private equity

owner of an airport can include a

reasonable return on investment in the

airfield.

2.4.1 The airport proprietor may

include in the rate base, at a reasonable

rate, imputed interest on funds used to

finance airfield capital investments for

aeronautical use or lands acquired for

airfield use, as provided below, except

to the extent that the funds are

generated by airfield fees. However, the

airport proprietor may not include in

the rate base imputed interest on funds

obtained by debt-financing if the debtservice costs of those funds are also

included in the rate base.

(a) A private equity owner of an

airport who has included a reasonable

rate of return element in the rate base

may not include an imputed interest

charge as well.

2.4.2 Airport proprietors may

include reasonable environmental costs

in the rate base to the extent that the

airport proprietor incurs a

corresponding actual expense. All

revenues received based on the

inclusion of these costs in the rate base

are subject to Federal requirements on

the use of airport revenue. Reasonable

environmental costs include, but are not

necessarily limited to, the following:

(a) the costs of investigating and

remediating environmental contamination

caused by airfield operations at the airport at

least to the extent that such investigation or

remediation is required by or consistent with

local, state or federal environmental law, and

to the extent such requirements are applied

to other similarly situated enterprises.

(b) the cost of mitigating the environmental

impact of an airport development project (if

the development project is one for which
32020 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

costs may be included in the rate base), at

least to the extent that these costs are

incurred in order to secure necessary

approvals for such projects, including but not

limited to approvals under the National

Environmental Policy Act and similar state

statutes;

(c) the costs of aircraft noise abatement and

mitigation measures, both on and off the

airport, including but not limited to land

acquisition and acoustical insulation

expenses, to the extent that such measures

are undertaken as part of a comprehensive

and publicly-disclosed airport noise

compatibility program; and

(d) the costs of insuring against future

liability for environmental contamination

caused by current airfield activities. Under

this provision, the costs of self-insurance

may be included in the rate base only to the

extent that they are incurred pursuant to a

self-insurance program that conforms to

applicable standards for self-insurance

practices.

2.4.3 Airport proprietors are

encouraged to establish fees with due

regard for economy and efficiency.

2.4.4 The airport proprietor may

include in the rate base amounts needed

to fund debt service and other reserves

and to meet cash flow requirements as

specified in financing agreements or

covenants (for facilities in use),

including, but not limited to, reasonable

amounts to meet debt-service coverage

requirements; to fund cash reserves to

protect against the risks of cash-flow

fluctuations associated with normal

airfield operations; and to fund

reasonable cash reserves to protect

against other contingencies.

2.4.5 Unless otherwise agreed by

aeronautical users, the airport proprietor

must allocate capital and operating costs

among cost centers in accordance with

the following guidance, which is based

on the principle of cost causation:

(a) Costs of airfield facilities and services

directly used by the aeronautical users may

be fully included in the rate base, in a

manner consistent with this policy. For

example, the capital cost of a runway may be

included in the rate base used to establish

landing fees.

(b) Costs of airport facilities and services

used for both aeronautical and nonaeronautical uses (shared costs) may be

included in the rate base if the facility or

service in question supports the airfield

activity reflected in that rate base. The

portion of shared costs allocated to

aeronautical users and among aeronautical

uses should not exceed an amount that

reflects the respective aeronautical purposes

and proportionate aeronautical uses of the

facility in relation to each other and in

relation to the nonaeronautical use of the

facility, and must be allocated by a

reasonable, ‘‘transparent’’ and not unjustly

discriminatory methodology. Aeronautical

users may not be allocated all costs of

facilities or services that are used by both

aeronautical and nonaeronautical users

unless they agree to that allocation. Likewise,

the airfield may not be allocated all of the

aeronautical share of commonly-used

facilities or services, unless the airfield is the

only aeronautical use the facility or service

supports.

2.5 Airport proprietors must comply

with the following practices in

establishing the rate base, provided,

however, that one or more aeronautical

users may agree to a rate base that

deviates from these practices in the

establishment of those users’ fees.

2.5.1 In determining the total costs

that may be recovered from fees for the

use of airfield assets and public-use

roadways in the rate base, the airport

proprietor must value them according to

their historic cost to the original airport

proprietor (HCA). Subsequent airport

proprietors generally shall acquire the

cost basis of such assets at the original

airport proprietor’s historic cost,

adjusted for subsequent improvements.

(a) Where the land associated with airfield

facilities and public use roadways was

acquired with debt-financing, the airport

proprietor may include such land in the rate

base by charging all debt service

expenditures incurred by the airport

proprietor, including principal, interest and

reasonable amounts to meet debt-service

coverage requirements.

(b) If such land was acquired with

internally generated funds or donated by the

airport sponsor (the entity that executes grant

agreements with the FAA for airport

improvements), the airport proprietor may

elect to either include a reasonable

amortization charge in the rate base or to

retain the full value of the land in the rate

base and charge imputed interest in

accordance with this policy. The Department

considers it unreasonable to alternate

between methodologies to obtain undue

compensation.

(c) In determining whether an amortization

charge is reasonable under paragraph (b), the

Department will consider, among other

factors, whether the airport proprietor

selected an amortization period that gives

appropriate recognition to the non-wasting

nature of land.

(d) Upon retirement of the debt or

completion of the amortization (when the

airport proprietor has elected amortization),

the land may no longer be included in the

rate base.

(e) The airport proprietor may use a

reasonable and not unjustly discriminatory

methodology to allocate the total airfield

costs among individual components of the

airfield to enhance the efficient use of the

airfield, even if that methodology results in

fees charged for a particular segment that

exceed that segment’s pro rata share of costs

based on HCA valuation.

2.5.2 When assets in the rate-base

have different costs, the airport

proprietor may combine the costs of

comparable assets to develop a single

cost basis for those assets.

2.5.3 Except as provided below or as

otherwise agreed by airfield users, the

costs of facilities not yet built and

operating may not be included in the

rate base. However, the debt-service and

other carrying costs incurred by the

airport proprietor during construction

may be capitalized and amortized once

the facility is put in service. The airport

proprietor may include in the rate base

the cost of land that facilitates the

current operations of the airfield.

(a) The Department will consider an airport

proprietor’s claim that inclusion of the costs

of land acquired for future airport

development is reasonable if (i) costs of land

surrounding the airport are rising;

(ii) incompatible uses and development are

encroaching on available land;

(iii) land probably will not be available for

airport use in the future; and

(iv) the development for which the land is

being acquired is contained in the airport

proprietor’s currently effective five-year

capital improvement plan for the airport.

2.5.4 The rate base of an airport may

include costs associated with another

airport currently in use only if: (1) The

proprietor of the first airport is also the

proprietor of the other airport; (2) the

other airport is currently in use; and (3)

the costs of the other airport to be

included in the first airport’s rate base

are reasonably related to the aviation

benefits that the other airport provides

or is expected to provide to the

aeronautical users of the first airport.

(a) Element no. 3 above will be presumed

to be satisfied if the other airport is

designated as a reliever airport for the first

airport in the FAA’s National Plan of

Integrated Airport Systems (‘‘NPIAS’’).

(b) In the case of a methodology of charging

for a system of airports that is in place on the

effective date of this policy, the Department

will consider an airport proprietor’s claim

that the methodology is reasonable, even if

all three elements are not satisfied.

(c) If an airport proprietor closes an

operating airport as part of an approved plan

for the construction and opening of a new

airport, reasonable costs of disposition of the

closed airport facility may be included in the

rate base of the new airport, to the extent that

such costs exceed the proceeds from the

disposition. The Department would not

ordinarily consider redevelopment costs to

be a reasonable cost of disposition.

(d) Pending reasonable disposition of the

closed airport, the airport proprietor may

charge airfield users at the new airport for

reasonable maintenance costs of the old

airport, provided that those costs are

refunded or credited-back to those users

upon the receipt of the proceeds from a

whole or partial disposition.

2.6 For other facilities and land not

covered by Paragraph 2.2, the airport

proprietor may use any reasonable

methodology to determine fees, so long

as the methodology is justified and
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 32021

applied on a consistent basis to

comparable facilities, subject to the

provisions of paragraphs 2.7 and 4.2.1

below.

2.6.1 Reasonable methodologies may

include, but are not limited to, historic

cost valuation, direct negotiation with

aeronautical users, or objective

determinations of fair market value.

2.6.2 If an airport proprietor

determines fees for such other facilities

on the basis of HCA costs, the airport

proprietor must follow the guidance set

forth in paragraph 2.4.5 for the

allocation of shared costs.

2.7 At all times, airport proprietors

must comply with the following

practices:

2.7.1 Indirect costs may not be

included in the fees charged for

aeronautical use of the airport unless

they are based on a reasonable,

‘‘transparent’’ cost allocation formula

calculated consistently for other units or

cost centers within the control of the

airport sponsor.

2.7.2 The costs of airport

development or planning projects paid

for with federal government grants and

contributions or passenger facility

charges (PFCs) may not be included in

the fees charged for aeronautical use of

the airport.

(a) In the case of a PFC-funded project for

terminal development, for gates and related

areas, or for a facility that is occupied by one

or more carriers on an exclusive or

preferential use basis, the fees paid to use

those facilities shall be no less than the fees

charged for similar facilities that were not

financed with PFC revenue.

Prohibition on Unjust Discrimination

3. Aeronautical fees may not unjustly

discriminate against aeronautical users

or user groups.

3.1 The airport proprietor must

apply a consistent methodology in

establishing fees for comparable

aeronautical users of the airport. When

the airport proprietor uses a cost-based

methodology, aeronautical fees imposed

on any aeronautical user or group of

aeronautical users may not exceed the

costs allocated to that user or user group

under a cost allocation methodology

adopted by the airport proprietor that is

consistent with this guidance, unless

aeronautical users otherwise agree.

3.1.1 The prohibition on unjust

discrimination does not prevent an

airport proprietor from making

reasonable distinctions among

aeronautical users (such as signatory

and non-signatory carriers) and

assessing higher fees on certain

categories of aeronautical users based on

those distinctions (such as higher fees

for non-signatory carriers, as compared

to signatory carriers).

3.2 A properly structured peak

pricing system that allocates limited

resources using price during periods of

congestion will not be considered to be

unjustly discriminatory. An airport

proprietor may, consistent with the

policies expressed in this policy

statement, establish fees that enhance

the efficient utilization of the airport.

3.3 Relevant provisions of the

Convention on International Civil

Aviation (Chicago Convention) and

many bilateral aviation agreements

specify, inter alia, that charges imposed

on foreign airlines must not be unjustly

discriminatory, must not be higher than

those imposed on domestic airlines

engaged in similar international air

services and must be equitably

apportioned among categories of users.

Charges to foreign air carriers for

aeronautical use that are inconsistent

with these principles will be considered

unjustly discriminatory or unfair and

unreasonable.

3.4 Allowable costs—costs properly

included in the rate base—must be

allocated to aeronautical users by a

transparent, reasonable, and not

unjustly discriminatory rate-setting

methodology. The methodology must be

applied consistently and cost

differences must be determined

quantitatively, when practical.

3.4.1 Common costs (costs not

directly attributable to a specific user

group or cost center) must be allocated

according to a reasonable, transparent

and not unjustly discriminatory cost

allocation methodology that is applied

consistently, and does not require any

aeronautical user or user group to pay

costs properly allocable to other users or

user groups.

Requirement To Be Financially SelfSustaining

4. Airport proprietors must maintain

a fee and rental structure that in the

circumstances of the airport makes the

airport as financially self-sustaining as

possible.

4.1 If market conditions or demand

for air service do not permit the airport

to be financially self-sustaining, the

airport proprietor should establish longterm goals and targets to make the

airport as financially self-sustaining as

possible.

4.1.1 Airport proprietors are

encouraged, when entering into new or

revised agreements or otherwise

establishing rates, charges, and fees, to

undertake reasonable efforts to make

their particular airports as self

sustaining as possible in the

circumstances existing at such airports.

(a) Absent agreement with aeronautical

users, the obligation to make the airport as

self-sustaining as possible does not permit

the airport proprietor to establish fees for the

use of the airfield that exceed the airport

proprietor’s airfield costs.

(b) For those facilities for which this policy

permits the use of fair market value, the

Department does not construe the obligation

on self-sustainability to compel the use of fair

market value to establish fees.

4.1.2 At some airports, market

conditions may not permit an airport

proprietor to establish fees that are

sufficiently high to recover aeronautical

costs and sufficiently low to attract and

retain commercial aeronautical services.

In such circumstances, an airport

proprietor’s decision to charge rates that

are below those needed to achieve selfsustainability in order to assure that

services are provided to the public is

not inherently inconsistent with the

obligation to make the airport as selfsustaining as possible in the

circumstances.

4.2 In establishing new fees, and

generating revenues from all sources,

airport owners and operators should not

seek to create revenue surpluses that

exceed the amounts to be used for

airport system purposes and for other

purposes for which airport revenues

may be spent under 49 U.S.C.

§ 47107(b)(1), including reasonable

reserves and other funds to facilitate

financing and to cover contingencies.

While fees charged to nonaeronautical

users may exceed the costs of service to

those users, the surplus funds

accumulated from those fees must be

used in accordance with § 47107(b).

4.2.1 The Department assumes that

the limitation on the use of airport

revenue and effective market discipline

for aeronautical services and facilities

other than the airfield will be effective

in holding aeronautical revenues, over

time, to the airport proprietor’s costs of

providing aeronautical services and

facilities, including reasonable capital

costs. However, the progressive

accumulation of substantial amounts of

surplus aeronautical revenue may

warrant an FAA inquiry into whether

aeronautical fees are consistent with the

airport proprietor’s obligations to make

the airport available on fair and

reasonable terms.

Requirements Governing Revenue

Application and Use

5. In accordance with relevant Federal

statutory provisions governing the use

of airport revenue, airport proprietors

may expend revenue generated by the

airport only for statutorily allowable

purposes.

5.1 Additional information on the

statutorily allowed uses of airport

revenue is contained in separate
32022 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

guidance published by the FAA

pursuant to § 112 of the FAA

Authorization Act of 1994, which is

codified at 49 U.S.C. § 47107(l).

5.2. The progressive accumulation of

substantial amounts of airport revenues

may warrant an FAA inquiry into the

airport proprietor’s application of

revenues to the local airport system.

Issued in Washington, DC, on June 14,

1996.

Federico Pen ̃ a,

Secretary of Transportation.

David R. Hinson,

Administrator, Federal Aviation

Administration.

Appendix 1—Information for

Aeronautical User Charges

Consultations

The Department of Transportation

ordinarily expects the following information

to be available to aeronautical users in

connection with consultations over changes

in airport rates and charges:

1. Historic Financial Information covering

two fiscal years prior to the current year

including, at minimum, a profit and loss

statement, balance sheet and cash flow

statement for the airport implementing the

charges, and any financial reports prepared

by the airport proprietor to satisfy the

provisions of 49 USC §§ 47107(a)(19) and

47107(k).

2. Justification. Economic, financial and/or

legal justification for changes in the charging

methodology or in the level of aeronautical

rates and charges at the airport. Airports

should provide information on the

aeronautical costs they are including in the

rate base.

3. Traffic Information. Annual numbers of

terminal passengers and aircraft movements

for each of the two preceding years.

4. Planning and Forecasting Information.

(a) To the extent applicable to current or

proposed fees, the long-term airport strategy

setting out long-term financial and traffic

forecasts, major capital projects and capital

expenditure, and particular areas requiring

strategic action. This material should include

any material provided for public or

government reviews of major airport

developments, including analyses of demand

and capacity and expenditure estimates.

(b) Accurate, complete information specific

to the airport for the current and the forecast

year, including the current and proposed

budgets, forecasts of airport charges revenue,

the projected number of landings and

passengers, expected operating and capital

expenditures, debt service payments,

contributions to restricted funds, or other

required accounts or reserves.

(c) To the extent the airport uses a residual

or hybrid charging methodology, a

description of key factors expected to affect

commercial or other nonaeronautical

revenues and operating costs in the current

and following years.

[FR Doc. 96–15687 Filed 6–19–96; 8:45 am]

BILLING CODE 4910–13–P

Federal Aviation Administration

[Summary Notice No. PE–96–30]

Petitions for Exemption; Summary of

Petitions Received; Dispositions of

Petitions Issued

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Notice of petitions for

exemption received and of dispositions

of prior petitions.

SUMMARY: Pursuant to FAA’s rulemaking

provisions governing the application,

processing, and disposition of petitions

for exemption (14 CFR Part 11), this

notice contains a summary of certain

petitions seeking relief from specified

requirements of the Federal Aviation

Regulations (14 CFR Chapter I),

dispositions of certain petitions

previously received, and corrections.

The purpose of this notice is to improve

the public’s awareness of, and

participation in, this aspect of FAA’s

regulatory activities. Neither publication

of this notice nor the inclusion or

omission of information in the summary

is intended to affect the legal status of

any petition or its final disposition.

FOR FURTHER INFORMATION CONTACT: Mr.

D. Michael Smith, Office of Rulemaking

(ARM–1), Federal Aviation

Administration, 800 Independence

Avenue, SW., Washington, DC 20591;

telephone (202) 267–7470.

This notice is published pursuant to

paragraphs (c), (e), and (g) of § 11.27 of

Part 11 of the Federal Aviation

Regulations (14 CFR Part 11).

Issued in Washington, D.C., on June 18,

1996.

Donald P. Byrne,

Assistant Chief Counsel for Regulations.

Dispositions of Petitions

Docket No.: 5010.

Petitioner: Office of Aviation

Standards (FAA) and the Department of

the Air Force

Sections of the FAR Affected: 14 CFR

91.119 (b) and (c), 91.159, 91.175 (a) and

(b), and 91.179(b)

Description of Relief Sought/

Disposition: To amend Exemption No.

5118, as amended, which permits the

FAA Office of Aviation Standards to

deviate from certain flight rules required

by subpart B of part 91 while

conducting flight inspections of air

navigation facilities and instrument

approach procedures. The amendment

lists the Department of the Air Forces

Flight Inspection Center as an

exemption holder on Exemption No.

5118, as amended, and terminates

Exemption Nos. 48A and 132E. GRANT,

May 16, 1996, Exemption No. 5118B.

Docket No.: 28212.

Petitioner: Air Logistics.

Sections of the FAR Affected: 14 CFR

135.243 (b) and (c) and 135.245(a).

Description of Relief Sought/

Disposition: To allow a foreign pilot

who does not possess a pilot certificate

issued by the FAA to act as pilot in

command (PIC) or second in command

(SIC) on Air Logistics aircraft during

operations conducted under part 135.

DENIAL, May 21, 1996, Exemption No.

6439.

Docket No.: 28367.

Petitioner: Mr. Stephen R. Raklovits.

Sections of the FAR Affected: 14 CFR

103.11.

Description of Relief Sought/

Disposition: To permit Mr. Raklovits to

operate a powered parachute-type

ultralight at night conducting

demonstrations, training, and special

use operations, including search, rescue,

and surveillance, for local, State, and

Federal law enforcement agencies.

DENIAL, May 21, 1996, Exemption No.

6440.

Docket No.: 28419.

Petitioner: United Parcel Service.

Sections of the FAR Affected: 14 CFR

121.433(c)(1)(iii), 121.440(a), 121.441

(a)(1) and (b)(1), and appendix F of part

121.

Description of Relief Sought/

Disposition: To permit the United Parcel

Service regulatory relief to the extent

necessary to conduct a single visit

training program (SVTP) for flight

crewmembers, and eventually transition

into the Advance Qualification Program

(AQP) codified in SFAR 58. GRANT,

May 8, 1996, Exemption No. 6434.

Docket No.: 28432.

Petitioner: Department of Justice,

Federal Bureau of Investigation.

Sections of the FAR Affected: 14 CFR

91.209 (a) and (d).

Description of Relief Sought/

Disposition: To permit the FBI, to the

extent necessary, to conduct aerial

surveillance operations that are

necessary for the performance of its law

enforcement and national security

mission. PARTIAL GRANT, May 20,

1996, Exemption No. 6437.

Docket No.: 28532.

Petitioner: J.R. Aviation, Inc.

Sections of the FAR Affected: 14 CFR

135.143(c)(2).

Description of Relief Sought/

Disposition: To permit J.R. Aviation,

Inc., to operate its Robinson R22

helicopter (Registration No. N2346J,

Serial No. 2211), without a TSO–C112

(Mode S) transponder installed.

GRANT, May 21, 1996, Exemption No.

6438.

Docket No.: 28551.