[Federal Register Volume 67, Number 1 (Wednesday, January 2, 2002)]
[Rules and Regulations]
[Pages 250-262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-32176]



[[Page 249]]

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Part VII





Department of Transportation





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14 CFR Part 330



Procedures for Compensation of Air Carriers; Final Rule and Proposed 
Rule

Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / 
Rules and Regulations

[[Page 250]]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 330

[Docket OST-2001-10885]
RIN 2105-AD06


Procedures for Compensation of Air Carriers

AGENCY: Office of the Secretary, DOT.

ACTION: Final rule; response to comments.

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SUMMARY: On September 22, 2001, President Bush signed into law the Air 
Transportation Safety and System Stabilization Act (``the Act''). The 
Act makes available to the President funds to compensate air carriers, 
as defined in the Act, for direct losses suffered as a result of any 
Federal ground stop order and incremental losses beginning September 
11, 2001, and ending December 31, 2001, resulting from the September 11 
terrorist attacks on the United States. In order to fulfill Congress' 
intent to expeditiously provide compensation to eligible air carriers, 
the Department used procedures set out in Program Guidance Letters to 
make initial estimated payments amounting to about 50 percent of the 
authorized funds. On October 29, 2001, the Department published a final 
rule and request for comments establishing application procedures for 
air carriers interested in requesting compensation under this statute. 
This document makes amendments to the rule and otherwise responds to 
the comments the Department received.

DATES: This rule is effective January 2, 2002.

FOR FURTHER INFORMATION CONTACT: Steven Hatley, U.S. Department of 
Transportation, Office of International Aviation, 400 7th Street, SW., 
Room 6402, Washington, DC 20590. Telephone 202-366-1213.

SUPPLEMENTARY INFORMATION: As a consequence of the terrorist attacks on 
the United States on September 11, 2001, the U.S. commercial aviation 
industry suffered severe financial losses. These losses placed the 
financial survival of many air carriers at risk. Acting rapidly to 
preserve the continued viability of the U.S. air transportation system, 
President Bush sought and Congress enacted the Air Transportation 
Safety and System Stabilization Act (``the Act''), Public Law 107-42.
    Under section 101(a)(2)(A-B) of the Act, a total of $5 billion in 
compensation is provided for ``direct losses incurred beginning on 
September 11, 2001, by air carriers as a result of any Federal ground 
stop order issued by the Secretary of Transportation or any subsequent 
order which continues or renews such stoppage; and the incremental 
losses incurred beginning September 11, 2001 and ending December 31, 
2001, by air carriers as a direct result of such attacks.'' The 
Department of Transportation previously disbursed initial estimated 
payments of nearly $2.5 billion of the $5 billion amount that Congress 
authorized, using procedures set forth in the Department's Program 
Guidance Letters that were widely distributed and posted on the 
Department's Web site.
    On October 29, 2001 (66 FR 54616), the Department published in the 
Federal Register a final rule and request for comments to establish 
procedures for air carriers who had received or wished to receive 
compensation under the Act. The rule covered such subjects as 
eligibility, deadlines for application, information and forms required 
of applicants, and audit requirements. The Department has received 
submissions from many carriers pursuant to this rule and is continuing 
to process requests for compensation.
    The Department received 18 comments on the rule during the comment 
period; correspondence, memoranda of meetings, and late filed comments, 
have also been entered into the docket. The following portion of the 
preamble summarizes the comments that we received and describes the 
Department's responses to those comments, including, where appropriate, 
amendments that the Department is making to the October 29 final rule.

Wet Lease Issues

    Several commenters disagreed with the rule's provisions concerning 
how RTMs are counted in cargo ``wet lease'' situations. In a wet lease, 
one air carrier (the lessor) provides an aircraft, crew, maintenance, 
and insurance (ACMI) for another air carrier (the lessee). The rule, 
consistent with an existing regulatory definition of an RTM and Bureau 
of Transportation Statistics (BTS) guidance concerning it, provided 
that for purposes of the statutory formula for determining the proper 
amount of compensation for which an air carrier is eligible, RTMs would 
be attributed to the lessee who had reported the RTMs to the 
Department. This approach, the preamble to the rule said, was in 
keeping with the statutory direction to rely on RTMs ``as reported to 
the Secretary.''
    Comments on this subject included letters from Atlas Air, Southern 
Air, Cargo Airline Association (CAA), Custom Air Transport (CAT), 
National Air Carrier Association (NACA), Air Transport Association 
(ATA), Congressman James P. McGovern, and a group of six members of the 
Florida Congressional delegation. They were in agreement that the 
Department's approach to this issue should be changed.
    These commenters asserted that there would not be a ``double-
counting'' situation to fear by granting wet lessors compensation. 
Atlas claims this is because ``scope clauses in labor agreements 
typically prevent U.S. carriers from utilizing ACMI services''; thus, 
``virtually all ACMI business is with foreign carriers, which by 
definition are not entitled to compensation under the Act.'' 
Consequently, they said, the Department's rule would unreasonably 
preclude any compensation for certain flights, since foreign carrier 
lessees are not eligible for compensation and the lessors could not 
count the RTMs involved for compensation purposes.
    These commenters also made the point that the Department's rule 
elsewhere emphasizes (in denying compensation to indirect air carriers) 
the role of the direct air carrier in actually flying the aircraft and 
in fact specifies that RTMs must be flown by the air carrier submitting 
the claim. In this context, wet lessors better meet these standards 
than their lessees, they said, since the lessor is the party that 
actually flies the aircraft.
    A number of these comments said that it was unreasonable for the 
Department to rely on the way RTMs are reported to the Department on 
the BTS ``Form 41,'' since they viewed this report as being provided 
for unrelated purposes. In addition, some pointed out, the Department 
had previously proposed a rule that would change reporting requirements 
so that operating carriers (i.e., the lessor in a wet lease situation) 
would report the RTMs.
    Some of these comments referred to the ``other auditable measure'' 
language in the Act, saying that this language provided greater 
flexibility than the Department had provided in the rule. However, none 
of the commenters suggested any other auditable measures. Instead, 
several requested that they be able to count what they believed were 
their own RTMs for operating as wet lessors, even though these RTMs had 
previously been reported to the Department by the lessees.
    In a late-filed comment, CAT urged that the Department reverse its 
position

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that wet lessees, rather than wet lessors, be credited with RTMs. CAT 
is a wet lessor that operates flights on behalf of other U.S. carriers. 
CAT asserted that it is irrelevant who reports RTMs to the Department; 
what should be dispositive in all cases, in CAT's view, is who actually 
operated the flights. This is just as true in the case of situations in 
which U.S. carriers are the lessees as in which foreign carriers are 
the lessees.
    In the Conference Report on the Aviation Transportation Security 
Act (House Report 107-296 at p. 79), the managers made the following 
comment on this issue:

    It is the Conferees' position that the Stabilization Act's 
section 103 compensation formula language, ``revenue ton miles or 
other auditable measure'' should be broadly construed and should not 
restrict compensation exclusively to revenue ton miles reported on 
previously filed DOT Form 41s. If Air, Crew, Maintenance, Insurance 
lessors can provide accurate and auditable records of their revenue-
ton-miles during the relevant time period, then they should be 
eligible for compensation based under the Stabilization Act.''

DOT Response

    Double counting--compensating more than one carrier for the same 
operation--is contrary to the statutory scheme of the Act. Under the 
Act, the amount of compensation available to a carrier is not simply a 
function of actual documented losses. Rather, compensation availability 
is limited by a formula based on the available seat-miles or revenue 
ton-miles (or other auditable measure) as reported by the carriers. The 
formula approach was clearly envisioned as a way to permit carriers to 
participate in a finite amount of compensation based on their 
proportionate market shares. Market shares are not ``shared'' due to 
multiple carriers participating in particular operations. Indeed, 
permitting two or more carriers to be compensated for the same 
operation would give greater weight to some operations than others, 
contrary to the broad and proportionate distribution principle evident 
from the language of both section 101 and 103.
    For example, suppose carrier A and carrier B both participated in 
operation X. Meanwhile, carrier C flew the same amount of cargo over 
the same route in operation Y, without the involvement of another 
carrier. Both operations result in 100,000 RTMs. If double counting 
were permitted, operation X would generate twice as much compensation 
as operation Y, reducing the total pool of funds available to all 
carriers, depriving other carriers of the proportionate amount of 
compensation that Congress intended them to receive.
    We would also point out that there are many forms of multiple 
participation in operations, such as wet leases, charters, code shares, 
and indirect/direct air carrier relationships. Attempting to find ways 
of accommodating all these situations, and the variety of types of 
double counting that would be involved, would not only be 
administratively impracticable but inevitably involve multiple 
inequities. Congress could not have intended such a result.
    We do not agree with commenters who would disregard the role of the 
Department's reporting requirements (i.e., the Form 41 process) in 
determining the appropriate carriers to receive ``credit'' for ASMs or 
RTMs. Knowledge of this long-standing reporting scheme can clearly be 
attributed to Congress, and the Act's explicit and repeated references 
to ASMs and RTMs ``as reported to the Secretary'' show that Congress 
implicitly adopted the Department's reporting requirements. There is no 
evidence that Congress sought to revise these requirements or nullify 
them for purposes of the statutory compensation formula so that, for 
example, wet lessors would get credit for ASMs and RTMs while wet 
lessees would not.
    We recognize Congress did add the term ``or other auditable 
measure'' to the calculus with respect to RTMs. While neither the 
Department nor commenters have been able to suggest what such measures 
might be, this addition at least stands for the proposition that 
Congress intended some flexibility in the way that compensation was 
distributed among cargo carriers. That interpretation is fortified by 
the Conferees' statement in House Report 107-296 as cited above, which 
we note was directly in support of the compensation claims of wet 
lessors.
    Working with these principles, together with the mandates of the 
Act itself, we believe that the comments discussed above have some 
merit, and that wet lessors in some circumstances can participate in 
compensation payments. The primary condition to that participation is 
that an eligible carrier with a superior claim to RTMs under our rules 
has not applied for compensation. This requirement is necessary in 
order to avoid either double counting or the displacing of the claim of 
another carrier (e.g., the lessee in a wet lease situation) that 
Congress, through its ``as reported to the Secretary'' language, 
intended the Department to recognize.
    Therefore, we will accept applications from wet lessors if they (1) 
Otherwise qualify as an air carrier; (2) identify and document their 
status as wet lessor, explaining thereby why they have not previously 
reported ASMs or RTMs for the operations in question; (3) identify the 
wet lessees involved in these operations; (4) document that such 
lessees are either ineligible for compensation or voluntarily have not 
and will not claim such compensation with respect to the operations in 
question; and (5) provide accurate and auditable records of ASMs or 
RTMs actually flown during the relevant time period for these 
operations.
    We recognize that it is possible that some wet lessors either did 
not apply for compensation because of the way that the rule addressed 
this issue or would seek to amend their applications to claim 
additional RTMs or ASMs. We are amending the application procedures of 
the rule to allow carriers to do so within 14 days of the publication 
of this amendment.
    Claims to confidentiality of information provided under this 
provision will be carefully scrutinized. In any situation in which the 
Department determines that both wet lessors and wet lessees have 
claimed compensation for the same operations, the Department's general 
rule that wet lessees report RTMs will be given effect and lessees 
given priority.

Indirect Air Carrier Issues

    A number of commenters objected to the provision of the rule that 
only direct air carriers are eligible for compensation. These 
commenters (Emery Air Freight, CAA, BAX Global, and the Association of 
Air Medical Services (AAMS)) pointed out, first, that indirect air 
carriers are within the statutory definition of ``air carrier,'' and 
consequently should be eligible for compensation. These commenters 
disagreed with the Department's contention, in the rule's preamble, 
that the intent of Congress was to compensate carriers who actually 
operated flights. Emery added that, as an air freight forwarder, it has 
been recognized in DOT administrative decisions as responsible for the 
transportation of property, even though it did not actually operate 
flights.
    Emery also asserted that, as a lessee for air freight 
transportation, it suffered losses because the direct air carriers 
whose aircraft it leased could not fly during the period of the 
Secretary's September 11 ground stop order. This is exactly the sort of 
loss Congress intended to compensate, Emery said.
    Reporting ASMs or RTMs to the Department should not be an 
eligibility requirement, these commenters said. All air carriers should 
be eligible for

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compensation regardless of whether the Department could calculate the 
``formula cap'' for compensation using RTMs, particularly since the 
statute allows for ``other auditable measures'' to be used in place of 
RTMs.
    In some cases, CAA said, indirect air carriers should get credit 
for the RTMs involved in cargo operations, since they ``generate'' the 
freight carried, contract with direct air carriers for dedicated lift 
which requires payment regardless of how much freight is carried, and 
bear the entire financial risk for the operation. Emery also said that 
it, rather than the direct air carriers involved, should be regarded as 
generating RTMs, which the direct air carrier merely reports.
    BAX asserted that it is the Department's obligation to find an 
appropriate ``other auditable measure'' for indirect air carrier 
operations for carriers that do not report RTMs, though BAX did not 
suggest what such measures might be. BAX did suggest, however, that the 
flexibility given to air taxis in the rule, for whom DOT could estimate 
RTMs based on other data, could be given to indirect air carriers as 
well.
    BAX dismissed the Department's concern about ``duplicating'' ASMs 
or RTMs, saying that such overlap between direct and indirect air 
carriers is not ``inherently injurious.'' BAX appears to mean that a 
carrier will not be able to get ``double recovery,'' though it concedes 
that some carriers might have their compensation reduced as a result. 
Emery agreed that allowing indirect air carriers to claim RTMs will not 
require DOT to pay more than once for a specific loss. Emery added that 
the parties to a contract (i.e., a direct and indirect air carrier) 
should be able to provide DOT the information needed to make 
appropriate allocations of relief.
    AAMS, representing air ambulance operators, also requested that the 
Department provide compensation to those air ambulance operators who 
are indirect air carriers.

DOT Response

    Much of the discussion above concerning wet lease issues also 
pertains to the comments on indirect air carrier issues. In particular, 
the Department believes that double counting is impermissible. We find 
nothing in the text of the statute or its legislative history 
suggesting that Congress meant for carriers to be able to ``share'' 
RTMs. Further, none of these commenters have offered a way to calculate 
``other auditable measures'' that may be applicable to them in a way 
that is free of the problem of duplicating the claims of other 
carriers. (BAX's analogy to air taxis is inapposite, since air taxis 
have been required to construct RTM data in a manner consistent with 
other carriers and no duplication of data is involved.)
    Nor are we persuaded by the suggestions that indirect air carrier/
freight forwarders have a superior claim to RTMs that are flown with 
their cargo aboard. As noted above, we believe that Congress implicitly 
adopted the reporting requirements of the Department in the Act, and we 
find no suggestion that it intended to displace, as eligible for 
compensation under the Act, the direct air carriers that report RTMs in 
accordance with our rules in favor of indirect air carriers that do 
not.
    As to comments analogizing the role of freight forwarders to that 
of wet lessees, there are clearly differences between the two. While 
both assume economic risks, a wet lessee assumes economic control and 
responsibility for the flight, which the freight forwarder does not. As 
to claims that freight forwarder operations are economically equivalent 
to a wet lease, if an air carrier has in fact reported RTMs to the 
Department as a wet lessee, then its application can be processed on 
that basis. We believe that the manner in which carriers have actually 
defined their relationships and reported the data to DOT--without 
regard to the economic incentive created by the availability of 
compensation--should be given credibility.
    That said, we are deleting the provision of the rule that made 
indirect air carriers ineligible to apply for compensation. In order to 
be consistent with the approach we have taken above for wet lessors, we 
will accept for processing applications from indirect air carriers if 
they (1) Otherwise qualify as an air carrier; (2) identify and document 
their status as an indirect air carrier, explaining thereby why they 
have not previously reported ASMs or RTMs on claimed operations; (3) 
identify the direct air carriers involved in their operations; (4) 
document that such direct air carriers are either ineligible for 
compensation or voluntarily have not and will not claim such 
compensation with respect to the operations in question; and (5) 
provide accurate and auditable records of ASMs or RTMs actually flown 
during the relevant time period for these operations.
    We recognize that it is possible that some indirect air carriers 
may not have applied for compensation in the past because the rule said 
that they were ineligible. We are amending the application procedures 
of the rule to allow indirect air carriers who did not apply previously 
to so do within 14 days of the publication of this amendment.
    As noted above, claims to confidentiality of information provided 
under this provision will be carefully scrutinized. In any situation in 
which the Department determines that both indirect and direct air 
carriers have claimed compensation for the same operations, the 
Department's general rule that direct air carriers report RTMs will be 
given effect and they will be given priority.

Air Ambulance Issues

    AAMS expressed concern about the provisions of the Act and the rule 
that based calculations of compensation for which air carriers are 
eligible on available seat-miles (ASMs). AAMS said that ASMs are not a 
good measure of the capacity of air ambulance services, because air 
ambulances must be staffed and ready to go on a 24-hour basis, yet fly 
relatively few ASMs. Given the way the statutory formula works, this 
would result in very little compensation being made available to air 
ambulance services.
    In place of the ASM calculations that are used for other kinds of 
air carriers, AAMS recommended that the Department calculate lost 
volume by comparing the flight volume of August and September 2001, 
multiplying the difference by the average revenue per flight, and 
extrapolating the result to the industry as a whole. AAMS suggested 
that the functional equivalent of ASMs (i.e., as a measurement of 
capacity) could be calculated by multiplying the average number of 
seats in air ambulances aircraft (six) times the average speed of the 
aircraft (150 m.p.h.) times the hours per day it is staffed and ready 
(24). This, AAMS suggested, would create a reasonable approximation of 
the capacity of an air ambulance aircraft per day.
    In the Aviation and Transportation Security Act (Pub. L. 107-71), 
Congress also addressed the situations of air ambulances. Section 
124(d) of this statute amended section 103 of the Air Transportation 
Safety and System Stabilization Act. The purpose of this amendment, 
according to the Conference Report (House Report 107-296 at p. 79), is 
to ``to allow for a modified system of providing compensation to air 
tour operators and air ambulances to better address their needs after 
industry wide losses.'' The following is the text of this amendment:

    (d) Compensation for Certain Air Carriers.--
    (1) Set-Aside.--The President may set aside a portion of the 
amount of

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compensation payable to air carriers under section 101(a)(2) to 
provide compensation to classes of air carriers, such as air tour 
operators and air ambulances (including hospitals operating air 
ambulances) for whom application of a distribution formula 
containing available seat miles as a factor would inadequately 
reflect their share of direct and incremental losses. The President 
shall reduce the $4,500,00,000 specified in section (b)(2)(A)(i) by 
the amount set aside under this subsection.
    (2) Distribution of Amounts.--The President shall distribute the 
amount set aside under this subsection proportionally among such air 
carriers based on an appropriate auditable measure, as determined by 
the President.

Under the statutory language, use of this set-aside authority is 
discretionary (``The President may set aside * * *''). Neither the 
statute nor the Conference Report provides any guidance concerning the 
appropriate size of such a set-aside or the identity of any other 
``classes'' of air carriers that could be included in it, if the 
President chooses to use the authority.

DOT Response

    The Department will consider using the discretion provided by 
section 124(d) of the Transportation Security Act to set aside a 
portion of the $4.5 billion compensation available for passenger 
carriers for air ambulances and other classes of air carriers for whom 
application of an ASM-based compensation formula would inadequately 
reflect their share of direct and incremental losses. The Department is 
issuing a separate document in today's Federal Register requesting 
comment on the issue of whether we should establish a set-aside, which 
classes of carriers a set-aside should cover, and what method or 
methods should be used to allocate funds from a set-aside.

Charter Carrier Issues

    NACA, representing charter air carriers, asked for changes in the 
data the Department collects. NACA said that Parts 2 and 4 of Form 330-
A request a variety of types of information (e.g., forecast ASMs and 
RTMs; volume, revenue and cost information related to individual 
passengers; break even load factor, average length of passenger haul, 
departures planned, average passenger fares, and passenger yield per 
RPM) that are not relevant to charter air carriers' operation. Charter 
air carriers, NACA said, typically sell full planeload charter flights 
to tour operators, who in turn pay for the whole airplane by ``block 
hour.'' Charter revenue forecasts are based on aircraft utilization, 
which is the predicted monthly number of block hours the carrier 
expects to operate. The forecast units then become revenue and cost per 
block hour, rather than ASMs and RTMs.

DOT Response

    The Department understands that some charter carriers may not have 
some of the data elements in the form the Department has asked for 
them. The Department has received applications from a number of such 
carriers, and we are working with the carriers in question to clarify 
information necessary to permit determinations on compensation to be 
made. Consequently, the Department does not believe that it is 
necessary to make any changes in the current rule or forms to 
accommodate NACA's concern. However, we will consider whether, in 
connection with the third increment of compensation we intend to 
distribute in 2002, we should change any of the data elements for 
charter carriers.

Accounting Issues

    The American Institute of Certified Public Accountants (AICPA) 
recommended a number of changes in the way that the rule describes the 
independent audit requirements of the final rule. Rather than requiring 
a ``review'' of a carrier's ``forecasts,'' or an ``audited financial 
statement,'' AICPA suggested that DOT require carriers to perform an 
``agreed-upon procedures engagement.'' This change would make the rule 
more consistent with accounting terms of art, AICPA said. AICPA 
provided a suggested draft of such agreed-upon procedures as well as 
technical amendments to the rule's language that would accommodate the 
group's concerns.
    AICPA also commented concerning the rule's requirement that 
carriers report and support reports of losses for the period beginning 
September 11, 2001. Generally, AICPA said, carriers prepare financial 
data on a monthly, rather than a daily basis, so it would make more 
sense to report losses beginning September 1 rather than September 11. 
Also, carriers and the DOT should have access to the independent 
auditors' working papers on request, but the carrier should not 
routinely obtain and retain them. Doing the latter would be 
inconsistent with AICPA auditing standards, the organization asserted.
    The Air Transport Association noted in its comments that it 
supported the AICPA's views.

DOT Response

    In the interest of facilitating auditing of carriers' records, the 
Department will make the regulatory text changes suggested by AICPA, 
with minor edits. These changes in the Department's rule include 
adoption of the ``agreed-upon procedures engagement'' approach that 
AICPA suggested. However, the Department does not adopt or otherwise 
approve the specific agreed-upon procedures document enclosed with 
AICPA's comment.
    In implementing the agreed-upon procedures approach, DOT will 
require that airlines and their accountants use procedures that are 
acceptable to applicants and the Department. The Department intends to 
issue, in the near future, guidance that will provide the essential 
elements of procedures that the Department will accept. As part of this 
process, the Department is considering guidance relating to abbreviated 
procedures for smaller air carriers.

Before- and After-Tax Reporting

    TEM Enterprises noted that the rule requires that carriers report 
both ``net losses, before taxes'' and ``total net income after taxes, 
based on application of standard corporate income tax rates.'' TEM 
recommended that the Department use before-tax information in 
determining compensation, particularly where a carrier projected losses 
even before the September 11 attacks, since no tax would have been paid 
in that case. It would not make sense to use after-tax data except, 
perhaps, in the case of carriers who project having taxable income at 
the end of their tax years. TEM also objected to the possibility that 
the reference to ``standard corporate tax rates'' would mean that the 
Department would uniformly apply a 34 percent tax rate against a 
carrier's projected net income.
    AICPA also asked for clarification on whether compensation will be 
based on pre-tax or net income after taxes, and on what is meant by the 
rule's reference to ``standard corporate income tax rates.''

DOT Response

    The Department has determined, as the result of reviewing both 
compensation applications and comments to the docket for this rule, 
that the Department will rely on pre-tax data for purposes of 
determining carriers' losses. Consequently, issues concerning use of 
after-tax data, including the appropriate corporate tax rate to apply, 
are moot. We have deleted the after-tax income lines from the reporting 
forms in Appendices A-C of the regulation.

[[Page 254]]

Documentation of pre-September 11 Forecasts

    TEM Enterprises and Custom Air Transport made similar comments 
concerning the rule's requirement that carriers submit documentation 
that pre-September 11 forecasts were, in fact, completed before 
September 11. The problem, they said, was that carriers such as 
themselves do not routinely prepare forecasts of the kind contemplated 
by the rule. They could produce, for purposes of their applications, 
they said, detailed forecasts based on information existing before 
September 11, but these forecasts were prepared after September 11. It 
would be unreasonable, they said, to exclude carriers from compensation 
because their normal business practices before September 11 did not 
involve preparing detailed forecasts. Like air taxis, some other air 
carriers should be given flexibility to make a good faith effort to 
categorize their revenues and expenses according to the rule's forms.

DOT Response

    The Department believes that it is fair to accommodate the 
situation of carriers that did not prepare actual forecasts before 
September 11. In reviewing applications that have been submitted, the 
Department has accepted some carriers' estimates of pre-September 11 
expectations for their performance, based on historical data, in lieu 
of a forecast actually made before that date. As a matter of 
interpretation, the Department will continue this practice. While the 
Department will scrutinize the carrier's data to make sure the 
estimates of expectations are reasonable, the Department will not 
exclude carriers in this category from eligibility for compensation.

Other Issues

    Worldwide Flight Services, an aviation services firm that provides 
ramp, passenger, cargo, maintenance, container leasing, and fueling 
services, commented that it has suffered significant losses as the 
result of the September 11 attacks. The company is not receiving its 
expected revenue because carrier customers operating fewer flights are 
using their services less. Worldwide asserted it is not an indirect air 
carrier and that its unique position and the services it provides to 
carriers should result in its becoming eligible for compensation. 
Generally, Worldwide believes its services are vital to the flights of 
aircraft.
    If its operations stopped tomorrow, Worldwide said, many flights 
could not operate because essential services would not be provided, 
especially in smaller communities. According to Worldwide, in view of 
the Act's mandate that the Secretary take appropriate action to ensure 
the continuation of scheduled air service to small communities, the 
Department should compensate the company. In addition, acccording to 
worldwide, if Worldwide stopped providing its service, there would be 
interruptions of mail deliveries.
    ATA expressed concern about the provision that carriers must 
provide all requested information with their applications or face 
rejections of their applications by the Department. This requirement is 
too stringent, in ATA's view, particularly since carriers may be unable 
to meet precisely some of the rule's information requirements. For 
example, carriers may well be unable to provide an auditable forecast 
and actual losses for the September 11-30 period, since they do not 
keep records in a daily or weekly, as opposed to monthly, fashion. Like 
AICPA, ATA recommended that the rule's information collection 
requirements relate to the entire month of September.
    Finally, ATA disagreed with the rule's requirement that independent 
auditors review carriers' forecasts for accuracy. This, ATA said, would 
be difficult given the variation among carriers' forecasting methods. 
Instead, the auditors should certify that the forecast submitted to DOT 
was the carrier's most recently available forecast prior to September 
11.

DOT Response

    The events of September 11 had serious economic effects on a wide 
variety of businesses. For example, airport concessionaires, hotels and 
resorts, and other tourism-related businesses appear to have lost 
substantial amounts of money. We do not doubt that an aviation services 
company like Worldwide may have suffered significant financial losses 
as the result of the September 11 attacks, and we recognize that firms 
like Worldwide can play an important role in the aviation industry.
    Nevertheless, Congress provided compensation in the Act only to air 
carriers. Worldwide is not only not an indirect air carrier; it is not 
an air carrier at all, as defined in the Act. We do not have the legal 
discretion to provide compensation to parties that are not air 
carriers, even though doing so could help to achieve other purposes of 
the Act, such as maintaining service to small communities.
    The Act requires losses to be calculated from September 11, not 
September 1. The Department cannot assume that a forecast pertaining to 
all of September will permit an accurate calculation of losses 
pertaining to September 11-30. Certainly, merely pro-rating data for 
the entire month as a means of estimating losses for September 11-30 
would not be an accurate method for doing so. It is appropriate and 
possible, in the Department's view, for carriers--even those who did 
not originally structure their forecasts in this fashion--to break out 
data pertaining to September 1-10 and September 11-30, respectively.
    As noted in the response to the AICPA comment, DOT is modifying 
audit requirements and will rely on ``agreed-upon procedures'' as 
distinct from a formal ``review'' or ``audit'' of carrier information. 
This change adequately responds to ATA's comments on this point. We do 
not believe it would be adequate to have an auditor merely attest to 
the recency of a carrier's documents. To ensure that the Department 
distributes funds in accordance with Congress' direction, auditors need 
to consider the accuracy of the substance of this information.

Regulatory Analyses and Notices

    This rule is an economically significant rule under Executive Order 
12886, since it will facilitate the distribution of more than a billion 
dollars into the economy during the 12-month period following its 
issuance. Because of the need to move quickly to provide compensation 
to air carriers for the purpose of maintaining a safe, efficient, and 
viable commercial aviation system in the wake of the events of 
September 11, 2001, we are not required to provide an assessment of the 
potential cost and benefits of this regulatory action. The Department 
has determined that this rule is being issued in an emergency 
situation, within the meaning of Section 6(a)(3)(D) of Executive Order 
12866. However, this impact is expected to be a favorable one: making 
these funds available to air carriers to compensate them for losses 
resulting from the terrorist attacks of September 11. In accordance 
with Section 6(a)(3)(D), this rule was submitted to the Office of 
Management and Budget for a brief review.
    Because a notice of proposed rulemaking is not required for this 
rulemaking under 5 U.S.C. 553, we are not required to prepare a 
regulatory flexibility analysis under 5 U.S.C. 604. However, we do note 
that this rule may have a significant economic effect on a substantial 
number of small entities. Among the entities in question are air taxis, 
as well as some commuters and small certificated air carriers. In

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analyzing small entity impact for purposes of the Regulatory 
Flexibility Act, we believe that, to the extent that the rule impacts 
small air carriers, the impact will be a favorable one, since it will 
consist of receiving compensation. We have facilitated the 
participation of small entities in the program by allowing a longer 
application period for air taxis, which are generally the smallest 
carriers covered by this rule and which do not otherwise report traffic 
or financial data to the Department. The Department has also concluded 
that this rule does not have sufficient Federalism implications to 
warrant the consultation requirements of Executive Order 13132.
    We are making this rule effective immediately, without prior 
opportunity for public notice and comment. Because of the need to move 
quickly to provide compensation to air carriers for the purpose of 
maintaining a safe, efficient, and viable commercial aviation system in 
the wake of the events of September 11, 2001, prior notice and comment 
would be impractical, unnecessary, and contrary to the public interest. 
Consequently, prior notice and comment under 5 U.S.C. 553 and delay of 
the effective date under 5 U.S.C. 801, et seq., are not being provided. 
On the same basis, we have determined that there is good cause to make 
the rule effective immediately, rather than in 30 days. We are 
providing for a 14-day comment period following publication of the 
rule, however. The Department will subsequently respond to comments we 
receive.
    The Office of Management and Budget has approved the information 
collection requirements of this rule, with Control Number 2105-0546.

List of Subjects in 14 CFR Part 330

    Air carriers, Grant programs--transportation, Reporting and 
recordkeeping requirements.

    Issued this 26th day of December, 2001, at Washington, DC.
Read C. Van de Water,
Assistant Secretary for Aviation and International Affairs.

    For the reasons set forth in the preamble, the Department amends 14 
CFR Part 330 as follows:

PART 330--PROCEDURES FOR COMPENSATION OF AIR CARRIERS

    1. The authority citation for Part 330 is revised to read as 
follows:

    Authority: Pub. L. 107-42, 115 Stat. 230 (49 U.S.C. 40101 note); 
sec. 124(d), Pub. L. 107-71, 115 Stat. 631 (49 U.S.C. 40101 note).

    2. Amend Sec. 330.7 by revising paragraph (c) to read as follows:


Sec. 330.7  How much of an eligible air carrier's estimated 
compensation will be distributed under this part?

* * * * *
    (c) If, as an air carrier, you are able to submit data, subsequent 
to your application under this part but before December 31, 2001, 
demonstrating and documenting conclusively that you have incurred 
actual losses as defined in section 101(a)(2) of the Act that exceed 
the amount of compensation for which you demonstrate you are eligible 
under the formula of section 103(b)(2) of the Act, the Department may 
disburse to you, without waiting for a submission in Calendar Year (CY) 
2002, the remainder of the formula amount of compensation for which you 
are eligible.
    (1) A carrier that requests a final installment before December 31, 
2001 must submit its claim of actual losses for the period of the 
claim, a forecast for the same period that was prepared before 
September 11, 2001, and an independent public accountant's report based 
on the performance of agreed-upon procedures approved by the Department 
of Transportation with respect to the carrier's forecasts and actual 
results. The independent public accountant's engagement must be 
performed in accordance with generally accepted professional standards 
applicable to agreed-upon procedures engagements.
    (2) The consideration of requests for final payment before December 
31, 2001 is contingent upon the establishment by the Department of a 
fixed comprehensive universe of ASMs and RTMs for all eligible air 
carriers to be used as the basis of the final compensation formula for 
all eligible air carriers as established in the Act.


Sec. 330.11  [Amended]

    3. Amend Sec. 330.11 by removing and reserving paragraph (b).

    4. Amend Sec. 330.21 by adding new paragraphs (d) and (e), to read 
as follows:


Sec. 330.21  When must air carriers apply for compensation?

* * * * *
    (d) Notwithstanding any other provision of this section, if you are 
an eligible air carrier that did not submit an application or wishes to 
amend its application, you may do so by January 16, 2002 if you are one 
of the following:
    (1) An indirect air carrier which did not file an application 
because indirect air carriers were formerly ineligible to apply for 
compensation; or
    (2) A wet lessor that either did not file an application, or 
submitted fewer ASMs or RTMs with its application than it now believes 
can be counted for compensation purposes, because this rule formerly 
limited the ASMs or RTMs that you could submit.
    (e) If you are submitting a new or amended application under 
paragraph (d) of this section, you must include a signed statement, 
under penalty of perjury, that you are submitting the new or amended 
application for the reason stated in paragraph (d)(1) or (d)(2) of this 
section.

    5. Revise Sec. 330.31 to read as follows:


Sec. 330.31  What data must air carriers submit concerning ASMs or 
RTMs?

    (a) Except as provided in paragraph (d) of this section, if you are 
applying for compensation as a passenger or combination passenger/cargo 
carrier, you must have submitted your August 2001 total completed ASM 
report to the Department for your system-wide air service (e.g., 
scheduled, non-scheduled, foreign, and domestic).
    (b) Except as provided in paragraph (d) of this section, if you are 
applying for compensation as an all-cargo carrier, you must have 
submitted your RTM reports to the Department for the second calendar 
quarter of 2001.
    (c) In calculating and submitting ASMs and RTMs under paragraphs 
(a) and (b) of this section, there are certain things you must not do:
    (1) Except at the direction of the Department, or to correct an 
error that you document to the Department, you must not alter the ASM 
or RTM reports you earlier submitted to the Department. Your ASMs or 
RTMs for purposes of this part are as you have reported them to the 
Department according to existing standards, requirements, and 
methodologies established by the Office of Airline Information (Bureau 
of Transportation Statistics).
    (2) You must not include ASMs or RTMs resulting from operations by 
your code-sharing or alliance partners.
    (3) You must not include ASMs or RTMs that are reported by or 
attributable to flights by another carrier.
    (d) If you have not previously reported ASMs or RTMs as provided in 
paragraphs (a) and (b) of this section for a given operation or 
operations, you may submit your calculation of ASMs or RTMs to the 
Department with your application. You must certify the accuracy of this 
calculation and submit with your application the data and assumptions 
on which the calculation is based. After reviewing your submission, the 
Department may modify or reject your calculation.
    (1) If you are a direct air carrier that has operated your aircraft 
for a lessee (i.e., a wet lease, or aircraft, crew,

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maintenance, and insurance (ACMI) operation), you may submit your 
calculation of ASMs or RTMs for these flights. Your submission must 
include the following elements:
    (i) Documentation that you otherwise qualify as an air carrier;
    (ii) Documentation that you are a wet lessor, and an explanation of 
why you did not previously report ASMs or RTMs for the operations in 
question;
    (iii) Documentation of the identify of the wet lessees involved in 
these operations;
    (iv) Documentation that such lessees are either ineligible for 
compensation or voluntarily have not and will not claim such 
compensation with respect to the operations in question; and
    (v) Accurate and auditable records of ASMs or RTMs actually flown 
during the relevant time period for these operations.
    (2) If you are an indirect air carrier, you may submit your 
calculation of ASMs or RTMs for flights that direct air carriers have 
operated for you under contract or other arrangement. Your submission 
must include the following elements:
    (i) Documentation that you otherwise qualify as an air carrier;
    (ii) Documentation that you are an indirect air carrier, and an 
explanation of why you did not previously report ASMs or RTMs for the 
operations in question;
    (iii) Documentation of the identify of the direct air carriers 
involved in these operations;
    (iv) Documentation that such direct air carriers are either 
ineligible for compensation or voluntarily have not and will not claim 
such compensation with respect to the operations in question; and
    (v) Accurate and auditable records of ASMs or RTMs actually flown 
during the relevant time period for these operations.

    6. Amend Sec. 330.35 by revising paragraph (a)(4) to read as 
follows:


Sec. 330.35  What records must carriers retain?

* * * * *
    (a) * * *
    (4) You must agree to have your independent public accountant 
retain all reports, working papers, and supporting documentation 
pertaining to the agreed-upon procedures engagement conducted by your 
independent public accountant under the requirements of this part for a 
period of five years. The accountant must make this information 
available for audit and examination by representatives of the 
Department of Transportation (including the Office of the Inspector 
General), the Comptroller General of the United States, or other 
Federal agencies.
* * * * *

    7. Amend Sec. 330.37 by revising paragraph (b) to read as follows:


Sec. 330.37  Are carriers which participate in this program subject to 
audit?

* * * * *
    (b) Before you are eligible to receive payment from the final 
installment of compensation under the Act, there must be an independent 
public accountant's report based on the performance of procedures 
agreed upon by the Department of Transportation with respect to the 
carrier's forecasts and actual results. The independent public 
accountant's engagement must be performed in accordance with generally 
accepted professional standards applicable to agreed-upon procedures 
engagements. You must submit the results of the agreed-upon procedures 
engagement to the Department with your application for payment of the 
final installment.

    8. Amend Appendix A to Part 330 by revising Page 1 of 5 and Page 3 
of 5 of Form 330-A to read as follows:

Appendix A to Part 330--Forms for Certificated and Commuter Air 
Carriers

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    9. Amend Appendix B to Part 330 by revising Page 1 of 5 and Page 3 
of 5 of Form 330-B to read as follows:

Appendix B to Part 330--Forms for Certificated Cargo Carriers
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    10. Amend Appendix C to Part 330 by revising Page 1 of 7 and Page 3 
of 7 of Form 330-C to read as follows:

Appendix C to Part 330--Forms for Air Taxi Operators

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[FR Doc. 01-32176 Filed 12-27-01; 4:28 pm]
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