[Federal Register Volume 60, Number 174 (Friday, September 8, 1995)]
[Notices]
[Pages 47012-47020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22354]
[[Page 47011]]
_______________________________________________________________________
Part VI
Department of Transportation
_______________________________________________________________________
Federal Aviation Administration
_______________________________________________________________________
Proposed Policy Regarding Airport Rates and Charges; Notice
Federal Register / Vol. 60, No. 174 / Friday, September 8, 1995 /
Notices
[[Page 47012]]
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
[Docket No. 27782]
RIN 2120-AF90
Proposed Policy Regarding Airport Rates and Charges
AGENCY: Department of Transportation (DOT), Federal Aviation
Administration (FAA).
ACTION: Supplemental notice of proposed policy; reopening of comment
period.
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SUMMARY: This document proposes a significant revision of the Policy
Regarding Airport Rates and Charges published with request for comment
on February 3, 1995. The proposed policy retains the structure and
basic approach of the February 3 policy statement, but the strict
requirement for equality of fees and costs based on historic cost
valuation of assets would be limited to the airfield portion of an
airport, and the policy would permit substantial flexibility in the
establishment of fees for other aeronautical facilities. The revision
reflects public comments received on the February 3 policy statement.
This notice announces two public meetings on the proposed policy and
reopens the comment period until October 23, 1995.
DATES: Comments must be received by October 23, 1995.
ADDRESSES: Comments should be mailed, in quadruplicate, to: Federal
Aviation Administration, Office of Chief Counsel, Attention: Rules
Docket (AGC-10), Dockets No. 27782, 800 Independence Avenue SW.,
Washington, DC 20591. All comments must be marked: ``Docket No.
27782.'' Commenters wishing the FAA to acknowledge receipt of their
comments must include a preaddressed, stamped postcard on which the
following statement is made: ``Comments to Docket No. 27782.'' The
postcard will be date stamped and mailed to the commenter.
Comments on this Notice may be examined in room 915G on weekdays,
except on Federal holidays, between 8:30 a.m. and 5 p.m.
FOR FURTHER INFORMATION CONTACT: John Rodgers, Director, Office of
Aviation Policy, Plans and Management Analysis, Federal Aviation
Administration, 800 Independence Ave. SW., Washington, DC 20591,
telephone (202) 267-3274; Barry 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: Section 113 of the FAA Authorization Act of
1994, Public Law 103-305 (1994 Authorization Act) signed into law on
August 23, 1994, 49 U.S.C. 47129, required the Secretary of
Transportation to issue standards or guidelines for use in determining
the reasonableness of an airport fee. After notice and opportunity for
public comment, on January 30, 1995, the Office of the Secretary of
Transportation (OST) and the FAA issued a ``Policy Regarding Airport
Rates and Charges,'' and requested further public comment on the
interim policy as published. Docket No. 27782 (60 FR 6906, February 3,
1995). The comment period on the interim policy closed on May 4.
Comments Received
More than 125 comments were received in response to the February 3
request for comment, including comments received after the close of the
comment period. The Department considered all comments, including the
late-filed comments. Because the Department is proposing a
substantially revised policy statement and publishing the statement for
an additional comment period, the Department will include in this
supplemental notice only a brief discussion of public comments received
on the February 3 policy statement, and will not address the comments
in detail at this time. When a final policy statement is published in
the Federal Register, the Department will include a comprehensive
response to public comments received on both the February 3 interim
policy and this proposed revision.
Summary of Proposed Changes and Response to Significant Issues
Raised
1. Valuation of Assets for Ratesetting Purposes.
The interim policy requires valuation of all airport land and
airfield assets at historic cost to the original airport proprietor (
Para. 2.4.1). The airport proprietor may use other valuation methods
for other assets, but total aeronautical revenue may not exceed total
aeronautical cost, based on historic cost asset (HCA) valuation, absent
agreement (Para 2.4.1(a)).
Aeronautical users filing comments supported the interim final
policy's approach to asset valuation.
Airport operators uniformly criticized the treatment of asset
valuation. They argued that, inter alia, the combination of the HCA
valuation requirement and the total cost cap will disrupt their current
practices in leasing nonairfield facilities; will underfinance smaller
airports that are unable to use debt-financing to fund capital
replacement and improvement; and will cause signatory carriers to pay
more than non-signatory carriers under certain residual lease and use
agreements. They also argued that the HCA requirement is inconsistent
with Sec. 47129's prohibition on setting rates; is inconsistent with
Departmental policies on financial self-sustainability of airports; and
is inconsistent with an airport proprietor's Constitutional right to
earn a reasonable return on investment.
While airport commenters prefer elimination of the HCA valuation
requirement for all assets, most (the City of Los Angeles being the
primary exception) stated that retention of the HCA valuation
requirement for the airfield would be acceptable, because HCA valuation
for the airfield reflects common industry practice.
The Department proposes to revise the policy by limiting the HCA
valuation requirement in proposed Para. 2.5.1 to airfield assets and by
eliminating the total HCA cost cap for aeronautical facilities (Para.
2.4.1(a) of the interim policy). Airfield assets would be defined in
the applicability section of the policy statement to include runways,
taxiways, nonexclusively leased aprons, land associated with these
facilities, and land acquired and held to assure compatibility with
airfield operations. If the latter land were developed for compatible,
nonairfield uses, the land would be removed from the airfield rate
base.
In addition, further guidance would be given on the way airfield
land may be included in the rate base (proposed Para. 2.5.1(a)). The
cost of land acquired with debt could be included in the rate base by
charging all debt service expenditures to the airfield cost center. The
cost of land acquired with internally generated funds or donated by the
airport proprietor could be recovered by amortization. A new paragraph
2.5.1(b) is proposed to clarify that, while HCA valuation must be used
to establish total airfield costs, airport operators may, to enhance
the efficient use of the airfield, allocate costs using a reasonable
and not unjustly discriminatory methodology that departs from a pro
rata division of HCA costs.
A new paragraph 2.6 would be added, providing that fees for other
aeronautical services and facilities could be established by any
reasonable methodology. As discussed below, the policy would provide
for FAA scrutiny
[[Page 47013]]
of accumulation of surplus funds attributable to aeronautical revenues,
however. The Department does not intend this possible scrutiny to
function as an indirect reinstatement of the HCA cost cap.
The proposed revision to the policy is intended to carry out the
Department's mandate to adopt a policy that assures that airport fees
are reasonable while avoiding unnecessary disruption to long-standing,
well-accepted pricing practices, especially for nonairfield assets.
For nonairfield facilities, which may be priced according to any
reasonable method, our experience suggests that effective competition
generally exists. Fees for such facilities are generally established by
agreement between the airport proprietor and aeronautical user based on
negotiations. Formal administrative complaints over fees for
nonairfield facilities have in almost all instances involved
allegations of unjust discrimination--not allegations that nonairfield
fees were excessive. Moreover, since 1989, all of those complaints not
still pending have been dismissed following investigation. Based on
these considerations, we propose to rely on the discipline of
competition, in the first instance, rather than detailed prescriptions
of permissible charging practices to assure that fees for nonairfield
facilities meet the requirements of reasonableness contained in
statutes, grant agreements and applicable international aviation
agreements. However, the policy would explicitly preserve the authority
of the FAA to investigate the accumulation of aeronautical surpluses.
For airfield assets--runways and taxiways--there is greater risk
that airport proprietors may enjoy locational monopoly power. The HCA
requirement for these assets would guard against any abuse of monopoly
power and would conform to general industry practice.
The HCA valuation requirement does not conflict with the statutory
prohibition on setting the airport fee. The valuation of airfield
assets is but one element in setting a fee. Even with the HCA valuation
requirement, the airport proprietor has substantial latitude with
respect to those other elements.
Further, the HCA valuation requirement does not amount to a
regulatory taking of property. The HCA valuation requirement allows the
airport proprietor to fully recover its costs of providing airfield
facilities. HCA valuation is one of the methods that has been found
reasonable, and hence constitutional, by the courts.
Finally, many of the arguments against the HCA requirement for the
airfield were considered and rejected by the Department in its decision
on the Los Angeles International Airport (LAX) landing fee dispute. See
pages 19-26, Order 95-6-36 (June 30, 1995).
2. Applicability to Airfield and Non-Airfield Assets
As noted above, the Department proposes to modify the interim
policy to eliminate the total HCA cap on aeronautical revenues and to
permit nonairfield fees to be set according to any reasonable method.
In keeping with this change, the provision in the policy requiring that
aeronautical revenues not exceed aeronautical costs (Para. 2.1 of the
interim policy) would be narrowed to apply to airfield revenues and
costs (Proposed para. 2.2). Similarly, the provision specifying in
detail the costs that may be included in the rate base (Proposed Para.
2.4) would be modified by adding an exception for nonaeronautical fees
determined by other reasonable means as provided in proposed Para. 2.6.
The Department relies on market forces in the leasing of nonairfield
facilities to assure that aeronautical revenues, averaged over time,
will approximate costs, including the airport's capital investment
needs. However, it is unrealistic to expect the market to produce fees
that exactly equal costs for each particular user during every
accounting period.
3. Charging Imputed Interest on Investment of Surplus Aeronautical
Revenues
The interim policy provides that airport proprietors could include
in the aeronautical rate base the implicit cost of capital (imputed
interest) of funds generated from nonaeronautical sources and invested
in capital assets for aeronautical use (par. 2.3.1). The interim policy
further provides that the Department considers it reasonable to use the
rate of interest prevailing at the time of the expenditure on bonds
issued by the airport proprietor or another airport with a similar bond
rating.
Airport commenters objected to this provision on a number of
grounds. They argued that by precluding interest on surpluses generated
from aeronautical revenues, the policy creates an incentive to invest
such aeronautical surpluses in nonaeronautical assets. They further
argued that it will be difficult, if not impossible, in most cases to
trace a surplus to nonaeronautical sources. In addition, they argue
that an interest rate based on their borrowing costs is unreasonably
low, and that a reasonable rate of interest should be based on what the
airport proprietor could earn on alternative investments.
Airport users did not object to this provision.
After reviewing the comments and in light of the other revisions to
the policy relating to fees for nonairfield services and facilities,
the Department proposes to modify the provision on imputed interest.
The new provision would permit the airport proprietor to include in the
rate base imputed interest on all funds invested in aeronautical
facilities except those generated from airfield operations and funds
acquired through issuance of debt when debt service costs are also
included in the rate base. In addition, the policy would no longer
specify a particular interest rate as reasonable. This approach is
consistent with our decision to provide greater flexibility in
establishing nonairfield fees. As promulgated, the interim policy could
be read as limiting the assessment of an imputed interest charge on
nonairfield assets such as terminals and hangars. With the additional
flexibility proposed in this supplemental notice for nonairfield fees,
it is possible that fees could include an element of imputed interest
that would be inconsistent with the interim policy's limitation on
imputed interest. By narrowing the scope of the provision on imputed
interest (Proposed Para. 2.4.1) to funds generated by the airfield, the
Department would avoid a potential internal conflict in the policy. In
addition, the new approach would reduce the potential disincentives to
investing funds in aeronautical, rather than nonaeronautical assets.
Under the revised proposal, the airport proprietor could not charge
imputed interest on funds generated from fees charged for the use of
the airfield. The policy and legal considerations for this limitation
are discussed below, in connection with the issue of allowing a return
on investment.
With respect to commenters' concerns over the ability to trace the
source of funds, we note that in the recent decision on LAX landing
fees, the Department stated that, under the Administrative Procedure
Act, a carrier complaining about inclusion of imputed interest in the
rate base would bear the burden of proving that the airport proprietor
was claiming imputed interest on aeronautical surpluses. Under this
ruling, an airport proprietor need not trace the source of internally
generated funds 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 fee
[[Page 47014]]
negotiations or in connection with a fee dispute resolution proceeding.
4. Return on Investment.
The interim policy does not provide for the inclusion of a separate
return on investment in the aeronautical rate base.
Airport commenters generally objected to this omission. They argued
that a return on investment represents the cost of providing capital
for the airport and retaining that investment in use as an airport.
They further argued that the failure to allow a rate of return would
amount to an unconstitutional taking of property. In addition, they
argued that by not allowing a rate of return in the aeronautical rate
base, the policy provides incentives for airports to invest internally
generated funds in nonaeronautical assets. They also argued that a rate
of return is necessary to assure that airport proprietors have adequate
revenue to meet debt service coverage obligations and maintain adequate
cash reserves to protect against contingencies and unexpected declines
in activity and revenue.
Airport users do not object to the approach of the interim policy
statement on this issue.
The proposed revisions would permit airport proprietors to use any
reasonable, not unjustly discriminatory method to establish nonairfield
fees. Fees established by negotiation, for example, may well include a
reasonable profit margin for the airport proprietor.
With respect to a publicly-owned airfield, no separate rate of
return would be allowed, although imputed interest might be included in
the rate base in some circumstances. This treatment of the airfield is
justified by the nature of the airfield asset and by the Federal
government's historic role and interest in airport development.
A publicly-owned airfield is a public asset operated for the
benefit of the general public. Moreover, since the enactment of the
first Federal airport aid program in 1946, the overwhelming
preponderance of Federal assistance has been applied to finance
airfield development. The purpose of this assistance has been to
promote and assure the growth, safety and efficiency of the national
air transportation system, not to assist airport sponsors in developing
profit-making facilities. In this regard, we note that the AAIA
specifically prohibits an airport proprietor from including the Federal
share of projects in the airport's rate base. The Department considers
this prohibition to reflect a Congressional intent to limit the public
airport proprietor's ability to employ facilities financed in part with
Federal assistance as a means to generate a profit. Finally, with the
exception of Los Angeles, whose landing fees were found to be
unreasonable in part, we are not aware of any public airport operator
that has sought to include a rate of return in its airfield rate base.
In contrast, nonairfield assets such as hangars and terminal gates,
are usually leased on an exclusive-use basis. The lease rates reflect
the value to the tenant of having an exclusive right to use the
particular facility leased. In addition, hangars are ineligible for
Federal funding. Eligible terminal development is limited to public
use, nonrevenue producing areas--not those which would typically be the
subject of an exclusive, or even preferential use lease. In addition,
terminal development has constituted a relatively small share of
overall Federal airport assistance over the years. Thus, for
nonairfield aeronautical facilities, the possibility of earning a
profit from Federally financed assets is a de minimis concern.
Finally, under the proposed policy, a public airport proprietor may
recover its full costs, including the cost of its actual investment in
the airfield. In addition, the policy allows the airport proprietor to
add the cost of meeting debt-service coverage requirements and
reasonable reserves to the rate base. Therefore, a separate rate of
return allowance is not needed to meet these requirements for publicly
owned airports. A private owner could earn a reasonable return on
investment.
5. Applicability to General Aviation Airports
Airport commenters generally objected to the application of the
policy to general aviation airports. They argued that Sec. 47129
precludes the Department from adopting airport fee policies applicable
to general aviation airports, since that section directs the Secretary
to establish policies to be applied in disputes between air carriers
and airports. They also argued that the total HCA cap would pose a
hardship for most general aviation airports, where nonaeronautical
revenues are insignificant and cannot be relied on to generate surplus
funds to finance replacement and improvement of airport assets.
Airport users did not specifically address this issue.
The Department does not propose to exclude general aviation
airports from the scope of the policy. However, we propose to modify
the policy statement to clarify that in situations not covered by
Sec. 47129, the policy would be applied by the FAA in its role as
administrator of the AIP program, under which the agency must satisfy
itself that an applicant for grants is in compliance with its
assurances, but does not provide a forum for adjudicating disputes
between private parties.
While Sec. 47129 mandates the promulgation of standards relating to
airport fees charged to air carriers, it does not prohibit the
development of airport fee policies for other airports. Section 511 of
the AAIAct, 49 U.S.C. 47107(a) requires the Department to receive
satisfactory assurances that, inter alia, each airport receiving a
grant will be available for public use on reasonable terms without
unjust discrimination. This provision is not limited to air carrier
airports. Moreover, Sec. 519(a) of the AAIAct, 49 U.S.C. 47122
authorizes the Department to take action we ``consider necessary to
carry out'' the AAIA. Under these provisions, the Department has
authority to issue a policy on reasonable and nondiscriminatory airport
fees applicable to general aviation airports.
The Department is aware of the differences between general aviation
airports and airports receiving extensive air carrier services. As we
noted in publishing the interim policy, we will take these differences
into account in applying the policy. Moreover, the potential adverse
impact on general aviation airports of the revenue cap would be
eliminated by our proposal to eliminate that cap.
6. Applicability Where an Agreement Exists
Airport commenters generally requested that we modify the policy to
exclude fees established by agreements with users. They argued that the
limitations in Sec. 47129 (e)(1) and (f)(1) preclude the application of
the policy to fees established by agreement. They also argued that fees
established by agreement generally represent a mutual exchange of
benefits to both parties. A determination of unreasonableness by the
Department would disturb this exchange and provide a windfall to the
airport user who challenged the fee.
The Department does not intend to fully exclude fees set by
agreement from the scope of the policy. However, we propose to modify
the policy statement to clarify that if the FAA reviews a fee set by
agreement, the FAA will not act as a forum for adjudication of contract
disputes between private parties.
As noted above, the AAIA provides authority for establishing a
policy that applies to all airport fees imposed on aeronautical users,
including fees established by agreement. In addition, many bilateral
aviation agreements include a commitment by the United
[[Page 47015]]
States that airport fees charged to foreign airlines will be
reasonable. An airport and individual aeronautical user or users cannot
by private agreement waive the obligations of the AIP grant assurances,
which are designed to protect the public, not just private interests.
Similarly, they cannot waive the United States' obligations to foreign
governments. Moreover, it is possible that an agreement that is
reasonable, and even beneficial in its impact on the parties could have
an unreasonable or unjustly discriminatory impact on nonparty airport
users.
7. Applicability to Users Other Than U.S. Air Carriers
Airport commenters generally request us to limit the applicability
of the policy to U.S. air carriers and foreign air carriers. A few
commenters also request that we exclude fees charged to foreign air
carriers from the scope of the policy and from the applicability of the
expedited hearing procedures in 14 CFR Part 302, subpart F. They argue
that Sec. 47129 by its terms precludes us from adopting policies and
procedures to determine the reasonableness of fees other than those
fees charged to air carriers that are not otherwise excluded from
Sec. 47129 by its terms. They further argue that the methods used to
establish fees to non-carrier aeronautical users do not readily lend
themselves to application of the policy.
The Department does not propose to limit the applicability of the
policy to fees imposed on U.S. and foreign air carriers. However, we
propose to modify the policy statement to clarify that in situations
not covered by Sec. 47129, the policy would be applied by the FAA in
its role of administrator of the AIP program in carrying out the
agency's obligation to satisfy itself that an applicant for grants is
in compliance with its assurances, not in the role of a forum for
adjudicating a dispute between private parties. The Department also
intends to apply the procedures mandated by Sec. 47129, including the
procedures governing refunds, to foreign air carriers in the same way
we apply it to U.S. air carriers.
As noted above, the AAIA provides authority for establishing a
policy that applies to all airport fees imposed on aeronautical users,
including fees imposed on foreign air carriers and noncarrier
aeronautical users. In addition, many bilateral aviation agreements
include a commitment by the United States that airport fees charged to
foreign airlines will be reasonable.
The Department recently considered the applicability of Sec. 47129
to foreign air carriers in the decision on the reasonableness of LAX
landing fees. The Department concluded that Sec. 47129 allows foreign
airlines to obtain retrospective relief and to file complaints. The
Department pointed out that the United States' obligations to give
nondiscriminatory treatment to foreign carriers generally precluded us
from denying foreign air carriers a remedy available to U.S. carriers
absent a bar to granting foreign air carriers that remedy. Order 95-6-
36 at 53-56. For the reasons stated in its consideration of the issue
in the LAX case, the Department will continue to consider complaints
filed by foreign air carriers under the terms of Sec. 47129.
8. Limits on Aeronautical Surplus
The Department proposes to modify the policy to eliminate the total
HCA cap on aeronautical revenue and to provide that nonairfield fees
may be established by any reasonable means. In providing this
flexibility, the Department is in no respect waiving the requirements
in statute, AIP grant assurances and, where applicable, international
aviation agreements. The use of negotiated rates or rates based on an
objective determination of fair market value creates the opportunity
for the generation of surplus aeronautical revenues in any given year.
The Department proposes to rely generally on market discipline to
prevent the generation of aeronautical revenues that, over time, exceed
aeronautical costs. Based on this reliance, we are not proposing an
alternative cap on fees imposed for aeronautical services and
facilities other than the airfield. However, to address the remote
chance that the market mechanism may break down, we propose to add a
provision on revenue generation specifying that the accumulation of
surpluses attributable to aeronautical revenue may warrant an inquiry
into the reasonableness of the aeronautical fees (proposed Para.
4.2.1).
Public Meetings
In order to facilitate the submission of public and industry
comment, and to ensure that agency staff has the best opportunity to
understand the positions of commenters and the scope of industry
practice on this complex subject, the Department will hold at least two
informal public meetings on the proposed policy. The meetings will be
structured to permit informal discussion among the various interested
parties rather than simply delivery of prepared comments for the
record. Notice of the time, date, and location of the meetings will be
published separately in the Federal Register.
Proposed Policy
Accordingly, the OST and the FAA propose to revise the Policy
Regarding Airport Rates and Charges as follows:
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. By providing guidance on standards
applicable to airport fees imposed for aeronautical use of the airport,
the Department intends to facilitate direct negotiation between the
proprietor and aeronautical users and to minimize the need to seek
direct Federal intervention to resolve differences over airport fees.
Applicability of the Policy
A. Scope of Policy
Under the terms of grant agreements administered by the 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 the operations 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
[[Page 47016]]
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 air
carriers or foreign air carriers of facilities such as a reservations
center, headquarters office, or flight kitchen on an airport does not
constitute an aeronautical activity 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 carriers 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 commercial or industrial property to assure that fees for such
property are not excessive.
C. Applicability of Section 113 of the FAA Authorization Act of 1994
Section 113 of the Federal Aviation Authorization Act of 1994
(``Authorization Act''), 49 U.S.C. Sec. 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 Sec. 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 Sec. 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 Sec. 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 covenant
that is in effect on August 23, 1994.
The Department does not interpret Sec. 47129 to repeal or narrow
the scope of the basic requirement that fees imposed on 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 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. Likewise, in the case of
airports receiving international service, these provisions do not
preclude us from carrying out any international obligations for
assuring that airport fees charged to foreign airlines are reasonable.
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, including instances covered in Sec. 47129 (e) and (f).
However, as the statute provides, a dispute over matters described
by Sec. 47129 (e) and (f) will not be processed under the procedures
mandated by Sec. 47129. Rather those disputes will be processed under
procedures applicable to airport compliance matters in general. In
addition, the Department will take into account the existence of an
agreement between air carrier and airport operator, if one exists, in
making a determination.
D. Components of Airfield
The Department considers the airfield assets to consist of runways,
taxiways, ramps or aprons not leased on an exclusive use basis 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.
Airport proprietors should engage in adequate and timely consultation
with 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 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.
[[Page 47017]]
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.
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 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 air carriers or foreign air carriers, in
accordance with 49 U.S.C. Sec. 47129 and implementing regulations.
Pursuant to the provisions of 49 U.S.C. Sec. 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. 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 Sec. 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.
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 airline
tenants 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
financing. Rates may be set according to a ``residual'' or
``compensatory'' rate-setting methodology, or any combination of the
two, or according to a new rate-setting methodology, as long as the
methodology used is applied consistently to similarly situated
aeronautical users and as otherwise required by this policy. Airport
proprietors may set rates 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, or 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 profits for its own
use in accordance with Federal requirements. This approach to airport
financing is generally referred to as the compensatory approach.
2.1.3 Airports frequently adopt charging 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 (airfield costs) unless otherwise agreed to by the
affected aeronautical users.
2.3 The ``rate base'' is the total of all aeronautical costs that
may be recovered from aeronautical users through fees charged for
providing aeronautical services and facilities (aeronautical 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 2.6 below or by agreement with
aeronautical users, costs that may be included in the rate base
(allowable costs) are limited to all operating and maintenance expenses
directly and indirectly associated with the provision of aeronautical
facilities and services (including environmental costs, as set forth
below); all capital costs associated with the provision of aeronautical
facilities and services currently in use, as set forth below; and
current costs of planning future aeronautical facilities and services.
In addition, a private, equity owner of an airport can include a
reasonable return on investment.
2.4.1 The airport proprietor may include in the aeronautical rate
base, at a reasonable rate, imputed interest on funds used to finance
capital investments for aeronautical use, except to the extent that the
funds are generated by fees charged for the use of airfield assets and
airfield services. However, the airport proprietor may not include in
the rate base imputed interest on funds obtained by debt financing if
the debt-service costs of those funds are also included in the rate
base.
[[Page 47018]]
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 aeronautical 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 costs
may be included in the aeronautical users' 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 aeronautical 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 debt-service coverage;
to fund cash reserves to protect against the risks of cash-flow
fluctuations associated with normal airport operations; and to fund
reasonable cash reserves to protect against other contingencies.
2.4.5 The airport proprietor may include in the rate base capital
costs in accordance with the following guidance, which is based on the
principle of cost causation:
(a) Costs of facilities 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 used for both aeronautical and
nonaeronautical uses (shared costs) may be included in a particular
aeronautical rate base if the facility in question supports the
aeronautical activity reflected in that rate base. The portion of
shared costs allocated to aeronautical users should not exceed an
amount that reflects the aeronautical purpose and proportionate
aeronautical use of the facility in relation to nonaeronautical use of
the facility, unless the affected aeronautical users agree to a
different allocation. Aeronautical users may not be allocated all costs
of facilities that are used by both aeronautical and nonaeronautical
users unless they agree to that allocation.
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, public use roadways, and
associated land in the rate base, the airport proprietor must value
them according to their historic cost to the original airport
proprietor. 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 debt service coverage. If such land was acquired with
internally generated funds or donated by the airport proprietor the
airport proprietor may include the cost of the land by amortization.
Upon retirement of the debt or completion of the amortization, the land
may no longer be included in the rate base.
(b) The airport proprietor may use a reasonable and not unjustly
discriminatory methodology to allocate the total airfield costs among
individual segments 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 Where comparable assets, e.g., two runways or two terminals,
were built at different times and have different costs, the airport
proprietor may, at its option, combine the cost basis of the comparable
assets to develop a single cost basis applicable to all such
facilities.
2.5.3 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 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 second airport; (2) the
second airport is currently in use; and (3) the costs of the second
airport to be included in the first airport's rate base are reasonably
related to the aviation benefits that the second 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
second airport is designated as a reliever airport for the first
airport in the FAA's National Plan of Integrated Airport Systems
(NPIAS).
(b) 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.
2.6 For other facilities and land not covered by Paragraph 2.5.1,
the airport proprietor may use any reasonable methodology to determine
fees, so long as the methodology is justified and applied on a
consistent basis to comparable facilities, subject to the provisions of
paragraph 4.2.1 below.
2.6.1 Reasonable methodologies may include, but are not limited
to, historic cost valuation, direct negotiation with prospective
aeronautical users, or objective determinations of fair market value.
[[Page 47019]]
2.7 At all times, airport proprietors must comply with the
following practices:
2.7.1 Indirect costs may not be included in the rate base unless
they are based on a reasonable, transparent cost allocation formula
calculated consistently for other units or cost centers within the
control of the proprietor.
2.7.2 The costs of airport development or planning projects paid
for with federal government grants and contributions and passenger
facility charges (PFCs) may not be included in the rate base.
(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 Unless aeronautical users agree, 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.
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 formula
that is applied consistently, and does not require any air carrier,
foreign air carrier or other aeronautical user group to pay costs
properly allocable to other users.
Requirement to be Financially Self-Sustaining
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 long-term 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 allow commercial
aeronautical services to operate at a profit. In such circumstances, an
airport proprietor's decision to charge rates that are below those
needed to achieve self-sustainability in order to assure that services
are provided to the public is not inherently inconsistent with the
obligation to make the airport as self-sustaining 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 Sec. 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 guidance published by the FAA
pursuant to Sec. 112 of the FAA Authorization Act of 1994, which is
codified at 49 U.S.C. Sec. 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.
[[Page 47020]]
Issued in Washington, DC, on August 21, 1995.
Federico Pena,
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.
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. 95-22354 Filed 9-7-95; 8:45 am]
BILLING CODE 4910-13-P
