[Federal Register: October 19, 2004 (Volume 69, Number 201)]
[Notices]
[Page 61544-61548]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19oc04-106]
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DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
[Docket No. 16227]
Policy and Procedures Concerning the Use of Airport Revenue:
Petition of the Sarasota-Manatee Airport Authority To Allow Use of
Airport Revenue for Direct Subsidy of Air Carrier Operations
AGENCY: Federal Aviation Administration (FAA), Department of
Transportation (DOT).
ACTION: Denial of petition; disposition of comments.
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[[Page 61545]]
SUMMARY: On March 10, 2003, the Sarasota-Manatee Airport Authority
(SMAA) petitioned the FAA to amend the Policy and Procedures Concerning
the Use of Airport Revenue (Revenue Use Policy). FAA requested
comments. This notice responds to the comments received and denies the
petition.
ADDRESSES: Comments received on the petition are available for public
review in the Dockets Office, U.S. Department of Transportation, Room
Plaza 401, 400 Seventh Street, SW., Washington, DC 20590-0001. The
documents have been filed under FAA Docket Number 2003-16227. The
Dockets Office is open between 9 a.m. and 5 p.m., Monday through
Friday, except Federal holidays. The Dockets Office is on the plaza
level of the Nassif Building at the Department of Transportation at the
above address. Also, you may review public dockets on the Internet at
http://dms.dot.gov.
FOR FURTHER INFORMATION CONTACT: Charles Erhard, Manager, Airport
Compliance Division, AAS-400, Federal Aviation Administration, 800
Independence Ave. SW., Washington, DC 20591, telephone (202) 267-3085.
SUPPLEMENTARY INFORMATION:
I. The Petition
On March 10, 2003, the Federal Aviation Administration (FAA)
received a petition from Frederick J. Piccolo, President, Chief
Executive Officer of the Sarasota Manatee Airport Authority (SMAA),
requesting that the FAA provide an opportunity for notice and comment
on SMAA's proposed change to FAA's Policy and Procedures Concerning the
Use of Airport Revenue (Revenue Use Policy). The petitioner requested
that the FAA amend the Revenue Use Policy to permit certain airport
sponsors to use airport revenue for the direct subsidy of commercial
airline service under specific and limited circumstances. The FAA has
interpreted Federal law to prohibit an airport sponsor that is the
recipient or subject of Federal assistance for airport improvements
from using airport revenue for a direct subsidy to an air carrier, and
that interpretation is reflected in the Revenue Use Policy. The
petitioner represents that some airport sponsors have been able to
provide either financial subsidies or revenue guarantees carriers to
secure airline service using non-airport funds. These airport sponsors
are general-purpose municipalities that can use funds from non-airport
sources for general economic development without restriction on their
use under the Revenue Use Policy. In contrast, those airport sponsors
governed by a special-purpose airport authority cannot provide direct
subsidies to carriers, or use any revenue for general economic
development, because all of their funds are considered airport revenue
subject to the requirements in Federal law and the Revenue Use Policy.
Specifically, the petitioner requested an amendment to the Revenue
Use Policy that would ``permit airports that have less than 0.25
percent of the total U.S. passenger boardings to use airport revenues
at their discretion for subsidies to air carriers willing to provide
service to those airports.'' The petitioner suggested the following
conditions to be contingent to this amendment:
1. The community must have a minimum population of 200,000
residents in the airport's local county(s).
2. Airport revenues considered for use are not subject to the
airline agreement in place and do not affect the rate-making
methodology of the agreement.
3. Subsidy is limited to new service.
Airline not presently at the airport.
City pair not presently served by any airline at the
applicant airport.
4. Subsidy cannot exceed 12 consecutive months to any airline.
5. Airline receiving the subsidy must be willing to provide the
following:
Daily scheduled service with a minimum seating capacity of
50 seats.
Must commit to a minimum of twelve consecutive months of
service.
Airline cannot utilize the program more than once at the same
airport.
II. Discussion
A. Summary of Comments
Comments in support of the petition: In its petition and
subsequently submitted comments, the SMAA argues that there is an
inequity within the Revenue Use Policy that places airports governed by
general-purpose municipalities at an advantage over airports governed
by independent authorities. SMAA contends that municipally-run airports
are free to use non-airport revenue to offer subsidies for airline
service while independent authorities are prevented from providing
subsidies from their airport revenues because of the Revenue Use
Policy. SMAA states that in a few cases authority-governed airports
have funds that FAA defines as airport revenue, but the funds are
separate and distinct from revenues required to support airline costs
under the airport rate-setting methodology. SMAA proposes that these
funds should be allowed for use as a direct subsidy in the manner
proposed in its petition, because the cost of the subsidy will not be
borne by the incumbent airlines at those airports. In addition, SMAA
contends that a successful subsidy program will add airline service and
benefit the incumbent airlines by reducing their airport fees. SMAA
also adds that this proposal is consistent with the intent of Congress,
despite legislative language that might suggest otherwise, in part
because SMAA and other airports like it are not monopolies, but rather
experience passenger leakage to nearby, larger airports that can serve
the same population. Therefore, airport authorities should have the
ability to fight passenger leakage by subsidizing air service, to
promote a long-term sustainable market.
Four airport operators besides the petitioner submitted comments in
support of SMAA's proposal. Five other airport operators submitted
comments generally in support, but with suggested changes in the
limiting conditions. One airport operator suggested that any airport
authority offering such subsidies, as outlined by the petitioner, be
prevented from accepting funding under the Essential Air Service
program.
The Airports Council International North America (ACI) and the
American Association of Airport Executives (AAAE) submitted identical
comments supporting the petition. ACI/AAAE stated that the FAA should
allow any non-discriminatory subsidies, or at least the FAA should
accept SMAA's proposal but without SMAA's proposed limits on population
or aircraft capacity. ACI/AAAE also observed that:
``Under the current revenue-use policy, airport sponsors which are
general-purpose municipalities may use funds from a non-airport source
to provide direct subsidies. However, airport sponsors governed by a
special-purpose airport authority cannot provide direct subsidies to
air carriers, because all the funds are considered airport revenue
subject to the revenue use policy prohibitions. Although general-
purpose municipalities may use non-airport revenues for air carrier
subsidies, the truth of the matter is that these municipalities and
other airport sponsors, such as State departments of transportation,
are also facing severe financial difficulty. Revising the revenue use
policy to afford any airport the opportunity to offer a subsidy,
regardless of airport sponsor status, should at lease provide a more
level playing field for airports to solicit new routes and services.''
ACI/AAAE acknowledged that GAO determined that direct subsidies
``have not produced an effective transportation solution for passengers
at many small communities.'' However, ACI/AAAE contend that even though
``direct
[[Page 61546]]
subsidies provided by individual airports will not address all or even
the majority of inadequate air service issues, they are a legitimate
tool.'' Finally, ACI/AAAE contend that the Revenue Use Policy is
contradictory in that it permits airports to spend airport revenues for
promotional and marketing programs and to waive landing and other fees
for a limited period in order to entice new market entrants or
encourage incumbent airlines to add service, but denies airports the
ability to directly subsidize airline service from airport revenues.
Five airports submitted comments that the SMAA proposal is too
narrow and would ``result in different treatment for different
airports.'' The City of Fresno suggested that municipal airports be
allowed to spend airport revenue for direct subsidies without the
limitations requested in the petition. Other airports objected to the
population limits, the 12-month duration limit, and aircraft size
limits. Two individual users of Sarasota Bradenton International
Airport commented in favor of the proposal, citing the high cost of
fares at their preferred airport and the inconvenience of driving to a
larger airport in a neighboring community. Two Sarasota area Chambers
of Commerce submitted similar comments, stating, ``[t]he lack of
adequate local air service has been a severe impediment to our efforts
to attract new industry to our area.'' They also stated that the
proposal would provide a region-wide benefit.
Comments opposing the petition: Three airport operators objected to
the proposal. Generally, these commenters noted that unintended,
potentially detrimental consequences could result from such a policy
change. These consequences could include airports bidding for airline
service or airlines demanding subsidies to keep service in a market.
The manager of Ithaca Tompkins Regional Airport stated, ``In our fight
for better airline service we would lose out to bigger airports simply
because they can offer more money * * * * I think the Sarasota proposal
could set a dangerous precedent for the nation's smallest airports. In
addition, it would unfairly discriminate against incumbent carriers and
create an uneven playing field. Ultimately, it could start a free-for-
all and even end up being a detriment to Sarasota itself.''
The Aircraft Owners and Pilots Association (AOPA), the Regional
Airline Association (RAA), and the Air Transport Association (ATA),
American Airlines, and Continental Airlines all submitted comments in
opposition. AOPA stated that it is strongly opposed to the proposal:
``The safety and utility of our national air transportation system
relies on the ability of an airport sponsor to maintain an airport in a
safe and serviceable condition. An airport sponsor remains responsible
for funding airport projects. Using airport revenue to subsidize
airline service would take away from an airport's ability to fund
airport improvement projects.'' AOPA also states its concern that air
carriers will pressure airports to provide such subsidies, basing
service on the amount or availability of the subsidy, instead of the
underlying market, echoing some of the comments from airports in
opposition. ATA and other users stated that the change proposed by the
petitioner would require a change in Federal law, since the law
prohibits the use of airport revenue for general economic development.
They noted that both the SMAA and the Sarasota area Chambers of
Commerce acknowledge that a purpose of the proposal is general economic
development. ATA argues that the Revenue Use Policy explicitly
prohibits the use of airport revenue for the subsidy of airline
service, regardless of the governing structure of an airport. ATA
contends that SMAA's premise that the policy is somehow inequitable is
flawed because the Revenue Use Policy currently treats all airports
exactly the same. ATA also contends that, regardless of the governing
structure, ``an airport may receive financial assistance from local or
state governments or from private organizations without running afoul
of the Revenue Use Policy.'' ATA concludes that, notwithstanding the
prohibition of subsidies under Federal law and policy, the SMAA
proposal, if enacted, would violate Federal grant assurances 22 and 23,
because it would limit subsidies to airlines not presently serving SMAA
and would therefore discriminate against incumbent airlines. Finally,
ATA stated, ``the use of any airport revenue to subsidize air service
suggests that other airport needs are going unmet, or alternatively
that charges are higher than they otherwise would have to be to
maintain a self-sustaining rate structure.''
B. Summary of Relevant Law and Policy
Petitions to amend the Revenue Use Policy must be evaluated with
consideration of the controlling Federal law.
Title 49 U.S.C. 47107(b)(1) requires that grant agreements for
airport development grants include an assurance that ``the revenues
generated by a public airport will be expended for the capital or
operating costs of--(A) The airport; (B) the local airport system; or
(C) other local facilities owned or operated by the airport owner or
operator and directly and substantially related to the air
transportation of passengers or property.'' A substantially similar
requirement is included in 49 U.S.C. 47133, which applies directly to
any airport that has received Federal assistance. In 1994, Congress
expressly prohibited ``the use of airport revenues for general economic
development, marketing and promotional activities unrelated to airports
or airport systems.'' 49 U.S.C. 47107(1)(2)(b). Sections V and VI of
the Revenue Use Policy, at 64 FR 7718-20, respectively, list uses of
airport revenue considered to be permitted or prohibited under the
above statutes. The list of prohibited uses of airport revenue in
section VI B. includes the following:
``12. Direct subsidy of air carrier operations. Direct subsidies
are considered to be payments of airport funds to carriers for air
service. Prohibited direct subsidies do not include waivers of fees or
discounted landing or other fees during a promotional period. Any fee
waiver or discount must be offered to all users of the airport, and
provided to all users that are willing to provide the same type and
level of new services consistent with the promotional offering.
Likewise prohibited direct subsidies do not include support for airline
advertising or marketing of new services to the extent permitted by
Section V of this Policy Statement.''
Some of the commenters discussed the applicability of Federal law
under the Airline Deregulation Act of 1978 (ADA). Under the ADA's
preemption provision, 49 U.S.C. 41713(b), State and local governments
are prohibited from enacting or enforcing any provision having the
force or effect of law related to a ``price, route, or service of an
air carrier * * *''
C. Discussion
Legal issues: The FAA fully appreciates the impact of the loss of
air service at commercial airports and the interest of the petitioner
and other airports in obtaining the ability to subsidize air service at
their airports. While there are policy arguments for and against the
requested change in Federal policy, the initial question in reviewing
the petition is whether the FAA could adopt the requested policy change
without a change in the authorizing statute. As noted above by statute,
all revenues of the airport must be used for airport ``capital or
operating'' costs. In its 1999 Revenue Use Policy, the FAA interpreted
this statute to prohibit use of airport revenue to subsidize airline
service, on the basis
[[Page 61547]]
that such a subsidy would not be a capital or operating cost of the
airport. Granting the petition would require a reversal of that
interpretation.
There has been no fundamental change in the respective roles of
airport operators and air carriers and other airport users at U.S.
airports since 1999. Nor has there been any amendment to the statutes
governing use of airport revenue that would suggest that Congress
favored a different interpretation. The FAA continues to believe that
payments to airlines to increase airline use of the airport are not an
operating cost of the airport itself. It is clear even from supporting
comments that airline service is considered primarily an economic
development benefit to the general community.
Another argument made for considering subsidies to airlines as a
cost of airport operation is that there is no practical business or
economic distinction between a subsidy using airport revenue, which is
now prohibited, and a reduction in the fees charged to the carrier,
which is permitted on a temporary promotional basis. The FAA's
different treatment of subsidies and promotional fee waivers is based
on specific statutes controlling airport revenue and airport fees,
respectively. When an airport accepts Airport Improvement Program (AIP)
grants, it agrees not to use its revenue in ways that might otherwise
be legal and perhaps even routine for Government agencies and
businesses that are not subject to AIP grant assurances. This
restriction is grounded in Congress' interest in a ``closed'' system
that dedicates airport revenue for airport purposes, and prevents a
hidden municipal tax on air transportation. The requirement to use
airport revenue for airport purposes is absolute; once a federally
obligated airport receives a dollar of airport revenue, that dollar
must be used for the purposes listed in 49 U.S.C. 47107(b) and 47133--
effectively the capital and operating costs of the airport. If
subsidizing airline service is not considered to be a capital or
operating cost of the airport, then the airport operator cannot use any
revenue for that purpose, even a small amount, or even temporarily.
In contrast, the statutes relating to airport rates and charges are
much less prescriptive. Airport fees are subject to broad requirements
of reasonableness and nondiscrimination, under 49 U.S.C. 40116 and
47107(a)(1), but the actual fees are set by the airport operator.
Airport operators have substantial discretion in setting fees and
routinely set fees to accomplish a variety of objectives. The FAA
reviews fee methodologies and resulting fees to see that they are
reasonable and not unjustly discriminatory, but does not generally
inquire in the airport operator's policies or strategic objectives.
Accordingly, the FAA evaluates promotional fee waiver programs to
ensure the programs are not unjustly discriminatory and that the costs
of a fee waiver are not in any way passed on to other operators, but
does not consider the purposes or effectiveness of the program. Given
the latitude provided the airport operator by 49 U.S.C. 40116 and
47107(a)(1) to set fees, the FAA has found that a temporary promotional
fee discount or waiver is not inconsistent with those statutes. In
contrast, the laws controlling use of airport revenue do not provide
that latitude, and the FAA believes that its respective treatment of
revenue use and promotional fee waivers is the correct interpretation
of two substantially different statutes. Accordingly, we do not believe
an analogy of subsidies to fee waivers justifies a reversal of the
interpretation that airline subsidies are not a capital or operating
cost of the airport.
Finally, some commenters thought that the preemption provision in
the ADA, 49 U.S.C. 41713(b), argue against airport subsidies for air
carriers. We believe that the applicability of section 41713(b) would
be the same for air carrier subsidies, which are the subject of the
petition, and for promotional fee waiver programs, which are currently
permitted under the self-sustaining rate requirement (grant assurance
24). A particular program might raise a preemption issue, but that
could be the case with fee waiver programs just as easily as with
subsidy programs. Therefore, the fact that some carrier subsidy
programs could be preempted by section 41713(b) is not a factor in
evaluating whether carrier subsidies in general could be allowed at
all.
In summary, the FAA understands that the SMAA and many other
airport operators consider it critical to find ways to attract new air
service, promote airline competition, and reduce ticket prices at their
airports. Airport operators have various options available for this
purpose that are consistent with the AIP grant assurances. However, the
FAA remains convinced that the policy stated in the 1999 Revenue Use
Policy, i.e., that direct subsidies to airlines to provide service are
not a capital or operating cost of the airport, remains the best
interpretation of section 41713(b) and section 47133. If Congress at
any point changes the requirements applicable to the use of airport
revenue, the FAA would revise its policy to reflect the change.
The Comments on the SMAA petition include a good representation of
the arguments for and against a change in law or policy to permit use
of airport revenue to subsidize air service. In any legislative
reconsideration of the statutory language that controls use of airport
revenue, we believe the following points raised by commenters should be
considered.
Relative position of airport authorities and municipally-owned
airports: SMAA states that the provisions of the Revenue Use Policy, as
applied to the governing structure of an airport, limit the ability to
offer subsidies to some airport sponsors,but not others. As the policy
stands now, neither municipal governments nor airport authorities can
spend airport revenue on direct airline subsidies. Both municipal
governments and airport authorities may spend non-airport revenue on
subsidies, including general fund revenue but also funds from local
economic development authorities and from local businesses and business
organizations. SMAA argues that the inequity arises because airport
authorities generally do not have access to non-airport revenue, while
municipal and State government airport operators do. While this is true
with respect to general fund revenue, it is less true with respect to
other sources, such as funds provided by local businesses or business
organizations, directly or through guaranteed travel. Also, there may
be many reasons why it would be difficult for a municipal airport
operator to use general funds for an airport project, including a
direct air carrier subsidy for air service. Accordingly, the FAA would
agree that the lack of direct access to general fund revenue may put an
airport authority at a disadvantage. However, that disadvantage is
probably not as great as the SMAA and some other commenters represent.
Effectiveness: Before any effort to change the law to clearly
permit subsidy of air carrier service with airport revenue, the
effectiveness of such subsidies would need to be considered. The GAO,
in report no. 03-330, Commercial Aviation: Factors Affecting Efforts to
Improve Air Service at Small Community Airports, January 2003,
indicated that direct subsidies for airline service have not had a
demonstrated record of successfully sustaining air service once the
subsidies expire. A temporary subsidy, as requested in the petition,
would seem to have the potential for a long-term positive result in
only a narrow set of circumstances, i.e., where (1) an airline
[[Page 61548]]
did not believe that service would currently be profitable, but (2) the
airline did believe that a modest subsidy would cover losses in the
short term, and (3) the particular market had sufficient potential that
it would support profitable service without a subsidy at the end of the
promotional subsidy period.
Unintended consequences: Some commenters noted that allowing the
subsidy of air carrier service with airport revenue, as proposed by
SMAA, could produce unintended and counter-productive consequences.
Airlines could use such a program to demand subsidies to maintain
existing service at an airport. SMAA proposed limitations and
conditions on the program that would limit the scope of subsidies (and
airline demands for subsidies). However, if promotional subsidy of new
airline service were a permissible use of airport revenue, it is not
clear what authority FAA would rely on to limit that use to some
airports and not others. Several commenters noted another possible
consequence of a subsidy to airlines i.e., a subsidy program could
reduce funds available for capital improvements and operating and
maintenance costs of the airport. Whether a subsidy resulted in a net
cost to the airport would depend on whether fees from new service were
sufficient to offset the subsidy, and the success of the subsidy in
generating new service in the long term.
III. Conclusion
The FAA understands that SMAA and other airports consider it
essential to find ways to attract new air service to their airports.
While it is unclear whether temporary subsidies to airlines would be
effective in generating new service beyond the subsidy period, we can
understand why SMAA and others would like to use every possible tool
available for this purpose. The FAA has interpreted other laws to
provide flexibility for airport operators, such as the ability to
reduce or even waive fees charged to carriers for a substantial
promotional period. However, we do not find that same flexibility in
the laws governing the use of airport revenue. Congress has repeatedly
asserted its interest in the strict interpretation and enforcement of
the use of airport revenue for purposes which are clearly capital and
operating costs of the airport. We do not find that the petition or
comments provide a sufficient basis for the FAA to reverse its
longstanding interpretation that subsidies to airlines are not a
capital or operating cost of an airport. Accordingly, the petition is
denied.
Issued in Washington, DC on October 6, 2004.
Woodie Woodward,
Associate Administrator for Airports.
[FR Doc. 04-23381 Filed 10-18-04; 8:45 am]
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