[Federal Register: March 18, 2004 (Volume 69, Number 53)]
[Rules and Regulations]
[Page 12939-12948]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18mr04-15]
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Part V
Department of Transportation
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Federal Aviation Administration
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14 CFR Part 158
Revisions to Passenger Facility Charge Rule for Compensation to Air
Carriers; Final Rule
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DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 158
[Docket No. FAA-2002-13918; Amendment No.158-2]
RIN 2120-AH43
Revisions to Passenger Facility Charge Rule for Compensation to
Air Carriers
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Final rule.
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SUMMARY: This final rule amends the passenger facility charge (PFC)
regulations by changing the amount of money that an air carrier may
keep as compensation for collecting and handling PFC revenue for public
agencies. Specifically, this action allows air carriers to keep $0.11
of each PFC they collect. This action is pursuant to a statutory
requirement to establish a rate of compensation for air carriers that
reflects the average necessary and reasonable expenses for collecting
and handling PFCs.
DATES: Effective May 1, 2004.
FOR FURTHER INFORMATION CONTACT: Joseph Hebert, Passenger Facility
Charge Branch, APP-530, Federal Aviation Administration, 800
Independence Avenue, SW., Washington, DC 20591; telephone (202) 267-
3845; facsimile (202) 267-5302.
SUPPLEMENTARY INFORMATION:
Availability of Rulemaking Documents
You can get an electronic copy using the Internet by:
(1) Searching the Department of Transportation's electronic Docket
Management System (DMS) Web page (http://dms.dot.gov/search); (2) Visiting the Office of Rulemaking's Web page at http://
http://www.faa.gov/avr/arm/index.cfm; or
(3) Accessing the Government Printing Office's Web page at http://www.access.gpo.gov/su_docs/aces/aces140.html
.
You can also get a copy by submitting a request to the Federal
Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence
Avenue, SW., Washington, DC 20591, or by calling (202) 267-9680. Make
sure to identify the amendment number or docket number of this
rulemaking.
Anyone is able to search the electronic form of all comments
received into any of our dockets by the name of the individual
submitting the comment (or signing the comment, if submitted on behalf
of an association, business, labor union, etc.). You may review DOT's
complete Privacy Act statement in the Federal Register published on
April 11, 2000 (volume 65, number 70, pages 19477-78), or you may visit
http://dms.dot.gov.
Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act (SBREFA) of
1996 requires FAA to comply with small entity requests for information
or advice about compliance with statutes and regulations within its
jurisdiction. Therefore, any small entity that has a question regarding
this document may contact its local FAA official, or the person listed
under FOR FURTHER INFORMATION CONTACT. You can find out more about
SBREFA on the Internet at http://www.faa.gov/avr/arm/sbrefa.htm, or by
e-mailing us at 9-AWA-SBREFA@faa.gov.
Background
The Aviation Safety and Capacity Expansion Act of 1990 (ASCE Act),
codified under 49 U.S.C. 40117, set up the passenger facility charge
(PFC) program. The ASCA Act allows public agencies to impose a PFC of
$1, $2, or $3 for each enplaned passenger at a commercial service
airport the public agency controls. Public agencies use the money from
such PFC collections to finance FAA-approved, eligible airport-related
projects. Section 158.53 of title 14, Code of Federal Regulations
prescribes the amount of money that air carriers may retain as
compensation for collecting and handling PFCs. Initially, Sec. 158.53
allowed air carriers to keep $0.12 of each PFC remitted to recover the
costs of setting up $1, $2, or $3 charges under the PFC program. On
June 28, 1994, FAA reduced the rate of compensation from $0.12 to $0.08
for each PFC collected because air carriers should have recovered the
cost of program implementation by that time. Currently, air carriers
may keep $0.08 of each PFC collected and remitted.
In April 2000, the Wendell H. Ford Aviation Investment and Reform
Act for the 21st Century (AIR-21) changed the PFC program to allow
public agencies to collect PFCs of $4 or $4.50. The issue of air
carrier compensation rose again during the congressional proceedings
leading up to the passage of AIR-21. In House Report 106-513, which
accompanied AIR-21, Congress noted that several air carriers
communicated to the conferees their views that compensation at $.08 is
too low. Congress urged FAA to give the air carriers an opportunity to
support their argument in a rulemaking action.
On April 27, 2000, the Department of Transportation Office of the
Inspector General (OIG) issued a memorandum recommending to FAA
procedures for conducting rulemaking on PFC collection costs.
Specifically, OIG suggested the type of data FAA should collect to
ensure the agency receives the information necessary for evaluation.
Further, OIG recommended accounting and audit procedures that ensure
the costs are supportable.
To be responsive to Congress and OIG, FAA initiated contacts in
April 2000 with the air carrier industry to learn about cost categories
compatible with air carrier cost accounting capabilities that might
meet the specifications of OIG. In addition, FAA consulted with
independent accountants familiar with the accounting methods of the air
carriers to learn the extent to which independent accountants would be
able to determine if costs reported by air carriers are
``supportable.'' Based on these contacts, FAA sent a letter to the air
carriers suggesting cost categories and instructions for collecting
incremental costs associated with PFC collection, handling, remittance,
reporting, recordkeeping, and/or auditing to facilitate the collection
of data to be evaluated. These categories consisted of the following:
(a) Credit card fees;
(b) Audit fees;
(c) PFC disclosure;
(d) Reservations;
(e) Passenger service;
(f) Revenue accounting, data entry, accounts payable, tax, and
legal;
(g) Corporate property department;
(h) Training reservations, ticket agents, and other departments;
(i) Carrier ongoing information systems;
(j) Computer reservation systems on-going;
(k) PFC absorption;
(l) Airline Tariff Publishing Company (ATPCO);
(m) Airline Reporting Corporation (ARC); and
(n) Interest income.
FAA noted in its letter that listing an item in the cost
definitions did not necessarily represent a final FAA determination
that the item represents a cost of collecting and remitting PFC revenue
that is reimbursable from PFC revenue. Rather, some items were included
because they had been proposed by at least one air carrier as
collection or handling costs. From the responses to the letter, FAA
found the average PFC handling fee reported by
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the air carriers was $0.0896 for each $3 PFC collected in 1999 and
$0.0995 for each $3 PFC remitted in 1999. Had a $4.50 PFC been in place
that year, the air carriers estimate the increase in their costs would
have raised their overall cost to $0.1065 for each $4.50 PFC collected
and $0.1184 for each $4.50 PFC remitted. On November 20, 2002, FAA
issued Notice of Proposed Rulemaking (NPRM) No. 02-19, ``Revisions to
Passenger Facility Charge Rule for Compensation to Air Carriers,'' (67
FR 70878, November 27, 2002). In that rulemaking action, FAA proposed
to amend 14 CFR 158.53 to allow air carriers to keep $0.10 of each PFC
they collect in calendar years 2002 through 2004. From 2005 forward,
the amount would increase to $0.11 for each PFC collected. FAA based
its proposal on cost data received from Alaska Airlines, Inc., American
Airlines, Inc., Continental Airlines, Inc., Delta Air Lines, Inc.,
Northwest Airlines, Inc., Southwest Airlines Company, TransWorld
Airlines, Inc., United Airlines, Inc, and US Airways, Inc. FAA
initially reviewed the data submitted by the air carriers to check for
consistent data categories and formats, and then consolidated all the
information into a single summary table. This table can be found in the
preamble to the NPRM (67 FR 70880, November 27, 2002). FAA concluded
the cost categories used to determine the amount of compensation for
this rule represented the incremental costs directly associated with
PFC collection, handling, remittance, reporting, recordkeeping and
auditing.
Discussion of Comments
FAA received 11 comments in response to Notice No. 02-19. The
commenters include airport operators, scheduled air carriers, and
aviation industry trade associations. Most of the commenters support
FAA's proposal to increase carrier compensation for handling PFCs.
However, many commenters disagree with how FAA determined the proposed
rate of compensation.
FAA received comments from the Allegheny County Airport Authority
(ACAA); the Port Authority of New York and New Jersey (PANYNJ); the
International Air Transport Association (IATA); the Maryland Aviation
Administration (MAA); Southwest Airlines Company (Southwest); the
Airports Council International--North America (ACI-NA) jointly with the
American Association of Airport Executives (AAAE); American Airlines,
Inc. (American); United Airlines, Inc. (United); the Air Transport
Association (ATA); and Continental Airlines, Inc. (Continental).
Compensation Based on Remitted PFCs vs. Collected PFCs
Comments: Although ACAA, PANYNJ, and MAA support FAA's proposal to
increase the rate of carrier compensation, they disagree with FAA's
proposal to change the basis for compensation from PFCs remitted to
PFCs collected. They assert that changing the basis for calculating
compensation might erode the money available to public agencies.
PANYNJ and MAA contend the difference between these compensation
bases becomes apparent when passengers refund tickets. ACAA asserts
that if carriers receive compensation for PFCs collected, then airports
would be subsidizing the carriers for passengers who cancel their
reservations and never travel through airports. In such instance,
carriers would not remit PFCs to the airports. ACAA argues that FAA's
proposal violates 49 U.S.C. 40117, which, according to ACAA, requires
the Secretary to base compensation solely on money paid to the public
agency. The commenters suggest that FAA reconsider the basis for
compensation and clarify the issue of refunded tickets.
United supports the use of PFCs collected as the basis of carrier
compensation. United claims that Congressional intent for air carrier
compensation is based on PFCs collected and contends that FAA's past
rulemaking supports this position. United also claims that when FAA
promulgated the rules for carrier compensation, the agency only
requested data based on collected PFCs, not remitted PFCs. Further,
United contends that FAA's past rulemaking action appeared to use the
terms ``collected'' and ``remitted'' interchangeably. Based on the
above, United requests FAA to issue a statement that either (i)
clarifies that carriers are (and have been) entitled to retain the
designated amount of each PFC collected or (ii) recognizes explicitly
that a dispute exists over the interpretation of the existing rule and
states that FAA is expressing no view as to whether the old
compensation fee was based on PFCs collected or PFCs remitted, or
whether the term ``remitted'' was used interchangeable with (and deemed
to have the same meaning as ``collected'' under the old rule).
FAA Response: FAA disagrees. The intent of FAA's proposal is to set
a rate of carrier compensation on a basis that is clearly defined. FAA
notes that 49 U.S.C. 40117 only requires the rate of compensation to be
``* * * a uniform amount the Secretary determines reflects the average
necessary and reasonable expenses * * * incurred in collecting and
handling the fee.'' It does not require the Secretary to base the rate
of compensation solely on money paid to the public agency.
The issue of compensation for handling refunded tickets has been a
long-standing concern for both airports and air carriers. The preamble
discussion in the NPRM addresses the issue of refunded tickets, where
FAA notes that regardless of whether air carriers receive compensation
based on PFCs collected or remitted, the aggregate amount of PFC
revenue kept by the carriers for compensation is not significantly
different.
Also, FAA notes that carriers incur expenses in collecting and
handling PFCs even when they refund tickets. FAA chose not to adopt
these comments, but to base carrier compensation on PFCs collected to
account for widely varying refund rates between air carriers, while
preserving PFC revenue for airports.
Finally, the request from United for one of two possible statements
from the FAA regarding the existing rule is outside the scope of this
rulemaking and FAA will take no action on this request.
Disproportional Cost for International Carriers
Comments: IATA supports FAA's proposed increase in the rate of air
carrier compensation. However, IATA claims there is a disproportional
cost for international carriers to collect and remit PFCs to airports
they do not serve. With the development of airline alliances, IATA
asserts that international air carriers often sell tickets and collect
PFCs for airports they do not serve. IATA notes that for smaller
airports, international carriers may collect only one or two PFCs each
month. Therefore, IATA requests that FAA consider adopting quarterly
remittance and reporting for international carriers when the total
monthly collection for an individual public agency does not exceed
$300.
FAA Response: FAA disagrees. IATA's proposed changes to the
collection and reporting requirements are beyond the scope of this
rulemaking action. Therefore, FAA has not made any changes to the rule
in response to IATA's comments.
Disclosure Costs
Comments: ATA, Southwest, and United oppose FAA's proposal to use
reduced disclosure costs for Southwest in calculating the rate of
compensation.
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Disclosure costs are those costs associated with disclosing, in
applicable advertising, the existence of PFCs to the general public.
The commenters claim that FAA's failure to use the full amount of
Southwest's disclosure costs in calculating the increased rate of
carrier compensation will result in under-compensation of air carriers.
In response to NPRM, Southwest sent more data supporting its disclosure
costs (Docket No.: FAA-2003-13918).
FAA Response: FAA agrees. FAA has considered the commenters'
arguments and has analyzed Southwest's data. Tables A-1, A-2 and B show
FAA's analysis. FAA has determined that Southwest's data conforms to
the agreed-upon audit procedures that OIG recommended as a valid means
of measuring the incremental disclosure costs associated with PFC
collections. Therefore, FAA has included these costs in calculating the
new rate of carrier compensation. Including the full amount of
Southwest's disclosure costs has the effect of raising the rate of
compensation by one cent during the time frame before January 1, 2005.
Therefore, the FAA has set the new PFC rate of air carrier compensation
at $0.11 for PFCs collected, effective 30 days from the date of
publication of this final rule.
BILLING CODE 4910-13-P
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[GRAPHIC] [TIFF OMITTED] TR18MR04.000
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[GRAPHIC] [TIFF OMITTED] TR18MR04.001
Notes for Tables A-1 and A-2
\1\ Actual costs incurred. Agreed upon procedures have been
applied by the independent account to actual 1999 costs.
\2\ Assumes the same volume as 1999, but with 100[percnt] of
PFCs Collected at $4.50 per PFC--this only impacts Credit Card Fees
and Interest revenue. Does not include Continental.
\3\ For any costs associated with the implementation of the new
maximum $4.50 PFC rate. This column is not year specific.
\4\ 2000 estimate total based on 1999 actual performance. Does
not include TWA results.
\5\ Does not include any one time IT Costs (Implementation
Costs).
\6\ Assumes 3 months with 100[percnt] of PFC's Collected at $3.
Assumes 9 months with 50[percnt] at $3 and 50[percnt] at $4.50.
\7\ Assumes 12 months with 100[percnt] of PFCs at $4.50.
\8\ WEFA US Economic Outlook 2000-05--US Cycle Monitor,
September 2000, page 201. All Items--Urban Wage Earners.
\9\ Labor contracts require union members to receive annual
raises which are an average of United, American, Delta and
Northwest's union contracts plus an additional 1[percnt].
[[Page 12945]]
[GRAPHIC] [TIFF OMITTED] TR18MR04.002
BILLING CODE 4910-13-C
Rate of Adoption of the $4.50 PFC Level
Comment: American, ATA, and Southwest urged FAA to reconsider its
estimated mix of airports adopting the $4.50 PFC level. American
contends more airports have adopted the $4.50 PFC than FAA estimated in
its proposal. American, therefore, asserts that air carriers should
receive a higher rate of compensation (by one cent) for PFC
collections. Southwest agreed with American's claim.
FAA Response: FAA disagrees. FAA found that by January 1, 2003, 53
percent of airports collecting PFCs had adopted the $4.50 PFC level.
This adoption rate is slightly higher than FAA's projected rate in the
NPRM that 50 percent of all PFCs collected in 2002 would be at $4.50.
However, the 53 percent adoption rate is a year-end rate and does not
represent the average adoption rate for 2002. Based on this, FAA
believes the 50 percent projected adoption rate is consistent with the
actual average adoption rate for 2002.
Retroactivity of Increased Compensation Level
Comments: Many of the commenters urge FAA to make the proposed
change to the air carrier compensation rule retroactive to January 1,
2002. The commenters claim the data in FAA's proposal clearly indicates
that carriers have been under-compensated since 1999. The commenters
state that air carriers should not have to ``absorb'' the cost of
handling PFCs in the years they were under-compensated.
Also, ATA requests that FAA establish a ``start up'' rate of
compensation that would give air carriers credits against landing fees
and other airport charges. ATA request that FAA at least provide a
temporary adjustment to allow air carriers to ``catch up'' on the
shortfall. Specifically, Continental recommends that FAA adopt a $0.12
level for a period of time to allow carriers to recover money lost
during the time that air carriers were under-compensated. Also,
Continental requests that FAA make the increased rate of compensation
effective the date that FAA issued the proposed rulemaking.
FAA Response: FAA disagrees. Nothing in the PFC statute authorizes
retroactive compensation. Therefore, FAA does not have the authority to
retroactively authorize compensation for PFCs. Accordingly, FAA has not
adjusted the rate of compensation to provide a retroactive increase.
Periodic Review of Air Carrier Compensation
Comments: ATA recommends that FAA consider setting up a mechanism
for formal review of air carrier compensation on a periodic basis, such
as every two years. ATA noted that such a review process would be less
costly and burdensome on air carriers, airports, and FAA than engaging
the rulemaking process.
FAA Response: FAA agrees with the commenter and will establish a
process to periodically review air carrier compensation for handing
PFCs.
Cost Categories
Comments: In a joint comment, ACI-NA and AAAE note that OIG
suggested that FAA limit cost data to air carrier incremental costs
associated directly with PFC collection, handling, and remittance. The
commenters assert they do not believe that ATA and the air carriers
have made sufficient argument for increasing carrier compensation on
PFCs collected. Specifically, the commenters state that much of the
data that air carriers submitted to FAA for analysis does not meet
OIG's ``intent and legitimacy test.''
The commenters agree with FAA's proposal to exclude PFC absorption
as a legitimate cost. Also, the commenters agree with FAA's proposal to
include credit card fees for remitted PFCs. However, the commenters
disagree with the inclusion of credit card fees for refunded tickets.
In addition, the commenters oppose three of the cost categories FAA
used in calculating the proposed rate of compensation. Specifically,
the commenters oppose accepting reservation services, disclosure costs,
and passenger service expenses as categories associated directly with
PFC collection and remittance. The commenters contend these categories,
although included in the agreed-upon procedures, provide flexibility
for interpretation that allows arbitrariness, miscalculation, and
error. The commenters claim these costs are not associated directly
with PFC collection and remittance. The commenters note that if FAA
removes these costs from the calculations, the actual rate of
compensation decreases by $0.04. The commenters also contend that PFC
conversion from a remitted PFC to a collected PFC would cause carriers
to incur high changeover costs. Finally, some commenters object to FAA
basing the compensation rate on
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average costs. They assert that such action rewards high cost carriers
for their inefficiency in processing PFCs.
FAA Response: FAA disagrees. FAA has found that air carriers do
incur credit card costs on refunded transactions and has found that
carriers incur a service fee with such transactions. FAA also confirmed
these refund costs were included in the carrier cost data. Accordingly,
these costs are retained for the purposes of determining compensation.
FAA also disagrees with the commenters with regard to the potential
for high changeover costs for a new charge level. FAA notes that PFC
revenue remitted by the air carriers is already net of compensation.
Therefore, the carriers would only have to restructure their accounting
systems for the change in rate and basis. No carrier filing comments to
FAA's proposal objected to costs associated with the changeover. Some
air carriers have always used collected PFCs, such as United, and their
accounting systems operate that way today.
FAA has reexamined OIG's recommended procedures and the air carrier
cost categories and data. FAA has determined the categories used to
determine the rate of compensation are those that most accurately
reflect the costs to the carriers for collecting, handling, and
remitting PFC revenue to collecting airports. FAA agrees these
categories may not capture purely ``incremental'' costs. However, as
the commenters noted, it is difficult to fully isolate these
incremental costs. FAA is not convinced that isolating these costs
would add significant value and added accuracy in calculating the costs
associated with collecting and handling PFCs. FAA notes, however, these
considerations do not diminish the validity of using these categories
to arrive at a PFC rate of compensation.
Finally, FAA notes the governing statute mandates that FAA
establish a uniform amount reflecting the ``average reasonable and
necessary expenses'' of collecting and handling the PFC. Therefore, in
order to determine the ``average'' of any cost category which meets
OIG's ``intent and legitimacy test,'' FAA must consider the costs of
both high cost carriers and low cost carriers.
Revisions to PFC Audit Requirements
Comments: In a joint comment, ACI-NA and AAAE request that FAA
revise its audit requirements to include financial information gathered
from the two air carrier ticket clearing houses.
FAA Response: The request to revise audit requirements is outside
the scope of this rulemaking and FAA will take no action on this
request.
Interest Rate on Float
Comments: In a joint comment, ACI-NA and AAAE agree with FAA's
decision to include a ``float'' interest in calculating carrier
compensation. However, the commenters recommend using a ten-year
average interest rate in place of the shorter-term rate in FAA's
proposal to mitigate extraneous benefits to the carriers by using a
rate at a historically low level.
FAA Response: FAA disagrees with the commenter's recommendation.
The data that each air carrier provided to FAA, in accordance with the
agreed-upon procedures, reflects the carrier's audited interest
earnings during the base year. FAA's approach is to calculate the
compensation rate using actual carrier earned interest. OIG concurs
with this approach. Using this calculation for the base year as an
offset to costs is the most consistent methodology. Moreover, the PFC
statute specified that carrier compensation be set after offsetting the
interest earned by the carriers, not after applying an interest index.
Bankruptcy Protection
Comments: In a joint comment, ACI-NA and AAAE contend that if FAA
increases the rate of carrier compensation for PFCs, airports will need
improved protection in carrier bankruptcy proceedings. Specifically,
the commenters suggest that FAA prohibit air carriers from commingling
PFCs with other air carrier funds. The commenters want to ensure that
air carriers will have easy access to PFC funds even when they have
entered bankruptcy. Also, PANYNJ requests that FAA include language
that clarifies the status of PFC funds when carriers enter bankruptcy.
FAA Response: The issues the commenters raise are outside the scope
of this rulemaking. In addition, FAA notes that some of these proposals
may require changes to bankruptcy statutes or regulations that are
beyond the authority of the FAA.
Summary and Conclusion
FAA has considered the commenters' arguments and has determined
that a compensation rate of $0.11 per PFC collected reflects the
average necessary and reasonable expenses incurred by the air carriers
in collecting and handling the PFC for airports. Accordingly, the
compensation rate of $0.11 per PFC collected will be effective 30 days
after the publication of this rule.
Paperwork Reduction Act
Information collection requirements in the amendment to part 158
previously have been approved by the Office of Management and Budget
(OMB) under the provisions of the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)), and have been assigned OMB Control Number 2120-0557.
Nine air carriers voluntarily submitted most of the data FAA used in
this rulemaking action.
International Compatibility
In keeping with U.S. obligations under the Convention on
International Civil Aviation, it is FAA policy to comply with
International Civil Aviation Organization (ICAO) Standards and
Recommended Practices to the maximum extent practicable. FAA determined
there are no ICAO Standards and Recommended Practices that correspond
to this compensation adjustment.
Economic Assessment, Regulatory Flexibility Determination, Trade Impact
Assessment, and Unfunded Mandates Assessment
Changes to Federal regulations must undergo several economic
analyses. First, Executive Order 12866 directs each Federal agency to
adopt a regulation only upon a reasoned determination that the benefits
of the intended regulation justify its costs. Second, the Regulatory
Flexibility Act of 1980 requires agencies to analyze the economic
impact of regulatory changes on small entities. Third, the Trade
Agreements Act (19 U.S.C. 2531-2533) prohibits agencies from setting
standards that create unnecessary obstacles to the foreign commerce of
the United States. In developing U.S. standards, this Trade Act also
requires agencies to consider international standards and, where
appropriate, use them as the basis of U.S. standards. Fourth, the
Unfunded Mandates Reform Act of 1995 (Public Law 104-4) requires
agencies to prepare a written assessment of the costs, benefits, and
other effects of proposed or final rules that include a Federal mandate
likely to result in the expenditure by State, local, or tribal
governments, in the aggregate, or by the private sector, of $100
million or more annually (adjusted for inflation).
In conducting these analyses, FAA has determined this rule (1) has
benefits that justify its costs, is a ``significant regulatory action''
as defined in section 3(f) of Executive Order 12866 and is
``significant'' as defined in DOT's Regulatory Policies and Procedures;
(2) will not have a significant economic
[[Page 12947]]
impact on a substantial number of small entities; (3) will not reduce
barriers to international trade; and (4) does not impose an unfunded
mandate on state, local, or tribal governments, or on the private
sector. These analyses, available in the docket, are summarized below.
Economic Assessment
Analysis of Costs
This change in compensation to air carriers is limited to what is
allowed by statute. Once FAA has determined air carriers' average,
necessary and reasonable expenses incurred in collecting and handling
PFCs, the compensation rate is not subject to FAA discretion.
Costs to Airports
For airports, the principal effect of the higher rate of
compensation is the marginal erosion of the airports' PFC revenue
stream. FAA is changing the basis of compensation from a PFC remitted
basis to a PFC collected basis. A rate of compensation of $0.11 for
each PFC collected equals about $0.12 for each PFC remitted. Average
air carrier ticket refund rates, which account for the difference
between PFCs collected and remitted, are about 9 percent.
The increase in compensation will lead to redistribution of $21
million each year in PFC collections to air carriers from airports
based on 1999 enplanements. The sum amounts to a loss of slightly more
than one percent of the projected annual PFC stream. However, the
increase in compensation will not erode approved collection authority
for airports. Rather, the higher compensation will result in a small
extension of the time period required to collect an authorized amount
of PFC revenue. For example, an authorized PFC collection amount, such
as $1 million, would currently take a public agency one year to collect
at a $4.50 PFC level. This assumes the air carrier retains $0.08 for
each remitted PFC. Under the new compensation rate of $0.11, it would
take one year plus 3.3 days to collect $1 million at a $4.50 level.
It is possible that some airports may be impacted negatively by the
slight increase in the time it would take, because of the increase in
the compensation level, to raise authorized PFC amounts for projects.
However, most airports with PFC-funded projects already in place
originally planned to finance these projects based on a $3 PFC level.
Now, under AIR-21, they can implement a $4 or $4.50 PFC level to
supplement funding. New projects based on the $4.50 PFC level can be
planned around the higher rate of compensation, if necessary.
The group of airports that will be impacted the most by the
increase would be those airports that do not increase their PFC to a $4
or $4.50 PFC level. FAA assumes that 80 percent of all airports will
move to a $4.50 PFC by 2005. This assumption reflects the almost
uniform adoption of the $3 PFC level by airports before AIR-21, even
though they had the option of either a $1, $2, or $3 PFC level. To
date, some airports have decided to remain at the $3 level because of
market or other local conditions. Similarly, some large or medium hub
airports may not be able to develop a sufficient volume of projects to
qualify at the $4.50 level. In the case of any airport remaining at a
$3 level, the airport's annual PFC revenue erosion would increase to
1.3 percent. For example, it would take a public agency one year to
collect an authorized amount, such as $1 million, at a $3.00 PFC level.
This assumes the air carrier retains $0.08 for each remitted PFC. Under
the new rate of compensation, it would take the public agency one year
plus 5.1 days to collect $1 million at a $3.00 level. This higher
percentage loss of revenue for the limited number of airports that
remain at the $3 level will not severely affect their infrastructure
improvement plans.
Costs to Air Carriers
Air carriers will incur only slight costs in adjusting their
accounting and ticketing programs to accommodate the increased
compensation amount of $0.11 for each PFC collected. Before June 28,
1994, air carrier accounting and ticketing programs allowed a
compensation rate of $0.12 for each remitted PFC. Therefore, air
carriers should be able to adjust such programs to accommodate the
$0.11 rate of compensation. The primary cost of the amendment is
associated with the change in the compensation basis from remitted PFCs
to collected PFCs. This new basis of compensation may require some new
programming. However, FAA believes the reprogramming costs, if any, to
allow this change will be minor.
Impact on Air Passengers
The adjustment to PFC collection compensation will not affect the
PFC amount or the ticket prices paid by airline passengers for any
given flight. The amendment will only affect amounts of the PFC
retained by the air carrier. Instead of retaining $.08 for each PFC
remitted to a public agency, air carriers will retain $0.11 for each
PFC they collect. The only potential impact on air passengers would
arise from the effects of the slightly reduced annual PFC remittances
to airports. Since it would take an airport slightly longer to collect
a specific amount of PFC revenues to fund a project, the period of time
during which a PFC would be collected would be longer. In some cases,
the longer collection period could slightly delay PFC-funded projects
intended to benefit air passengers. The effect of such delays, however,
would be minor.
Analysis of Compensation Effects
Compensating air carriers based on PFCs collected rather than PFC
remitted is subject to FAA discretion. In the case of refunded tickets,
FAA reasoned the additional handling cost of collecting and refunding a
PFC to a passenger would add to the overall expense of collecting and
handling PFCs. Such costs would be embedded in the overall collection
and handling cost data provided by the air carriers. If all air
carriers had identical refund rates, use of an average compensation
amount for each PFC collected or for each PFC remitted would be equally
fair to individual carriers. For example, assume that total industry
collection and handling costs were $12 million for 120 million PFCs
collected. If 20 million PFCs were refunded and 100 million remitted to
the airports, then a compensation rate of $0.10 for each PFC collected
or $0.12 for each PFC remitted PFC would generate the same total
compensation to the industry. Moreover, if all air carriers had
equivalent refund rates, all airports would be reimbursed equally for
these refund expenses. However, refund rates among individual air
carriers in 1999 varied from 5 percent of total collected PFCs refunded
to as high as 20 percent. By selecting compensation method based on
PFCs collected, individual carriers would be reimbursed in a manner
that more closely corresponds to actual handling levels. This approach,
while not affecting the overall amount of compensation received,
provides a closer match between each individual carrier's actual
handling costs and its PFC handling compensation.
Summary of Costs and Compensation Effects
FAA concludes this final rule is a cost-effective means of meeting
the statutory requirement. It provides a uniform rate of compensation
that fully covers the reasonable and necessary costs of air carriers
for collecting and handling PFCs for airports. FAA estimates that a
compensation rate of $0.11 for each PFC collected will allow
[[Page 12948]]
air carriers to recover fully their collection and handling expenses
over a 10-year period.
Regulatory Flexibility Determination
The Regulatory Flexibility Act of 1980 (RFA) establishes ``as a
principle of regulatory issuance that agencies shall endeavor,
consistent with the objective of the rule and of applicable statutes,
to fit regulatory and informational requirements to the scale of the
business, organizations, and governmental jurisdictions subject to
regulation.'' To achieve that principle, the Act requires agencies to
solicit and consider flexible regulatory proposals and to explain the
rationale for their actions. The Act covers a wide-range of small
entities, including small businesses, not-for-profit organizations and
small governmental jurisdictions.
Agencies must perform a review to determine whether a proposed or
final rule will have a significant economic impact on a substantial
number of small entities. If the determination is that it will, the
agency must prepare a regulatory flexibility analysis as described in
the Act.
However, if an agency determines that a proposed or final rule is
not expected to have a significant economic impact on a substantial
number of small entities, section 605(b) of the 1980 act provides that
the head of the agency may so certify and a regulatory flexibility
analysis is not required. The certification must include a statement
providing the factual basis for this determination, and the reasoning
should be clear.
FAA has determined the rule will have only a negligible impact on
small commercial service airports. All costs are recoverable fully
through the PFC by making small adjustments to the period of PFC
collection. Any adverse impact on small air carriers that collect and
handle PFCs will be minor and the result of statutory law. Also, FAA
expects the final rule to result in higher compensation for air
carriers even after incurring minor up-front administrative costs to
convert ticketing systems to accommodate the new rate of compensation.
FAA conducted the required review of this final rule and determined
that it would not have a significant economic impact. Accordingly,
pursuant to the Regulatory Flexibility Act, 5 U.S.C. 605(b), the
Federal Aviation Administration certifies this rule will not have a
significant impact on a substantial number of small entities.
International Trade Impact Assessment
The Trade Agreement Act of 1979 prohibits Federal agencies from
engaging in any standards or related activities that create unnecessary
obstacles to the foreign commerce of the United States. Legitimate
domestic objectives, such as safety, are not considered unnecessary
obstacles. The statute also requires consideration of international
standards and where appropriate, that they be the basis for U.S.
standards
In accordance with the above statute, FAA has assessed the
potential affect of this final rule and has determined that, to the
extent it imposes any costs affecting international entities, it will
impose the same costs on domestic entities for comparable services and
thus has a neutral trade impact. The additional compensation to air
carriers for handling PFCs will not affect the cost of international
travel. The existing rule imposes the same requirements to collect the
PFC on tickets issued in the United States on domestic air carriers and
on foreign air carriers. All international air carriers will receive
higher compensation levels to reimburse their reasonable costs of
collecting and handling PFCs.
Unfunded Mandates Assessment
The Unfunded Mandates Reform Act of 1995 (the Act) is intended,
among other things, to curb the practice of imposing unfunded Federal
mandates on State, local, and tribal governments. Title II of the Act
requires each Federal agency to prepare a written statement assessing
the effects of any Federal mandate in a proposed or final agency rule
that may result in an expenditure of $100 million or more (adjusted
annually for inflation) in any one year by State, local, and tribal
governments, in the aggregate, or by the private sector; such a mandate
is deemed to be a ``significant regulatory action.''
This final rule does not contain such a mandate. The requirements
of Title II of the Act, therefore, do not apply.
Executive Order 13132, Federalism
The FAA has analyzed this final rule under the principles and
criteria of Executive Order 13132, Federalism. We determined that this
action will not have a substantial direct effect on the States, or the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government, and therefore does not have federalism implications.
Environmental Analysis
FAA Order 1050.1D defines FAA actions that may be categorically
excluded from preparation of a National Environmental Policy Act (NEPA)
environmental impact statement. In accordance with FAA Order 1050.1D,
appendix 4, paragraph 4(j), this rulemaking action qualifies for a
categorical exclusion.
Energy Impact
The energy impact of the notice has been assessed in accordance
with the Energy Policy and Conservation Act (EPCA) Public Law 94-163,
as amended (42 U.S.C. 6362) and FAA Order 1053.1. We have determined
that the final rule is not a major regulatory action under the
provisions of the EPCA.
List of Subjects in 14 CFR Part 158
Air carriers, Airports, Passenger facility charge, Public agencies,
Collection compensation.
The Amendment
0
In consideration of the foregoing, the Federal Aviation Administration
amends part 158 of Title 14 of the Code of Federal Regulations as
follows:
PART 158--PASSENGER FACILITY CHARGES (PFC'S)
0
1. The authority citation for part 158 continues to read as follows:
Authority: 49 U.S.C. 106(g), 40116-40117, 47106, 47111, 47114-
47116, 47524, 47526.
0
2. Amend Sec. 158.53 by revising paragraph (a) to read as follows:
Sec. 158.53 Collection compensation.
As compensation for collecting, handling, and remitting the PFC
revenue, the collecting air carrier is entitled to:
(a) Retain $0.11 of each PFC collected;
* * * * *
Issued in Washington, DC, March 11, 2004.
Marion C. Blakey,
Administrator.
[FR Doc. 04-6096 Filed 3-17-04; 8:45 am]
BILLING CODE 4910-13-P