[Federal Register Volume 61, Number 121 (Friday, June 21, 1996)]
[Notices]
[Pages 31993-32022]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15687]



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[[Page 31994]]

DEPARTMENT OF TRANSPORTATION

Office of the Secretary

Federal Aviation Administration

[Docket No. 27782]
RIN 2120-AF90


Policy Regarding Airport Rates and Charges

AGENCY: Department of Transportation, Office of the Secretary and 
Federal Aviation Administration.

ACTION: Policy statement.

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SUMMARY: This document announces Department of Transportation 
(``Department'') policy on the fees charged by Federally-assisted 
airports to air carriers and other aeronautical users. The statement of 
policy (``Final Policy'') was required by the Federal Aviation 
Administration Authorization Act of 1994, Public Law 103-305 (August 
23, 1994). This statement of policy replaces in its entirety the 
statement of policy published in the Federal Register on February 3, 
1995 (``Interim Policy''). This statement of policy incorporates a 
substantial modification in the approach of the Interim Policy to 
determining the reasonableness of fees for facilities other than the 
airfield and public use roadways. In other respects, the approaches of 
the two policies are similar. The Department proposed the referenced 
modification in a notice published in the Federal Register on September 
8, 1995 (``Supplemental Proposed Policy''). The Final Policy is not 
significantly revised from that proposed in the September 8 notice.

DATES: This policy is effective June 19, 1996. This agency action is a 
statement of policy that relaxes restrictions imposed on airport 
proprietors by the Interim Policy. The Final Policy does not itself 
impose additional burdens on airlines and other airport users and does 
not require airport proprietors to impose such burdens.

FOR FURTHER INFORMATION CONTACT: David L. Bennett, Director, Office of 
Airport Safety and Standards, Federal Aviation Administration, 800 
Independence Ave. SW., Washington, DC 20591, telephone (202) 267-3053; 
Barry L. Molar, Manager, Airports Law Branch, Office of the Chief 
Counsel, Federal Aviation Administration, 800 Independence Avenue, SW., 
Washington, DC 20591, telephone (202) 267-3473.

SUPPLEMENTARY INFORMATION:

Summary of Policy Statement

    The Final Policy requires that fees for the use of the airfield and 
public-use roadways be established on the basis of costs, and it 
provides detailed guidance on how costs are to be determined and 
applied to establish fees. Airfield assets must be valued at their 
historic cost to the original airport proprietor (``HCA value''). The 
cost-of-service approach is comparable to common practice in setting 
fees for regulated public utilities. This approach also reflects the 
nearly universal practice of establishing fees for the use of the 
airfield at commercial service airports. Even when airfield fees are 
set by agreement, the agreement usually reflects a cost-of-service 
approach. The terms of such agreements generally govern how costs will 
be calculated.
    In formulating the Final Policy, the Department has considered and 
recognized as reasonable practices that have generally been accepted by 
industry participants as producing reasonable results. The Final Policy 
does not seek to disturb those practices. In the case of the airfield 
and public use roadways, industry practice--HCA-based fees--is the 
approach supported by aeronautical users as most beneficial to them. 
For other facilities and services, the Final Policy adopts a different 
approach.
    For those other aeronautical facilities, the Final Policy permits 
fees to be set by any reasonable method. Fees for such facilities and 
services are generally established through direct negotiations with 
individual users. In these negotiations, cost, as defined for 
reasonable airfield fees, is usually but one of a number of 
considerations affecting the fees. In the Department's experience, this 
negotiating process has in almost all cases produced reasonable and 
non-controversial results. The Department expects that these 
negotiations will continue to produce reasonable results in all but 
exceptional situations. The Department has, therefore, adopted a more 
flexible approach to nonairfield fees to preserve the discretion of 
airport proprietors and aeronautical users to negotiate the terms for 
using nonairfield facilities.
    The Final Policy also reflects the Department's preference for 
direct negotiation of fee issues between airport proprietors and 
airport users. Accordingly, the first of the five fundamental 
principles listed in the Final Policy states the Department's 
preference for direct negotiation and resolution. In addition, most of 
the detailed guidance on establishment of airfield fees need not be 
followed if airfield users have agreed to a different practice.
    The Final Policy retains the structure of the Supplemental Proposed 
Policy and the Interim Policy. The Final Policy begins with a statement 
of applicability, and is then organized into five general principles 
with supporting guidance for each.
    As noted above, the first principle states the Department's 
preference for direct local negotiation between airport proprietors and 
aeronautical users.
    The second principle restates the legal requirement that rates, 
fees and charges to aeronautical users must be fair and reasonable, 
with more detailed guidance on the practices and restrictions that 
define ``fair and reasonable.'' The detailed guidance applies for the 
most part to fees charged to aeronautical users for airfield facilities 
and public-use roadways. For other aeronautical facilities, the policy 
permits fees to be established using any reasonable methodology. 
Department oversight of these fees focuses on monitoring for 
progressive accumulation of surplus aeronautical revenue. For the 
airfield and public-use roadways, the policy incorporates, among other 
things, the following: flexibility to deviate from the policy guidance 
based on agreement with airfield users; recognition that both 
compensatory and residual pricing approaches are legitimate; standards 
for the valuation of airfield property; prescription of the kinds of 
costs that can be reflected in the airfield rate base; and guidance on 
subsidization of other airports. The Final Policy makes certain 
distinctions in the reasonable accommodation of air carriers versus 
other aeronautical users. The Final Policy does not establish standards 
for fees paid by nonaeronautical users or limit the amount of revenues 
generated by nonaeronautical fees.
    The third principle restates the legal prohibition on unjustly 
discriminatory rates and charges. Guidance identifies some practices 
that are required to avoid unjust discrimination and some practices 
that not considered to be unjustly discriminatory.
    The fourth principle restates the legal obligation to maintain a 
fee and rental structure that makes the airport as self-sustaining as 
possible under the circumstances existing at the airport. Supplemental 
guidance encourages the sponsor of an airport that is not currently 
self-sustaining to establish long-term goals and targets to make the 
airport financially self-sustaining. The self-sustainability 
requirement must be included in each sponsor's grant assurances 
pursuant to statute and is

[[Page 31995]]

subject to enforcement by the FAA in accordance with its grant 
compliance procedures. However, the Department will not consider on the 
merits a complaint as to the reasonableness of an airport fee based 
solely on alleged non-compliance with the self-sustainability 
requirement. A complaint about compliance with the self-sustainability 
requirement would be considered by the FAA under its administrative 
complaint procedures.
    The guidance under this principle provides that the Department may 
investigate the reasonableness of aeronautical fees in a case of 
progressive accumulation of surplus aeronautical revenue.
    The fifth principle restates the basic legal requirements for the 
application and use of airport revenues. Supplemental guidance has been 
proposed in the Notice of Proposed Policy and Procedures Concerning the 
Use of Airport Revenue published at 61 FR 7134 (February 26, 1995).
    Finally, the Department is willing to consider arguments that 
specific provisions of the policy should not apply to a particular 
airport fee due to unusual circumstances in the context of a proceeding 
to review that fee. See Los Angeles International Rates Proceeding 
(``LAX I''), Order 95-6-36, at 16 (June 30, 1995); Second Los Angeles 
International Airport Rates Proceeding (``LAX II''), Order 95-12-33, at 
15 (December 22, 1995).

Background

    Two federal statutes have long imposed a reasonableness requirement 
on the fees charged aeronautical users by airports. When an airport 
accepts Federal grant money for an airport improvement, it must give 
certain assurances, including the assurance that the airport will be 
available for public use on fair and reasonable terms without unjust 
discrimination. Section 511 of the Airports and Airways Improvement Act 
of 1982, (``AAIA''), recodified as 49 USC Sec. 47107. This assurance 
includes an obligation to charge aeronautical users of the airport only 
reasonable fees. Similarly, section 113(b) of the Federal Aviation Act, 
the Anti-Head Tax Act, recodified as 49 USC Sec. 40116, allows a 
publicly-owned airport authority to collect only reasonable landing 
fees and charges from airlines using airport facilities. See Northwest 
Airlines v. County of Kent (``Kent County''), 114 S.Ct. 855 (1994). 
These statutes, however, do not authorize the Department to regulate 
the reasonableness of fees charged non-aeronautical users.
    Airport fees and revenues are subject to other legal requirements 
as well. Section 511 of the AAIA also bars airports, except for certain 
grandfathered airports, from diverting airport revenue to nonairport 
purposes. 49 USC Sec. 47107(b). Section 511 also requires each airport 
to provide assurances that the airport will maintain a fee schedule 
that will make the airport as self-sustaining as possible under the 
circumstances existing at the airport. 49 USC Sec. 47107(a)(13). In 
addition, the Chicago Convention and many of the United States' 
bilateral air services agreements obligate the United States to ensure 
that airports charge foreign airlines the same fees as the U.S. 
airlines that operate similar services.
    On June 9, 1994, the Office of the Secretary of Transportation 
(``OST'') and the Federal Aviation Administration (``FAA'') issued two 
related notices on the subject of Federal requirements for airport 
rates and charges. The Department took this action largely in order to 
better implement its responsibility to enforce the reasonable fee 
requirements. A notice of proposed policy entitled ``Proposed Policy 
Regarding Airport Rates and Charges'' listed and explained the 
principles that the Department believes define Federal policy on the 
rates and fees that an airport proprietor can charge to aeronautical 
users of the airport. Docket No. 27782 (59 FR 29874, June 9, 1994). 
Notice 94-18, a notice of proposed rulemaking entitled ``Rules of 
Practice for Federally Assisted Airports,'' proposed detailed 
procedures for the filing, investigation, and adjudication of 
complaints against airports for alleged violation of Federal 
requirements involving fees and other airport-related requirements. 
Docket No. 27783 (59 FR 29880, June 9, 1994).
    The FAA Authorization Act of 1994, Public Law 103-305 (``1994 
Authorization Act'') was signed into law on August 23, 1994. Section 
113 of that legislation, 49 U.S.C. Sec. 47129, specifically addresses 
airport fees. Section 47129 directs the Secretary of Transportation 
(``Secretary'') to determine whether an airport fee imposed on an air 
carrier is reasonable, upon written request by the airport proprietor 
or upon complaint filed by an affected carrier within 60 days after the 
carrier receives written notice of the establishment or increase of the 
fee. 49 USC Sec. 47129(a)(1). An airport fee subject to section 47129 
``may be calculated pursuant to either a compensatory or residual fee 
methodology'' or a combination thereof. 49 U.S.C. Sec. 47129(a)(2). 
Further, in determining the reasonableness of a fee, the Department 
``may only determine whether the fee is reasonable or unreasonable and 
shall not set the level of the fee.'' 49 USC Sec. 47129(a)(3).
    Section 47129 also directs the Secretary to publish in the Federal 
Register final regulations, policy statements or guidelines 
establishing (1) procedures for acting on written requests or 
complaints; and (2) ``the standards or guidelines that shall be used * 
* * in determining under [section 47129] whether an airport fee is 
reasonable.'' 49 USC Sec. 47129(b)(1),(2).
    Pursuant to 49 USC 47129(e), the section does not apply to : (1) a 
fee imposed pursuant to a written agreement with air carriers; (2) a 
fee imposed ``pursuant to a financing agreement or covenant entered 
into prior to the date of enactment of [section 47129];'' or (3) any 
other existing fee not in dispute on the date of enactment. In 
addition, nothing in section 47129 shall adversely affect: (1) the 
rights of any party under an existing written agreement between an air 
carrier and the airport proprietor; or (2) the ability of the airport 
to meet its obligations under a financing agreement, or covenant that 
is in force on the date of enactment. 49 USC Sec. 47129(f).
    In response to provisions in the 1994 Authorization Act, the 
Department issued a supplemental notice of proposed policy with 
revisions to reflect relevant provisions of that legislation. Docket 
No. 27782 (59 FR 51835, October 12, 1994).
    After reviewing all comments received in response to the notices, 
the OST and the FAA, on January 30, 1995, issued a ``Policy Regarding 
Airport Rates and Charges,'' the Interim Policy, and requested further 
public comment. Docket No. 27782 (60 FR 6906, February 3, 1995). Two 
airport owners are seeking judicial review of the Interim Policy. City 
of Los Angeles et al. v. U.S. Department of Transportation et al., D.C. 
Cir. Nos. 95-1188 and 95-1190 (argued March 4, 1996).
    After reviewing the comments received in response to the February 3 
request for comments, the OST and the FAA published on September 8, 
1995 a supplemental notice of proposed policy, the Supplemental 
Proposed Policy. Docket No. 27782 (60 FR 47012).
    The procedural rules required by section 47129(b)(1) were published 
in the Federal Register on the same date as the Interim Policy. Docket 
No. 49830 (60 FR 6919, February 3, 1995). The 1994 Authorization Act 
also required that the Secretary issue a statement of policies and 
procedures for the enforcement of Federal restrictions on the use of 
airport revenue. On February 20, 1996, the FAA

[[Page 31996]]

issued a Notice of Proposed Policy and Procedures Concerning the Use of 
Airport Revenue. Docket No. 28472 (61 FR 7134, February 26, 1996).

Comments on the Supplemental Proposed Policy

    The Department received more than 50 comments on the Supplemental 
Proposed Policy. Comments were received from almost all segments of the 
aviation community, including: airport operators and representative 
organizations; associations representing U.S. and foreign air carriers 
and commuter airlines; representatives of other aeronautical businesses 
at airports; general aviation representatives; a representative of 
airport concessionaires; individuals with experience in airport 
operations; and a law firm. In addition, the Department held two public 
meetings to solicit public input on the Supplemental Proposed Policy. 
Verbatim transcripts of the meetings have been included in the docket 
of this proceeding.
    The two major US representative organizations for airport 
operators--Airport Operators Council International/ North America 
(``ACI'') and American Association of Airport Executives (``AAAE'')--
filed joint comments. Many individual airport operators endorsed the 
joint comments of their representative organizations, but some larger 
airport operators commented independently. Many airport operators' 
comments were similar, and all of the comments tended to focus on a 
common group of issues.
    On the airline side, the Air Transport Association of America 
(``ATA'') and Regional Airline Association (``RAA'') filed joint 
comments. These comments and those of the International Air Transport 
Association (``IATA'') also tended to focus on the same issues and 
generally took the same position.
    Accordingly, the following discussion of comments is organized by 
issue, not by commenter. Issues are discussed in the order they arise 
in the Final Policy. Airport proprietors and their representatives who 
took the same position on an issue are collectively referred to as 
``airport proprietors.'' ATA/RAA and IATA are referred to as 
``carriers'' when the organizations took common positions. The summary 
of comments is intended to represent the general divergence or 
correspondence in industry views on various issues. It is not intended 
to be an exhaustive restatement of the comments received. All comments 
received were considered by the Department, even if not specifically 
identified in this summary.
    After the comment period closed, ACI/AAAE filed reply comments to 
the comments filed by ATA/RAA. ATA/RAA in turn objected to the reply 
comments. ATA/RAA requested that the Department reopen the comment 
period to allow for the filing of reply comments generally, if we 
accepted the ACI/AAAE reply. The Department has accepted the reply 
comments for the record. However, we determined that reopening the 
comment period was not necessary because ACI/AAAE's reply comments were 
largely repetitions of arguments presented in earlier comments. In no 
case are the reply comments the sole basis for any decision.
    In addition to specific changes noted in the discussion of the 
issues, the Department has made editorial changes throughout the Final 
Policy to enhance readability and clarity.

The Department's Authority to Regulate Aeronautical Fees

    As noted above, airports have been required by two Federal 
statutes--the AAIA and the Anti-Head Tax Act--to charge only reasonable 
fees to aeronautical users. The Department has the responsibility for 
enforcing these requirements, and the courts have held that a 
Department decision on the reasonableness of an airport fee is entitled 
to substantial deference. Kent County, 114 S.Ct. at 864, n. 14; New 
England Legal Foundation v. Massachusetts Port Authority, 883 F.2d 157, 
169 (1st Cir. 1989). Section 113 of the 1994 Reauthorization Act, 
codified as 49 USC Sec. 47129, requires the Department to resolve 
significant disputes over the reasonableness of new or increased 
airport fees on an expedited basis. In that statute Congress also 
required the Secretary to establish standards for determining the 
reasonableness of an airport fee. Congress did not limit the 
Secretary's discretion in any way, except by stating that the 
Department may not actually set an airport fee.
    Given the statutory authority vested in the Secretary, we find that 
we are empowered both to adopt the guidelines contained in this Final 
Policy and, in cases heard under section 47129, to examine the fee 
methodology used by an airport. See LAX I, Order 95-6-36 at 14-15.
    ACI/AAAE argue that we must give an airport's fee judgments a 
presumption of validity, since the decisions of state and local 
governments are normally entitled to such a presumption. The Final 
Policy, however, gives airport proprietors substantial discretion in 
establishing a fee structure. In addition, the airlines challenging an 
airport fee have the burden of proof. LAX I, Order 95-6-36 at 17-18. We 
do not agree that we should include an additional presumption in favor 
of airport judgments on fees in the final Policy. There is a 
substantial Federal interest in ensuring that aeronautical users pay 
only reasonable fees, as shown by Congress' directive that we determine 
on an expedited basis whether such fees are reasonable when carriers 
file complaints against new or increased airport fees that meet the 
jurisdictional requirements of section 47129. Congress' requirements 
that we publish guidelines for determining the reasonableness of 
airport fees further indicates that we should carefully examine an 
airport's fee methodology without presuming that the airport's judgment 
is likely to be correct.
    We also note that we did not use such a presumption in the two LAX 
cases or in our earlier investigation of fees charged by the 
Massachusetts Port Authority (``Massport'') under its PACE program. 
Investigation into Massport's Landing Fees, FAA Docket 13-88-2, Opinion 
and Order (December 22, 1988) (``Massport Order''), aff'd New England 
Legal Foundation v. Massachusetts Port Authority, 883 F.2d 157 (1st 
Cir. 1989).

1. Applicability to General Aviation and Foreign Air Carriers

    The Supplemental Proposed Policy would apply to aeronautical uses 
of any airport, including a general aviation airport. However, the 
Department proposed to take into account differences in methodologies 
and mechanisms that airport proprietors may use to charge for different 
facilities and for different category of users. Proposed Applicability 
of Policy, section A. The Department also proposed that, at airports 
where fees high enough to achieve self-sustainability would be too high 
to permit viable commercial operations, the Department would not object 
to lower fees to assure that the public had access to commercial 
aeronautical services. Proposed para. 4.1.2. In the explanatory 
statement, the Department proposed to add language clarifying that in 
situations not covered by section 47129, the FAA would apply the policy 
in its role as administrator of grants under the Airport Improvement 
Program (``AIP''), assuring that an AIP grant applicant is in 
compliance with its grant assurances. The FAA would not provide a forum 
for resolving private disputes.
    Airport proprietors: Airport proprietors generally oppose 
application of the policy to general aviation airports and to general 
aviation facilities. ACI/AAAE consider the Supplemental

[[Page 31997]]

Proposed Policy to be an improvement over the interim policy. However, 
a policy is not needed for general aviation airports and facilities 
because section 47129 was enacted to respond to airline concerns. If 
the Department disagrees, ACI/AAAE prefer a separate policy.
    Some individual airport proprietors argue that the terms of section 
47129 preclude adoption of a policy applicable to any fees except those 
charged to air carriers and not otherwise excluded by the terms of 
section 47129. The provisions of section 47129 indicate a belief by 
Congress that, to minimize the adverse effects of Departmental 
involvement, certain aeronautical fees should be completely exempt from 
challenge. Others argue only that such an extension is unwise, based on 
the differences between commercial service and general aviation 
airports.
    In addition, some airport proprietors object to the application of 
the policy and the expedited procedures to complaints brought by 
foreign air carriers on the same grounds.
    General aviation: The Aircraft Owners and Pilots Association 
(``AOPA'') explicitly objects to exclusion of general aviation airports 
from the scope of the policy, and the National Air Transportation 
Association (``NATA'') supports applying at least some elements of the 
policy to general aviation airports.
    Other commenters: One individual commenter observed that at many 
compensatory airports, general aviation pays less than its allocated 
costs and is subsidized by airlines and their passengers, who suffer 
congestion caused by these below-cost fees.
    The Final Policy: The Final Policy statement applies to general 
aviation airports and fees charged to general aviation users. However, 
in response to the comments, we have exercised our discretion to 
further limit the circumstances in which we will consider a complaint 
about the reasonableness of fees imposed at a general aviation airport. 
In addition, the Department reaffirms its earlier decision that foreign 
air carriers have the same rights as U.S. air carriers under section 
47129.
    As noted in the preamble to the Supplemental Proposed Policy, the 
Department has ample authority under other provisions of the Airport 
and Airway Improvement Act of 1982, as amended (``AAIA'')--49 USC 
Secs. 47107(a), 47122--to adopt policies and guidance defining 
reasonable fees to be charged by general aviation airports and for 
general aviation use of commercial service airports. We find nothing in 
the statute that exempts fees imposed for general aviation uses of any 
airport from the requirement that airport proprietors charge all 
aeronautical users reasonable and not unjustly discriminatory fees. The 
commenters have not provided any other persuasive reason for using one 
set of standards to judge the reasonableness of landing fees charged to 
air carriers and a different set of standards to judge the 
reasonableness of landing fees charged to other users.
    However, as noted previously, the Department recognizes that 
airport proprietors, especially proprietors of general aviation 
airports, may use different methods for setting fees for general 
aviation users than those commonly used for setting fees paid by 
airlines. The Department reiterates its commitment to apply the policy 
flexibly in evaluating general aviation fees. The narrowing of the 
detailed guidance on establishing fees to the airfield and public-use 
roadways should itself provide increased flexibility to general 
aviation airports over the Interim Policy.
    Even as to the airfield, the Department does not anticipate that 
application of the policy will be unduly burdensome. The Department 
understands that many general aviation airports operate at a loss, 
calculated according to generally accepted accounting principles. By 
definition, such airports are not generating excessive surpluses. The 
Department would not expect such airports to increase their losses by 
paying for sophisticated cost allocation and accounting systems to 
prove that they are losing money. Similarly, the Department understands 
that many airport proprietors apply a single charge, e.g., a fuel 
flowage fee, to general aviation users for their use of all 
aeronautical facilities. The Department does not intend to disturb this 
practice. Further, a charge that covers the cost of providing 
nonairfield facilities would be evaluated under paragraph 2.6 of the 
Final Policy, as discussed below.
    The Department notes the concern that general aviation users are 
being subsidized by other users at many airports. The Department 
emphasizes that an airport proprietor generally may not charge any 
aeronautical user or user group more than its allocated costs based on 
a reasonable, transparent and not unjustly discriminatory cost 
allocation methodology. Our general approach in this policy is to 
refrain from disturbing common and non-controversial industry practice. 
Therefore, the Department will not object when an airport proprietor 
charges particular user groups less than their allocated costs, if 
other aeronautical users are not required to finance the shortfall. The 
applicable Federal requirements do not compel airport proprietors to 
set fees so high that they become a financial bar to the use of the 
airport.
    The Department is making three modifications to the Final Policy in 
response to concerns raised in the comments. First, we will strengthen 
the language of the applicability section that distinguishes the FAA's 
role in processing complaints about general aviation fees from the 
Department's role in processing complaints under section 47129. Second, 
because the threat of unreasonably high fees is remote at most general 
aviation airports, the Final Policy provides that the FAA will not 
ordinarily undertake an investigation of the reasonableness of a 
general aviation airport's fees absent evidence of a progressive 
accumulation of surplus aeronautical revenues. The general aviation 
airport segment of the industry should not be burdened with the cost of 
developing sophisticated accounting systems to address a problem that 
will occur, rarely, if at all. An allegation of unjust discrimination 
would be considered by the FAA in accordance with the Final Policy. 
Third, proposed par. 3.4.1 would require common costs to be allocated 
``according to a reasonable, transparent and not unjustly 
discriminatory cost allocation formula'' that meets the conditions 
specified in that paragraph. Because many smaller airports cannot 
afford to develop sophisticated cost allocation formulae, the reference 
to ``cost allocation formula'' is being modified to ``cost allocation 
methodology.'' If the airport proprietor elects to develop a cost 
allocation formula, the formula must meet the conditions specified in 
that paragraph.
    As to the application of the policy to foreign airlines, the 
relevant statutes make it clear that the policy must apply equally to 
U.S. and foreign airlines. First, we are adopting the Final Policy 
primarily because Congress directed us in 49 USC Sec. 47129 to 
establish guidelines or standards for determining the reasonableness of 
a new or increased airport fee in cases heard under that statute. The 
Department analyzed the statute's applicability and determined in LAX I 
that 49 USC Sec. 47129 must be read as giving foreign airlines the same 
right as U.S. airlines to file complaints and obtain relief. Order 95-
6-36 at 53-56. We reaffirmed that determination in LAX II. Order 95-12-
33 at 52. Since section 47129 is the principal basis for the adoption 
of the Final Policy, the Final Policy must apply to foreign airlines.
    Even if Section 47129 did not cover foreign airlines, the Final 
Policy would

[[Page 31998]]

have to govern the assessment of the reasonableness of fees charged to 
foreign airlines. The airport grant statute specifically requires the 
Department to obtain assurances from each airport sponsor obtaining 
federal funds that the airport will not unjustly discriminate against 
any aeronautical user. 49 USC Sec. 47107(a)(1). This provision requires 
an airport to charge foreign airlines the same fees as similarly 
situated U.S. airlines. In addition, the United States' obligation 
under many international agreements to ensure that foreign airlines are 
treated the same as U.S. airlines would require us to adopt the same 
standards for determining the reasonableness of airport fees, whether 
the fees are paid by U.S. airlines or foreign airlines, even if 
Congress had not enacted 49 USC Sec. 47129.
    Several airport parties now object to the Department's adoption of 
procedural rules allowing foreign airlines to obtain an expedited 
investigation under section 47129. However, only the City of Los 
Angeles objected to the inclusion of foreign airlines during the 
rulemaking proceeding that led to adoption of the Rules of Practice for 
airport rates and charges cases. 59 FR 53380, 53383 (October 24, 1994); 
60 FR 6919 (February 3, 1995). At that time, the Department determined 
as a matter of discretion that foreign airlines should have the ability 
to request an expedited investigation, even though it assumed that they 
did not have such rights under section 47129. The Department's later 
decision that foreign airlines are covered by 49 USC Sec. 47129 means 
that foreign airlines by statute have the same procedural rights as 
U.S. airlines.

2. Applicability to Fees Set by Agreement

    Section 47129(e), 49 USC Sec. 47129(e), provides that the section 
does not apply, inter alia, to fees imposed pursuant to a written 
agreement with air carriers. Section 47129(f), 49 USC Sec. 47129(f), 
provides , inter alia, that the section shall not adversely affect the 
rights of parties to an existing agreement between an air carrier and 
airport proprietor.
    In the applicability section of the Supplemental Proposed Policy, 
the Department stated that section 47129 did not repeal or narrow the 
scope of the reasonableness requirement for airport fees. The 
Department proposed to apply the policy in the case of a dispute over 
the reasonableness of any aeronautical fee. However, disputes over 
matters described in sections 47129 (e) and (f) would not be processed 
under the procedures mandated by section 47129. In the explanatory 
statement, the Department proposed to take into account the existence 
of any agreement between U.S. and foreign air carriers and the airport 
proprietor in making its determination of reasonableness.
    The comments: Airport proprietors generally argue that the policy 
should not apply to fees set by agreements with carriers. ACI/AAAE 
argue that application of the policy to such fees would frustrate the 
direction given by Congress and would adversely affect airports that 
rely on agreements that produce steady and predictable revenue flows. 
ACI/AAAE and individual airport commenters also argue that the 
Department is legally barred from applying the policy to fees set by 
agreement because sections 47129(e) and (f) limit the application of 
all section 47129, not just the provisions governing the expedited 
procedures. ACI/AAAE refer to numerous court decisions overturning 
agency actions that have not properly adhered to statutory exceptions.
    Other commenters did not address this issue.
    The Final Policy: The Final Policy applies to fees set by 
agreement, to the extent discussed below. We do not interpret section 
47129 to preclude an investigation of fees set by agreement or the 
application of the policy in such an investigation. However, in keeping 
with our policy of encouraging direct negotiation of fees, the 
Department does not expect to investigate routinely fees set by 
agreement. Moreover, the Department has decided not to consider 
complaints about the reasonableness of fees set by agreement if filed 
by parties to the agreement. The Final Policy is modified to reflect 
this decision.
    However, we do not believe that Congress intended to deprive non-
party carriers of the opportunity to have their airport fees reviewed 
by the FAA, solely because the fees are included in an agreement 
between the airport proprietor and other airlines. While section 47129 
directed the Secretary to establish a policy on reasonable fees, the 
Secretary already had authority to publish such a policy. Section 47129 
did not repeal this authority or the underlying requirement of 
reasonableness. The existence of an agreement may be a critical factor 
in evaluating the reasonableness of a fee, but section 47129 does not, 
by its terms, exempt fees set by agreement from the requirement of 
reasonableness.
    However, the Department agrees that section 47129(e) was enacted to 
preclude carriers from improving on their bargain by bringing an 
administrative complaint after they have reached agreement with an 
airport proprietor. That outcome would be unfair to airport proprietors 
who bargain in good faith. The threat of a complaint could discourage 
airport proprietors from putting forward their best offers in 
negotiations. The Department is reluctant to interpret section 47129(e) 
in a way that would discourage effective negotiations.
    Complaints about fees charged to non-parties to the agreement 
brought by non-parties to the agreement would be considered under 
provisions of the policy applicable to non-signatory carriers, if 
significant, as discussed below under the heading ``Charges to Non-
Signatory Carriers.'' By giving notice that non-parties may challenge 
fees imposed on them by agreement, the Department expects that airport 
proprietors and airport users will be able to achieve reasonable 
results in their negotiations and obviate a full investigation and 
determination of reasonableness by the Department.

3. Applicability to Fees Imposed Pursuant to Financing Agreements

    Section 47129(e)(2), 49 USC Sec. 47129(e)(2), provides that the 
section does not apply to fees imposed pursuant to a financing 
agreement or covenant entered into before the date of enactment of the 
statute (August 23, 1994). Section 47129(f)(2), 49 USC 
Sec. 47129(f)(2), provides that the section shall not adversely affect 
the ability of an airport proprietor to meet its obligations under a 
financing agreement or covenant in effect on August 23, 1994.
    In the applicability section of the Supplemental Proposed Policy, 
the Department stated that section 47129 did not repeal or narrow the 
scope of the reasonableness requirement for airport fees. The 
Department proposed to apply the policy in the case of a dispute over 
the reasonableness of any aeronautical fee. However, disputes over 
matters described in sections 47129 (e) and (f) would not be processed 
under the procedures mandated by section 47129. The treatment of 
financing agreements was not otherwise discussed in the Supplemental 
Proposed Policy.
    However, in its order setting for hearing under section 47129, 
carrier complaints against fees imposed by the Puerto Rico Port 
Authority, the Department further interpreted the financing agreement 
exceptions. Puerto Rico Ports Authority Rates Proceeding, Order 95-4-6 
(April 3, 1995). The Department stated that:

    [I]n order to successfully invoke the exception in subsection 
(e)(2), the airport must show more than generalized language in a 
financing

[[Page 31999]]

agreement as the source of the imposition of the fee upon the air 
carrier. The airport must demonstrate that the agreement specifically 
required the airport to increase directly the fees to air carriers or 
that it so circumscribed other alternatives that the airport had to 
impose a new fee or to increase an existing fee. Order 95-4-6 at 13.

The Department explained that this interpretation of section 
47129(e)(2) was necessary so that the provision would not make the 
statute a nullity. Id. at 12.
    The comments: Airport proprietors urge the Department to revise its 
interpretation of section 47129(e) to recognize generalized rate 
covenant language. The airport proprietors argue that Congress was well 
aware of the broad terms of typical rate covenants and drafted section 
47129(e)(2) to cover the typical situation. They further argue that the 
legislative history makes clear that section 47129(e)(2) was enacted to 
avoid disrupting existing financing agreements.
    The airport proprietors also argue that their preferred 
interpretation will not render section 47129 a nullity. They assert 
that airport proprietors do not routinely invoke a rate covenant as a 
justification for a fee increase. Doing so would signal dire financial 
circumstances. Further, if an airport proprietor must raise fees to 
comply with a rate covenant, it will not single out airlines or other 
aeronautical users, but will raise the fees for all airport users.
    Other commenters did not address this issue.
    The Final Policy: The Department will not modify the interpretation 
of the financing agreement exceptions. As noted in Order 95-4-6, the 
airport proprietors' preferred interpretation could turn section 
47129(e)(2) into the proverbial exception that swallows the rule.
    Moreover, the Department's interpretation does not threaten to 
disrupt existing financing agreements. Under the Final Policy, debt-
service expenses, including reasonable amounts for debt-service 
coverage, may be included in the rate-base. In an investigation into 
the reasonableness of a fee, the airport proprietor is free to show 
that a challenged fee is needed to meet debt-service expenses 
associated with a general rate covenant. However, the airport 
proprietor may not rely on a general rate covenant to invoke section 
47129(f)(2) as a procedural bar to an investigation of the 
reasonableness of the disputed fee. See, Order 95-4-6 at 13.

4. Definition of Exclusive/Nonexclusive use Aprons for HCA Valuation

    The Supplemental Proposed Policy proposed that airfield assets 
would be valued using the HCA valuation methodology. Proposed par. 
2.5.1. Airfield assets would include ramps or aprons not leased on an 
exclusive use basis and associated land. Proposed Applicability, 
Section D.
    The comments: The State of Alaska, which operates most public 
airports in Alaska, expressed concern that the HCA valuation 
requirement for aprons might adversely affect its charging practices. 
The State's lease lots typically abut the side of a public-use apron 
and include a portion of the apron for exclusive aircraft parking. 
Treating the lease lots as a non-exclusively leased apron subject to 
the HCA valuation requirement would devastate the airport system's 
revenue situation.
    The Department did not receive any other comments on this issue.
    The Final Policy: No modification to the Supplemental Proposed 
Policy is required to address the concerns of the commenter. As 
described in the comments, the portion of the apron included in each 
lease lot is available for exclusive use. Accordingly, this portion of 
the apron and the remainder of the lease lot would be considered 
exclusively leased, even though the remainder of the apron is a public-
use facility.
    The Department has, however, decided to modify the definition to 
avoid potential confusion. We are modifying the provision to exclude 
from the definition of airfield assets an apron or ramp which is the 
subject of a preferential, as well as an exclusive lease or use 
agreement.
    Aprons or ramps that are treated as airfield assets are subject to 
the general HCA valuation requirement. In contrast, the airport 
proprietor may use any reasonable method to establish the fee for any 
other apron or ramp. The Department originally proposed this disparate 
treatment because exclusively leased facilities have more in common 
with terminals and other aeronautical facilities than with runways and 
taxiways. In particular, their use and the fees for their use are 
ordinarily the subject of individual negotiations.
    On further consideration of the issue, the Department has concluded 
that the preferential use agreements are as likely as exclusive use 
agreements to be the result of individual negotiations and to give rise 
to the characteristics that make a ramp or apron more like a terminal 
than a runway. Many lease and use agreements may provide for only 
preferential use. The Department is therefore modifying the Final 
Policy to exclude from the definition of airfield assets, aprons and 
ramps that are subject to a preferential or exclusive lease or use 
agreement.

5. Cross Crediting Aeronautical Users With Nonaeronautical Revenues

    The Supplemental Proposed Policy proposed that aeronautical users 
be entitled to a cross-credit of nonaeronautical revenues only if the 
airport proprietor agrees, and that the airport proprietor could agree 
to a cross-credit even if aeronautical users do not agree to cover 
nonaeronautical losses. Proposed para. 2.1.1. The Supplemental Proposed 
Policy also proposed that the airport proprietor could not require 
aeronautical users to cover nonaeronautical losses, except by 
agreement. Id.
    Airport proprietors: Airport proprietors did not address this 
issue.
    Carriers: IATA argues that cross-crediting should be required based 
on the policy on airport fees set forth by the International Civil 
Aviation Organization (``ICAO''), laid down in the Statements by the 
Council to Contracting States on Charges for Airports and Air 
Navigation Services (ICAO Doc. 9082/4). IATA argues that cross-
crediting satisfies the ICAO principle of cost-relatedness, because 
airport users bring customers to the airport through their operations.
    General aviation: AOPA supports mandatory cross-crediting because 
nonaeronautical businesses thrive due to the ready-made market for 
their services. AOPA also argues that the Supreme Court's decision in 
Kent County does not preclude the Department from requiring cross-
crediting.
    Other commenters: One law firm involved in public finance objects 
to the proposed requirement that aeronautical users agree to cover 
nonaeronautical losses. This commenter argues that the proposal is 
inconsistent with the airport proprietor's right to set fees 
unilaterally by ordinance or regulation established elsewhere in the 
policy. The proposal is also inconsistent with the airport proprietor's 
unconditional right to employ a residual methodology established by 49 
USC Sec. 47129(a)(2), according to this commenter.
    The Final Policy: The Department is adopting Paragraph 2.1.1, as 
proposed.
    The Department will not require cross crediting of nonaeronautical 
revenues to aeronautical users, because section 47129 does not permit 
us to do so. Section 47129(a)(2) preserves the discretion of airport 
proprietors to use

[[Page 32000]]

the compensatory methodology. The essence of the compensatory 
methodology is that fees to aeronautical users reflect the costs of 
serving them with no cross-crediting of nonaeronautical profits or 
losses.
    Moreover, it would be unfair to require airport proprietors to 
share nonaeronautical profits with aeronautical users, if we did not 
also require aeronautical users to share nonaeronautical losses with 
airport proprietors. The aeronautical users requesting cross-crediting 
have not indicated that they are willing to accept such a requirement. 
More importantly, they have not identified a legal basis for imposing 
cross-crediting.
    By authorizing the residual methodology, section 47129(a)(2) does 
not authorize unilateral increases in aeronautical charges to cover 
nonaeronautical losses. The Department is not aware of any airport 
proprietor who, at the time of enactment, charged aeronautical users to 
cover aeronautical losses without the aeronautical users' agreement to 
do so. No airport proprietor has asserted a unilateral right to do so 
in this proceeding docket.
    Moreover, one of the fundamental concepts of reasonableness is that 
users should not, without their consent, be burdened with paying for 
facilities they do not benefit from or use. The law firm's proposal 
clearly conflicts with this concept.

6. Rate of Return

    The Supplemental Proposed Policy did not propose a separate rate of 
return to be earned by public entities for airfield facilities and 
public-use roadways. However, the Department recognized that permitting 
airport proprietors to use any reasonable methodology to determine the 
fees for other facilities (proposed para 2.6) might allow an airport 
proprietor to earn a reasonable rate of return for those facilities. 
The Department also proposed to allow private equity owners of airports 
to earn a reasonable return on investment in airfield facilities and 
public-use roadways. Proposed para. 2.4.
    Airport proprietors: Airport proprietors argue that they are 
entitled to earn a rate of return on investment in all facilities, 
including the airfield. ACI/AAAE point out that public utilities are 
compensated for forgoing the opportunity to charge market prices by 
including a rate of return in their rates. The City of Los Angeles and 
the Port Authority of New York and New Jersey (``PANYNJ'') argue that 
the denial of a rate of return amounts to an unconstitutional taking of 
property. The PANYNJ also argues that a rate of return is needed to 
provide for accumulation of cash reserves for investment, to compensate 
for the risks of those investments, and to meet cash-flow tests of bond 
indentures.
    Carriers: ATA/RAA did not specifically address this issue. IATA 
prefers allowing airport proprietors a reasonable return on investment, 
in lieu of an allowance for imputed interest and reasonable reserves.
    General aviation: General aviation commenters did not address this 
issue.
    Other commenters: One individual argues that imputed interest is 
the functional equivalent of a return on investment. This commenter 
asks the Department to clarify whether a privately-owned airport may 
include both imputed interest and a return on investment in the 
airfield rate base.
    The Final Policy: The Final Policy does not authorize a separate 
rate of return for public airport owners. In addition, a new paragraph 
2.4.1(a), prohibiting a private equity owner of an airport from 
charging for both imputed interest and a rate of return on its equity 
investment in the airfield, is added to the Final Policy.
    The Final Policy allows public airport proprietors to include an 
imputed interest charge in fees for the airfield and public-use 
roadways. Therefore, a separate return on investment is not justified, 
and would run counter to traditional concepts of reasonableness. As 
discussed below under ``Application of HCA Requirement to Airfield and 
Public Use Roadways,'' the imputed interest charge compensates the 
airport proprietor for the opportunity costs of its investment in the 
airfield. The imputed interest charge, therefore, serves the function 
of a return on investment. In addition, as discussed below, a state or 
municipal airport proprietor does not have the same entitlement to a 
return on investment under the Constitution as a private investor.
    The Final Policy follows the approach of the Supplemental Proposed 
Policy for publicly-owned airports. Proprietors of publicly-owned 
airports may charge imputed interest on their airfield investments in 
accordance with the Final Policy. However, allowing an airport 
proprietor to include an imputed interest charge and a return on 
investment in its rates could allow for a double recovery of the 
airport proprietor's capital costs. Therefore, proprietors of publicly-
owned airports may not charge an additional rate of return on 
investment.
    Private equity owners may include a reasonable return on equity 
investment. Para 2.4. However, under new paragraph 2.4.1, they may not 
include an imputed interest charge on this investment as well. This new 
provision is intended to avoid possible double recovery of capital 
costs by a private equity owner.
    In light of other provisions in the Final Policy, the Department 
does not agree with the PANYNJ's claim that a separate allowance for a 
return on investment is needed to provide for accumulation of reserves 
to fund capital projects or to meet cash-flow requirements in financing 
agreements. The imputed interest charge will provide cash flow for 
these purposes, and the Final Policy allows the airport proprietor to 
impose reasonable charges to met cash-flow requirements in financing 
agreements. Para. 2.4.4.

7. Imputed Interest

    The Supplemental Proposed Policy proposed to allow the airport 
proprietor to charge imputed interest, at a reasonable rate, on funds 
invested in the airfield, with two exceptions. First, imputed interest 
could not be charged on funds obtained by debt-financing, if the debt-
service costs are included in the rate base. Second, imputed interest 
could not be charged on funds generated by fees charged for the use of 
airfield assets and airfield services. The Supplemental Proposed Policy 
did not propose a specific imputed interest rate. Proposed para. 2.4.1.
    Airport proprietors: With one exception, airport proprietors argued 
that imputed interest should be allowed on all internally generated 
funds invested in the airfield, including funds derived from airfield 
revenues. ACI/AAAE and many individual airports argue that the proposed 
limitation will encourage airport proprietors to borrow funds for 
airfield investment, rather than use internally generated funds. 
Borrowing may be the most expensive way to obtain financing. One 
airport proprietor asserts that the Supplemental Proposed Policy is 
inconsistent with its own long-standing practice, and it argues that 
the distinction is arbitrary.
    In addition, one airport proprietor noted that the Department's 
approach could be troublesome due to the difficulty of tracing the 
source of internal funds invested in the airfield. This airport 
proprietor noted that requiring airport proprietors to trace the source 
of funds would make them unable, as a practical matter, to charge 
imputed interest whenever funds could not be traced.
    Carriers: Carrier commenters generally object to allowing airport 
proprietors to charge imputed interest

[[Page 32001]]

on any investment made with surplus aeronautical revenues. ATA/RAA 
argue that the imputed interest allowance serves only to permit the 
accumulation of excess revenues. According to ATA/RAA and USAir, the 
Supplemental Proposed Policy would allow airport proprietors to force 
carriers to first invest in the airport (by paying fees in excess of 
costs) and then to pay interest on that forced investment through the 
imputed interest charge. ATA/RAA argue that the U.S. Government 
strenuously objected to this practice when it was attempted at Heathrow 
Airport. ATA/RAA further argue that public airport operators (state or 
city governments or authorities) do not have the same profit motives as 
private businesses. Therefore, they do not need the financial incentive 
of imputed interest to trigger investments in the airfield.
    IATA also argues that an imputed interest charge serves only to 
generate surplus aeronautical revenues. Elsewhere in its comments, 
however, IATA supports allowing airport proprietors to earn a 
reasonable rate of return on investment.
    ATA/RAA and IATA also argue that if imputed interest is allowed, 
the Department should provide guidelines for the computation of 
interest. ATA supports use of an airport's bond interest investment 
rate based on the following reasoning. Interest rates are in part 
determined by the risk of the investment, and investments that are 
riskier than airport capital projects might generate higher interest 
rates. However, by law, public airport proprietors must apply airport 
revenue to the capital or operating costs of the airport. Given this 
legal limit on the airport proprietor's investment options, the airport 
proprietor should not be able to claim a higher imputed interest rate 
base on alternative investments that are theoretically available.
    General aviation: General aviation commenters did not address this 
issue.
    Other commenters: One individual commenter suggests that imputed 
interest is in practical terms the same as a profit or payment for lost 
income. The commenter argues that lost income is not a cost. This 
commenter also suggests that the imputed interest charge is a device 
for airports to circumvent the prohibition on charging depreciation for 
Federally-financed assets.
    The Final Policy: The Department is adopting the provision of the 
Supplemental Proposed Policy, as proposed. The Department's approach 
strikes a reasonable balance between legitimate concerns of airport 
users, on the one hand, and airport proprietors, on the other.
    Airport proprietors do have discretion to choose where on the 
airport to invest surpluses generated by aeronautical fees, as well as 
nonaeronautical fees. In choosing between two investment options, 
airport proprietors have an incentive to select the option that 
provides more revenue for reinvestment in the airport. Barring an 
imputed interest charge on all funds invested in the airfield would 
encourage airport proprietors to invest elsewhere on the airport, and 
would thereby defeat the Department's long-range objective of assuring 
adequate investment in airport airfield capacity.
    However, the carriers' concerns have some justification. Under the 
Final Policy, airfield fees potentially could generate revenues in 
excess of an airport proprietor's cash needs. This excess may arise 
from various sources: imputed interest charges; allowances for various 
reserves; debt-service coverage charges; or simply financial 
performance that exceeds the projections on which airfield fees are 
based. There is merit to the carrier position that charging imputed 
interest on funds derived from airfield revenues could require airfield 
users to finance airfield investment twice: once in the form of the 
excess revenue that their otherwise reasonable fees generate and once 
in the form of the imputed interest charge on the investments made with 
that revenue. For this reason, the policy does not permit airport 
proprietors to charge imputed interest on funds that are attributable 
to airfield operations.
    However, the carriers' argument that airport proprietors may not 
charge imputed interest on any investment in the airfield goes too far. 
This argument would deny the airport proprietor any compensation for 
the opportunity costs of its investment in the airfield.
    The Department recognizes that disallowing imputed interest on sums 
attributable to airfield fees may encourage airport proprietors to 
invest elsewhere on the airport. However, the impact on choice of 
investments should be less pronounced than disallowing all imputed 
interest. The limit on imputed interest could also encourage bond 
financing for airfield investment, but the limit would apply only in 
the absence of an agreement to the contrary. If an airport proprietor 
can persuade airfield users that charging imputed interest is less 
costly than borrowing to finance airfield improvements, the airport 
proprietor is free to impose an imputed interest charge by agreement.
    The Department's approach to imputed interest is consistent with 
the position taken by the U.S. government regarding airport fees at 
Heathrow. In that dispute, the U.S. government did not object to 
landing fees set to provide a reasonable rate of return on investment, 
or to the application of that return to new capital projects. Rather, 
the U.S. government objected to financing new capital development at 
the London airports by: (1) directly including the full capital costs 
of projects under construction in the rate base and (2) charging a rate 
of return for those projects before they came on-line.
    The Department will not provide further guidance on a reasonable 
rate for assessing imputed interest at this time. In many cases, a rate 
based on the airport proprietor's own interest rate on borrowed funds 
may be reasonable. However, the airport proprietor's borrowed-fund rate 
may be but one of a number of relevant factors in determining a 
reasonable rate of interest. A policy that defines the borrowing rate 
as the only reasonable rate would not allow for consideration of these 
factors. In the event of a complaint, the Department would expect the 
airport proprietor to justify the reasonableness of its imputed 
interest rate. The Department would not accept an imputed interest rate 
that is justified solely as a device to recover a depreciation charge 
for the Federal share of grant-funded facilities.
    As we noted in the explanatory statement to the Supplemental 
Proposed Policy (60 FR 47013), under the Administrative Procedure Act, 
a carrier complaining about charging imputed interest on funds 
generated by airfield fees would bear the burden of proving the source 
of funds. The airport proprietor need not trace the funds in order to 
claim imputed interest. However, if the airport proprietor has data 
available that would enable a complainant to trace the funds, that data 
should be disclosed during the fee negotiations or during a proceeding 
to resolve a fee dispute.

8. Limitation of Airfield Rates to Land and Facilities Currently in Use

    The Supplemental Proposed Policy proposed that, absent agreement, 
airport proprietors may include in the rate base all capital costs 
associated with the provision of airfield facilities and services 
currently in use and current costs of planning future aeronautical 
facilities and services. Proposed para. 2.4. The Supplemental Proposed 
Policy further proposed that the costs of facilities not yet built and 
operating could not be included in the rate base. However, debt service 
and carrying costs of an asset under construction

[[Page 32002]]

could be capitalized and amortized when the asset is put in service. In 
addition the airport proprietor could include in the rate base the 
costs of land that facilitates current operations of the airport. 
Proposed para. 2.5.3.
    Airport proprietors: Airport proprietors consider these provisions 
unduly restrictive and inconsistent with the public interest. ACI/AAAE 
comment that the prohibition on expensing interest payments during 
construction is inconsistent with current practice of some airports. In 
addition, ACI/AAAE and individual airport commenters argue that 
applying the in-use provision to acquisition of land for future runway 
development will encourage airport proprietors to delay land 
acquisition as long as possible. This delay could drive up the cost and 
reduce the availability of land as development encroaches on the 
airport.
    The City of Chicago points out that land for future development may 
be funded with AIP grants under circumstances outlined in the FAA's 
Airport Improvement Program (AIP) Handbook, FAA Order 5100.38A, Para. 
603 (October, 1989). According to Chicago, Paragraph 603 demonstrates 
that land acquisition for future development is appropriate in certain 
circumstances.
    The Port of Portland suggests that the currently-in-use language 
may not reflect current industry practice for another reason. Portland 
notes that at the request of the carriers, it is amortizing a terminal 
upgrade at Portland International Airport for longer than the useful 
life of the project to lessen the cost impact on carriers. Portland 
requests that the policy permit this approach at the discretion of the 
airport proprietor. This commenter also requests clarification on how 
the term ``currently'' would be applied in different situations.
    Airport Users: Airport users did not address this issue.
    Other commenters: A law firm specializing in public debt-financing 
asserts that many public airport proprietors are precluded by local law 
from capitalizing interest during construction. Such entities would be 
effectively precluded from financing new facilities, because the policy 
would not permit the expensing of construction financing and interest. 
This commenter recommends that the policy allow interest during 
construction and the cost of land for future development to be included 
in the rate base.
    The Final Policy: The Department is modifying the Final Policy to 
permit an airport proprietor to show, on an individual basis, that it 
is reasonable to allow the costs of land acquired for future airfield 
development to be included in the rate-base, if the conditions of FAA 
Order 5100.38A are met, and if the airfield development is included in 
the airport proprietor's currently effective five-year capital 
improvement plan. The circumstances listed in FAA Order 5100.38A 
include rising land costs, encroachment on available land by 
incompatible uses, and the probable unavailability of land for airport 
use in the future. The provision on construction interest is adopted 
without modification. In addition, the Final Policy does not allow an 
airport proprietor unilaterally to depreciate an asset for longer than 
its projected useful life.
    In addressing this subject, the Department must strike a balance 
between conflicting concerns. On the one hand, when fees are based on 
cost, it is generally unreasonable to charge users for facilities they 
do not benefit from or use. Based on this principle, current users 
generally should not be charged, as a cost item, the capital costs of 
projects not yet in operation. Of course, this principle does not 
preclude assessment of reasonable imputed interest charges just because 
the proceeds of those charges might fund future capital projects. On 
the other hand, the policy should not work a financial hardship on 
airport proprietors or unduly interfere with cost-effective airport 
expansion by precluding timely acquisition of property needed for 
future airport development.
    In addition, the restriction on charging for facilities not yet in 
use is effectively limited to airfield facilities. Moreover, the 
restriction does not apply in the case of agreements with airfield 
users. If the airport proprietor can persuade airfield users that it is 
less expensive in the long run to deviate from the Final Policy, the 
airport proprietor is free to do so by agreement. Likewise if users 
request a depreciation period that is longer than an asset's useful 
life, the airport proprietor may agree to it. In these circumstances, 
an additional modification to the policy is not warranted.
    The comments on charging for future facilities address two distinct 
issues. The first is the treatment of construction interest. As to 
interest paid during construction, the Department is not modifying the 
approach proposed in the Supplemental Proposed Policy. This approach is 
commonly used in determining the reasonableness of rates, and permits 
the airport proprietor to fully recover all construction interest 
costs, once the facility is in use.
    The comments have not persuaded us that this approach will cause a 
substantial hardship in the industry. ACI/AAAE have not alleged that 
the practice of expensing interest is wide-spread. Moreover, landing 
fees at most airports are set by agreement. Under the terms of 
Paragraph 2.4 of the Final Policy, construction interest may be 
expensed if users have agreed. Similarly, the law firm comment 
regarding legal restrictions on capitalizing interest does not state 
that such local restrictions are wide-spread, and does not explain the 
basis for them. It is not clear that local laws that prohibit the 
capitalization of interest would permit the direct expensing of 
interest, because direct expensing would be more burdensome to users. 
Moreover, airport proprietors themselves have not raised legal 
restrictions to capitalizing interest as a serious concern.
    The second issue is the treatment of land acquired for future 
development. On this issue, some modification to the Supplemental 
Proposed Policy is in order. As the FAA has recognized in administering 
the AIP program, when the factors specified in paragraph 603 of Order 
5100.38A are present, it may be prudent to acquire and hold land for 
future development. Moreover, there may be circumstances in which such 
a land acquisition cannot be carried out if the costs are not included 
in the current airfield rate-base. However, based on the standard of 
reasonableness, the Department must be careful not to burden unduly 
present users with the costs of land acquired for future development. 
Therefore, the Department is modifying the final policy to permit an 
airport proprietor to show that the inclusion of the costs of land 
needed for future airfield development is reasonable, if the factors 
specified in FAA Order 5100.38A are present, and if the airfield 
development is included in the airport's currently effective five-year 
capital investment program. The latter condition is intended to assure 
that the land being acquired will actually be used for airfield 
development. This condition should also increase the likelihood that 
the airport users paying for the land will actually benefit from its 
purchase. The Department would decide the reasonableness of charging 
for the cost of land for future development on an individual basis. In 
reviewing the reasonableness, the Department would consider, among 
other factors, the feasibility and costs of alternative means of 
financing the land acquisition.
    The Department will not permit airport proprietors to depreciate an

[[Page 32003]]

airfield asset for longer than its useful life, absent user agreement. 
Such a policy would force airfield users who never used or benefited 
from the asset in question to pay for a share of its costs. As noted, 
however, the airport proprietor may provide for a longer amortization 
period by agreement with airfield users.
    In addition, the Department does not consider further guidance on 
the meaning of ``currently in use'' to be necessary at this time. The 
meaning of the term should in ordinary circumstances be self-evident--
in use during the period when the charge is in effect. See, LAX II, 
Order 95-12-33 at 50-51. There may be circumstances in which the 
application of the phrase is not straight-forward, and the Department 
will address those situations if they arise.

9. Allowance For Environmental Costs

    The Supplemental Proposed Policy proposed that an airport 
proprietor could include the costs of environmental mitigation and 
remediation to the extent it incurs a corresponding actual expense. 
Proposed para. 2.4.2. The Supplemental Proposed Policy also proposed 
that the airport proprietor could charge for the costs of insuring 
against future liability for environmental contamination. However, the 
costs of self-insurance could be included in the rate-base only if 
incurred pursuant to a self-insurance program that conforms to 
applicable standards for self-insurance practices. Proposed para. 
2.4.2(d).
    The comments: One airport proprietor has requested that the 
Department provide additional flexibility to charge for environmental 
cleanup costs. It suggests that if an activity is expected to generate 
predictable environmental cleanup costs, e.g., operation of a fuel tank 
farm, today's airport users may be reasonably charged for those costs, 
even if the cleanup occurs in the future.
    Other commenters did not address this issue.
    The Final Policy: The Department will not modify the provisions on 
allowable environmental costs. The commenter's concern is already 
addressed by the provision of the Final Policy governing reasonable 
reserves.
    If the use of the airfield today generates predictable 
environmental remediation expenses in the future, the principle of cost 
causation would allow, if not encourage, the airport proprietor to 
charge today's users for those expenses. The policy need not be 
modified to permit this result.
    The policy already permits the airport proprietor to include in the 
airfield rate base amounts needed to fund debt service and other 
reserves and to fund reasonable cash reserves to protect against other 
contingencies. Para. 2.4.4. This provision is sufficiently broad to 
permit the funding of reserves for predictable costs of environmental 
remediation caused by current operations. However, if an airport 
proprietor establishes a reserve for this purpose, the Department would 
expect the reserve to be separately identified. In reviewing the 
reasonableness of the reserve, the Department would consider, inter 
alia, whether the reserve applies to activities that industry 
experience has shown generate future environmental remediation costs; 
and whether the reserve reflects industry experience in costs of 
remediation. Arbitrary reserves or reserves to fund unknown future 
potential liability would not be acceptable. The latter would be 
subject to the provision on self-insurance.

10. Debt-Service Coverage

    The Supplemental Proposed Policy proposed that the airport 
proprietor could include in the rate base, inter alia, amounts ``needed 
to fund debt service and other reserves and to meet cash flow 
requirements as specified in financing agreements or covenants (for 
facilities in use), including, but not limited to, debt-service 
coverage.'' Proposed para. 2.4.4.
    In the LAX II proceeding, the parties disputed the meaning of the 
term ``needed'' as it appeared in the Interim Policy. Airport parties 
argued that the coverage was ``needed'' if financing agreements 
included a debt-service coverage requirement and if the airport was 
seeking to recover a share of coverage reflecting the airfield's pro 
rata share of outstanding debt. Carriers argued that no coverage charge 
would be ``needed'' if the airport's net cash revenues from nonairfield 
sources were large enough to satisfy the airport's coverage obligation. 
Comments on the Supplemental Proposed Policy were due before the 
Department addressed this issue in the final decision in the LAX II 
proceeding. Order 95-12-33 (December 22, 1995).
    The comments: In this proceeding, several airport proprietors, but 
no airlines, filed comments on the issue. The Massachusetts Port 
Authority (``Massport'') argues that debt-service coverage should be 
permitted in the rate base in proportion to the allowable debt service 
for the airfield, regardless of whether an agreement governing airfield 
fees exists. Massport has adopted compensatory rates by resolution, not 
by agreement. Massport, Los Angeles and the City of San Francisco argue 
that the carrier position in LAX II--that coverage is not a cost and 
therefore cannot be included in the rate base absent agreement--is 
inconsistent with the terms of proposed paragraph 2.4.4 and with the 
Department's explanatory statement. Massport argues that the Department 
clearly signaled its intention that debt-service coverage could be 
included in the rate base even though it is not a cost in the 
traditional accounting sense.
    Massport, Los Angeles and San Francisco also dispute the carrier 
position that debt-service coverage is needed only if revenues from 
other sources are insufficient to meet coverage requirements. These 
commenters argue that this approach amounts to mandatory residual 
treatment of debt-service coverage; therefore this approach is 
inconsistent with the airport proprietor's right to adopt a 
compensatory fee methodology. Massport argues that by using the term 
``needed,'' the Department sought to tie the amount of debt-service 
coverage allowed in the rate base to the terms of applicable bond 
documents.
    Massport further argues that compensatory airports should not be 
compelled to give a refund or credit to carriers for debt-service 
coverage, but should be permitted to use the coverage for any lawful 
purpose. Massport argues that under the terms of its Trust Agreement, 
Massport devotes the debt-service coverage charge to its Improvement 
and Extension fund, which finances the costs of airfield improvements.
    Los Angeles also argues that many airports that include debt-
service coverage in the rate base retain the coverage funds for 
discretionary purposes.
    Other commenters did not address this issue.
    The Final Policy: The Department is modifying paragraph 2.4.4 so 
that it allows airport proprietors to include amounts reasonably needed 
to meet debt-service coverage requirements. We are not changing the 
proposed policy on debt-related charges insofar as it allows airports 
to include charges for debt-service expense.
    We are modifying the provision on debt-service coverage charges to 
address the ambiguity created by the provision of the Interim Policy 
(which was not resolved in the Supplemental Proposed Policy) and to 
clarify the Department's position on such charges. When the Department 
considers charges for debt-service coverage, the Department will not 
limit its inquiry to determining whether the charge is limited to the 
airfield's pro rata share of the airport's

[[Page 32004]]

overall debt-service coverage requirement. The Department instead will 
consider a number of factors.
    Debt-service coverage is different from debt-service expense, an 
airport capital cost. Debt-service expense refers to the payment of 
interest and financing charges and the repayment of principal. Debt-
service coverage, in contrast, is a cash flow requirement, not an 
expense.
    Airport bonds typically require that the airport's net cash 
receipts exceed its debt-service expense by 25 to 50 percent, at a 
minimum. Many airports include charges for debt-service coverage in 
their landing fee calculations. However, as shown by the record in LAX 
II, their use of funds generated by debt-service coverage is almost 
always subject to substantial restrictions. Typically the airport must 
refund (or roll over) the funds obtained under the coverage charge if 
they were not needed during the year for which they were paid, or the 
airport proprietor must use the funds for capital projects benefiting 
the airlines. See, LAX II, Order 95-12-33 at 45. Not all airports 
impose such a charge. For example, the landing fees charged at LAX from 
July 1993 through June 1995 included no debt-service coverage charge. 
See Order 95-12-33 at 42.
    Airlines have not objected to charges for debt-service expense, but 
the airline complainants in LAX II objected to Los Angeles' charge for 
debt-service coverage, as outlined above.
    We are modifying the provision on debt-service coverage charges to 
permit reasonable amounts needed to meet debt-service coverage 
requirements, with due regard to the characteristic of a bond coverage 
requirement as a minimum requirement that must be met or exceeded at 
all times. In future airport fee cases involving a charge for debt-
service coverage, we will determine whether the charge is permissible 
on the basis of the facts in the case. In considering the 
reasonableness of such a charge, the Department may consider a number 
of factors. For example, in LAX II, the Department found that Los 
Angeles' debt-service coverage charge was unreasonable since the record 
showed that the airfield's net cash revenues greatly exceeded the 
airfield's share of the airport's debt-service coverage obligation. 
Given that evidence, the Department did not have to address the 
airlines' claim that the charge was unreasonable because the airport's 
overall net cash revenues would satisfy the airport's coverage 
obligation without the inclusion of an additional charge in the landing 
fee rate base.
    Another factor likely to be considered will be whether carriers 
using the airport receive any benefit from a debt-service coverage 
charge. For example, the airport may show that the inclusion of the 
charge improves the airport's credit rating and therefore reduces the 
airport's overall debt expense. The airport proprietor might show, 
instead, that the restrictions on the airport's use of the funds may 
ensure that the funds are used only for projects benefiting the 
airlines. An airport proprietor's commitment to refund or roll over 
unneeded funds in the year following payment also would be relevant to 
determining the reasonableness of the charge.
    We are unwilling in this proceeding to adopt more specific 
standards for determining the reasonableness of a debt-service coverage 
charge, in part because the comments do not give us an adequate basis 
for resolving the issue. The Department will therefore resolve the 
airports' ability to impose a debt-service coverage charge on a case by 
case basis. The decision will be governed by whether the particular 
charge challenged is reasonable.

11. Allowance For Reasonable Reserves, Definition of Reasonable

    The Supplemental Proposed Policy proposed that the airport 
proprietor may include in the rate base ``reasonable cash reserves'' to 
protect against contingencies other than those listed in the policy. 
Proposed para. 2.4.4. The Department did not propose to further define 
reasonable reserves.
    The comments: ATA/RAA do not object to reasonable reserves for 
short term fluctuation in revenues or for other emergencies. They are 
concerned that, without more detailed guidance, airport proprietors 
will be able to establish reserves well in excess of actual needs. ATA/
RAA suggest that the policy allow reserves of no more than one month's 
average revenue, unless the users agree to a higher reserve or the 
airport proprietor shows that special circumstances justify one.
    IATA opposes the allowance of a reserve as a separate cost item. It 
urges the Department to limit fees to the airport's total costs plus 
``a reasonable return on assets (before tax and interest charges) to 
contribute toward necessary capital improvements,'' based on ICAO Doc. 
9082/4, pp. 3-4.
    Other commenters did not address this issue.
    The Final Policy: The Department is adopting the provision of the 
Supplemental Proposed Policy without modification.
    The Department is not persuaded that a more specific definition for 
reasonable reserves is needed or appropriate for national application. 
The requirement that reserves be reasonable is intended to prevent 
arbitrary requirements. The Department would expect the airport 
proprietor to be able to justify its decision on reserve requirements 
if a dispute arose.
    However, defining a reasonable reserve requirement for any 
particular airport depends largely on the financial and operating 
circumstances of the airport at the time the airport proprietor 
establishes the reserve. A uniform definition for reasonable reserves 
would unduly limit both the airport proprietor's flexibility to tailor 
its reserve requirements to meet those circumstances and the 
Department's flexibility to consider those circumstances in reviewing a 
fee.

12. Allocation of Shared Costs

    The Supplemental Proposed Policy proposed that capital costs of 
facilities used by aeronautical and nonaeronautical users could be 
allocated to those aeronautical users who use the shared facility in a 
proportion that reflects the aeronautical purpose and proportionate 
aeronautical use. Proposed para. 2.4.5(b). Roadways would also be 
subject to the HCA valuation requirement. Proposed Para. 2.5.1(b).
    Airport Proprietors: ACI/AAAE request clarification that 
notwithstanding the valuation requirement for public-use roadways, the 
Department is not mandating a particular cost allocation formula for 
determining the aeronautical portion of roadway costs.
    The City of Chicago expresses concern that an allocation based 
strictly on use could be difficult to implement for some airports and 
could be burdensome. The City of Chicago urges the Department to modify 
the policy to explicitly provide more flexibility in cost allocation or 
to at least interpret the existing provisions of the policy as flexibly 
as we did in the LAX I decision.
    Airport users: Airport users did not address this issue.
    Other commenters: One individual suggested that, to minimize the 
risk that airports are improperly allocating costs to the airfield cost 
center, the Department should establish criteria for defining cost 
centers. This commenter suggests that the Final Policy require that any 
facility that generates revenue be defined as a cost center. In 
addition, the policy should require that if the facilities generate 
substantial revenue by direct charges, the full costs should be

[[Page 32005]]

covered by those charges. Under this approach, roadway costs would be 
assigned to a landside access cost center apart from the terminal. 
Further, the costs in this cost center would be recovered entirely from 
parking garages and lots, rental car companies and commercial 
limousine, van and taxi operators.
    The Final Policy: The Department is not modifying the provisions of 
the Supplemental Proposed Policy in response to the comments. However, 
consistent with the decision in LAX II, the Department is modifying the 
provision to apply to allocation of costs of shared services as well as 
shared facilities.
    The Supplemental Proposed Policy did not propose allocation of 
shared capital costs based strictly on use. Rather, it proposed 
consideration of both purpose and proportionate use of the shared 
facility. This provision of the Supplemental Proposed Policy is being 
adopted as proposed. The Department determined in LAX II that the 
possible difficulty of quantifying purpose is not a reason to allocate 
shared costs based solely on use. LAX II, Order 95-12-33 at 24. 
Accordingly, no change in the Final Policy is needed to accommodate 
Chicago's concern.
    In reviewing the reasonableness of an allocation, the Department 
would consider, among other things, whether the allocation had a 
rational basis and was supported by factual evidence in the record. In 
addition, the Department would not preclude an airport proprietor from 
using a reasonable method of allocation just because another method 
might produce a more precise result. Id. at 33.
    We will not adopt the suggestion of the commenter that airport 
proprietors be required to adopt a separate landside access cost 
center, which is not funded at all by charges to the aeronautical 
users. The airport proprietor has discretion in defining cost centers 
other than the airfield, so long as its cost allocations are 
reasonable, transparent and not unjustly discriminatory.
    Furthermore, the Department specifically determined, in LAX I, that 
an airport proprietor may allocate a portion of access road costs to 
the airfield. Order 95-6-36 at 31. As the Department found in LAX I, 
carriers, other aeronautical businesses and their customers use (or 
benefit from) terminal area access roadways. Id. Airport proprietors 
may reasonably allocate a share of roadway costs to the carriers and 
other aeronautical users. The commenter's proposal would not assure 
that all passengers who use the roadways are charged for that use--
directly or through the charges they pay to commercial enterprises. 
Many passengers are dropped off by private vehicles that pay no charge 
for the using the roadways.
    In addition, given the Department's reliance on local 
decisionmaking, the Department is not prepared to dictate how shared 
roadway costs are allocated to the carriers, so long as the basic 
requirements of the policy are met. The share allocated to aeronautical 
use must reflect the purpose and proportionate use of the facility, and 
the allocation methodology must be reasonable, transparent and not 
unjustly discriminatory.
    Finally, the Supplemental Proposed Policy was silent on the 
treatment of the costs of shared services. As a result of the 
deliberations in LAX II, the Department has concluded that there is no 
reason to treat these costs differently than the costs of shared 
facilities. Therefore, the applicable provisions of the Final Policy 
are being modified to apply to services and facilities.

13. Asset Valuation, Limiting HCA Valuation to Airfield and Eliminating 
the Aeronautical HCA Cost Cap

    The Interim Policy required that airport assets included in the 
aeronautical rate base be valued at historic cost to the original owner 
(``HCA value''), absent agreement to the contrary. Para. 2.4.1. 
However, the Interim Policy further provided that, for facilities other 
than airfield and all airport land employed in providing aeronautical 
use, other reasonable valuation methods could be used, so long as total 
aeronautical revenues do not exceed total aeronautical costs, based on 
HCA accounting. Para. 2.4.1(a).
    The Supplemental Proposed Policy proposed to limit the HCA 
requirement to airfield assets and public use roadways, and to 
eliminate the HCA cost cap for total aeronautical revenues. Proposed 
para. 2.5.1. For other aeronautical assets, the Supplemental Proposed 
Policy would permit the airport proprietor to use any reasonable 
methodology to establish fees, so long as the methodology is applied on 
a consistent basis to comparable facilities and is justified. Proposed 
para. 2.6.1. However, the Department proposed that the progressive 
accumulation of substantial amounts of surplus aeronautical revenue may 
warrant an FAA inquiry into whether aeronautical fees are consistent 
with the airport proprietor's obligations to make the airport available 
on fair and reasonable terms. Proposed para. 4.2.1.
    Airport proprietors: Airport proprietors support the proposed 
modifications. Among other reasons, these commenters assert that the 
change would eliminate concerns regarding valuation of tenant-built 
facilities that revert to the airport proprietor. Further, this 
proposed modification will address a number of additional concerns of 
ACI/AAAE, including the following: inconsistency between HCA valuation 
of nonairfield facilities, on the one hand, and industry practices and 
local laws and regulations, on the other; potential windfalls for 
airport tenants that sublease aeronautical facilities; higher landing 
fees paid by signatory airlines at some residual airports; and 
inconsistency of the HCA cost cap with the requirement that airports be 
as self-sustaining as possible, as interpreted by the Office of 
Inspector General (``OIG'').
    Airport proprietors further assert that application of the HCA cap 
to general aviation airports would be particularly burdensome, as those 
airports as a class have limited nonaeronautical revenue streams.
    Airport commenters dispute the carrier claims that terminal 
facilities should be treated like the airfield because airport 
proprietors possess market power. ACI/AAAE note that they accepted HCA 
valuation for airfield facilities reluctantly because the policy would 
not disrupt existing practices. Airport proprietors point out that 
terminal facilities are typically leased on preferential or exclusive 
use basis. They argue that the facilities are, therefore, more 
analogous to hangars and cargo facilities than to public use airfields. 
They further argue that airports compete with each other for 
designation as international gateways and as airline hub locations and 
for origin and destination (``O&D'') traffic. The airport proprietors 
note that initiation of low-fare service at a given airport can draw 
O&D passengers from other airports in the region.
    ACI/AAAE assert that recent increases in airport charges to 
carriers do not show airport market power and do not show that airport 
proprietors lack incentives to manage airports efficiently. Factors 
contributing to increases include the following: compliance with 
federal mandates and noise mitigation projects; expansion necessitated 
by increases in passenger activity and airline hubs; replacement of 
passenger terminals constructed 30-45 years ago; and construction and 
financing by airport proprietors of airport facilities that had been 
financed previously by the airlines directly. As evidence that airports 
face real-world pressures to reduce airline costs, one airport 
proprietor points to its decision to refinance airport revenue bonds to

[[Page 32006]]

reduce debt-service expense and thereby reduce airline rates and 
charges.
    Another airport proprietor argues that elimination of the HCA cap 
will facilitate using price to allocate scarce resources efficiently.
    Finally, one airport proprietor suggests that, if the HCA valuation 
requirement is limited to the airfield and public use roadways, 
references in paragraphs 2.3, 2.4.1, 2.4.2, 2.4.4, 2.4.5, 2.5, 2.5.1, 
2.5.3 and 2.7 should be changed to ``airfield/public use roadway rate 
base.''
    Carriers: Carriers argue that the Interim Policy's provisions 
governing asset valuation are needed to protect against the 
exploitation of locational monopoly power by airport proprietors in 
pricing ``essential facilities.'' Essential facilities are not limited 
to the airfield and include facilities for baggage, cargo and passenger 
handling. ATA/RAA contend that airport proprietors exercise monopoly 
power in pricing airport facilities in addition to the airfield, 
because of the airports' locational advantages and the barriers to 
entry of new competitive airports. In addition, ATA/RAA contend that 
carriers' investments in airport facilities often preclude them from 
relocating when an airport proprietor imposes excessive fees. ATA/RAA 
point to dramatic increases in fees at Los Angeles, Orlando, El Paso 
and Allentown as evidence of the existing monopoly power of airports.
    Carriers argue that, without clear guidelines providing a 
foundation for negotiations, the policy will not promote direct 
resolution of disputes. In addition, it will be difficult for airport 
users to justify the burden of analyzing the airport's cost and revenue 
calculation to prepare a legal challenge to nonairfield fees.
    The past absence of complaints over fees does not provide a basis 
for relying on effective competition, according to ATA/RAA. They argue 
that, in the past, negotiations were successful because there was a 
balance of power between airport proprietors and airport users. Airport 
proprietors needed airport user support for their financial bond 
issues. Airport users needed airport proprietors' cooperation to 
develop needed airport facilities. That balance has been disturbed at 
many airports, which can successfully issue bonds without carrier 
support. In addition, the claimed airport monopoly power was 
constrained by a number of other factors, including: common use of HCA 
valuation and residual agreements; and the expectations of airlines and 
airports that fee disputes would be resolved in Federal court.
    The carriers argue that the threat of investigation of sustained 
accumulation of aeronautical surpluses will not curtail abuse of 
monopoly power. Rather, the policy would encourage airports to 
overallocate costs to aeronautical cost centers other than the airfield 
so as to show break-even in accounting terms. This problem is 
compounded by the lack of record-keeping requirements. ATA/RAA are 
particularly concerned that airport proprietors will overallocate the 
costs of municipal services provided to the airport. IATA argues that 
the Department's decision to retain authority to investigate an 
accumulation of aeronautical surpluses is an implicit admission that 
reliance on negotiation and effective competition is doomed to fail.
    The carriers also argue that the Interim Policy properly balances 
the interests of airport users and airport proprietors. The carriers 
assert that the overall cap on aeronautical revenues based on HCA costs 
protects carriers from abuse of monopoly power. Within the overall cap, 
the Interim Policy provides ample flexibility to airport proprietors to 
price individual facilities.
    ATA/RAA also argue that the concerns expressed by ACI/AAAE in their 
earlier comments on the Interim Policy are misplaced. ATA/RAA argue 
that, if the HCA requirement is inconsistent with a state or local law, 
the state or local law is preempted. USAir asserts that airports may 
prevent airport tenants from earning windfalls by exercising their 
rights to approve subleases. USAir is also prepared to assume the risk, 
as a signatory carrier, that, under a residual system, it would be 
required to pay higher fees under the Interim Policy than non-
signatories.
    ATA/RAA also assert that the Supplemental Proposed Policy will 
permit airport proprietors to generate surplus revenues from 
aeronautical activities. To the extent that the surpluses are used for 
capital investment, current users would be required to pay for future 
capital assets, in contravention of the policy and the position of the 
U.S. government in the dispute with the United Kingdom over Heathrow 
airport user fees. The carriers also argue that the prohibition on 
diversion of airport revenue is not sufficient to prevent unjustified 
accumulation of surplus airport revenues. ATA/RAA point to the findings 
of a Congressional investigation that airport revenue diversion is 
wide-spread and that airport proprietors increasingly view financially 
successful airports as a potential source of funds to alleviate general 
budgetary shortfalls.
    IATA also argues that the Supplemental Proposed Policy would be 
inconsistent with the ICAO policy that all airport charges are to be 
set in relation to the costs of facilities and services provided, 
citing ICAO Doc. 9082/4. As IATA points out, the ICAO guidelines permit 
the airport proprietor to earn a reasonable return. IATA argues that 
the approach of the Supplemental Proposed Policy to pricing of 
nonairfield assets will permit airport owners to establish fees 
according to arbitrary and unreasonable standards.
    General Aviation: While the NATA does not recommend that the 
Department establish accepted charging practices for facilities leased 
by aviation businesses, the NATA disagrees with the Department's 
assertion that disputes over charges for nonairfield assets focus on 
unjust discrimination. For the NATA members negotiating leases, the 
level of their fees, rather than unjust discrimination, is the area of 
disagreement. Therefore, the NATA recommends that proposed paragraph 
2.6 be expanded to outline areas for consideration in establishing 
fees. The NATA acknowledges that each negotiation presents unique 
circumstances. However, the NATA suggests that the Final Policy 
identify as relevant the following considerations: physical variables 
of the airport and leasehold; functional variables of the airport and 
leasehold; and economic variables of the area served by the airport.
    The AOPA asserts that the Interim Policy balanced the needs of 
airport operators and users. It argues that the approach of the 
Supplemental Proposed Policy could lead to unreasonable fees. The AOPA 
is not persuaded that effective competition exists for nonairfield 
aeronautical assets. Further, neither possible investigation of 
accumulation of aeronautical surpluses, nor the limitations on use of 
airport revenue adequately protect against excessive fees.
    Other commenters: Two individual commenters object to limiting the 
HCA requirement to the airfield. They argue that doing so will allow 
airports to generate substantial surpluses.
    The Final Policy: The Department is following the approach of the 
Supplemental Proposed Policy on this issue. However, we are adding a 
provision specifying that, if an airport proprietor bases nonairfield 
fees on cost, the airport proprietor must follow the policy guidance on 
allocation of shared costs (Paragraph 2.4.5). This addition will assure 
that, when a cost-based methodology is employed, shared costs will be 
treated consistently across all

[[Page 32007]]

cost centers. In addition, we are modifying proposed paragraph 3.1.1 
governing allocation of costs among users and user groups to conform to 
the Final Policy's approach to nonairfield fees.
    The approach of the Final Policy is justified by differences 
between airfield assets and public-use roadways, on the one hand, and 
other aeronautical assets, including passenger terminals, on the other. 
The airfield and the public-use roadways are common use facilities, and 
their use is more or less fungible. Generally speaking no single user 
derives more or less benefit from a particular use. To the extent that 
this general principal does not hold true during peak times at 
congested airports, the Final Policy allows for reasonable and not 
unjustly discriminatory peak-pricing systems. Otherwise, a detailed, 
cost-based definition of reasonableness is appropriate for such 
fungible assets and would not disturb industry practices or prevent 
airport proprietors from allocating resources efficiently.
    In contrast, other facilities are generally leased on an exclusive 
or preferential use basis. In addition, such facilities, including 
terminals, are much less fungible. For example, carriers typically take 
responsibility for outfitting their passenger terminal areas and can 
reasonably be expected to view that responsibility as an opportunity 
for promotion. The value of gates to carriers may depend in part on 
their location in the terminal or the intensity of their use. Other 
non-terminal facilities may be perceived by users to have different 
values based on a variety of factors, including the following: 
proximity to runways and taxiways; source of construction financing; 
ownership of improvements at the end of lease terms; and expected use 
of facilities, including rights to exclusive or preferential use. A 
requirement that revenues from these facilities not exceed an amount 
determined by a cost-based formula could prevent these differences from 
being fully recognized in establishing fees. A policy that gives 
preeminence to the free play of negotiation and exchange of benefits to 
assure that fees for nonairfield facilities are reasonable would permit 
these differences to be fully recognized and would continue current 
industry practices. Accordingly, the latter approach is preferable.
    The record contains numerous examples of nonairfield fees set on a 
basis other than HCA valuation. For example, in the public meeting on 
the Supplemental Proposed Policy held in Washington, DC, all of the 
airport proprietors testified that they use methods other than HCA 
valuation for at least some nonairfield facilities. Supplemental 
Proposed Policy Regarding Airport Rates and Charges, Public Meeting 
(October 17, 1995), (``October 17 Public Meeting'') Transcript pp. 31-
33, 36-37, 39, 79-80, 81. Further, in their comments on the Interim 
Policy, ACI/AAAE reported that some airports establish fees for leased 
property by competitive bid or solicitation, often by operation of 
state law. Comments of ACI and AAAE in response to the Policy Regarding 
Airport Rates and Charges, Docket No. 27782 (``ACI/AAAE May 4 
Comments'') at 6 (May 4, 1995). Their comments also provided other 
examples of nonairfield facilities that are priced on some other basis 
than HCA valuation. Id. 12-13. The limited evidence to the contrary 
offered by the carriers is insufficient to overcome that offered by the 
airport proprietors. See, October 17 Public Meeting Tr., pp. 77-78. 
Thus the record demonstrates that requiring HCA valuation for all 
aeronautical facilities would substantially disrupt current practices 
that have not been the subject of complaints.
    The Interim Policy was intended to preserve that flexibility for 
establishing rates for nonairfield facilities. Our experience under the 
Interim Policy, however suggests that the Interim Policy had altered 
the status quo. For example, in their comments on the Interim Policy, 
ACI/AAAE reported instances in which airlines informed an airport 
proprietor that the maximum rental payments it could require must be 
based on historic costs. ACI/AAAE May 4 Comments at 24-25. In one case, 
a carrier had agreed to a new hangar lease at rates exceeding HCA rates 
but then refused to execute the agreement following publication of the 
Interim Policy. An airport proprietor also testified to concerns that 
HCA valuation would be used as the starting point for all negotiations 
under the Interim Policy. Supplemental Proposed Policy Regarding 
Airport Rates and Charges, Public Meeting (September 20 1995), 
(``September 20 Public Meeting'') Docket No. 27782, Transcript at 23-
25.
    The carriers' claims that airport proprietors exercise monopoly 
power in pricing essential aeronautical facilities are not supported by 
the Department's experience. Many U.S. carriers have benefited from 
airports' competition with each other to be the location of 
aeronautical facilities, including facilities for passenger and cargo 
hubs. Moreover, as ATA/RAA themselves argue, in their objections to the 
treatment of imputed interest, publicly-owned airports do not operate 
under the same profit motive as private investors. Public airports are 
operated, for the most part, as public facilities to serve the public 
good by enhancing local access to the national air transportation 
system. Airport proprietors generally seek to improve air services for 
their communities. This objective would be frustrated by charging 
exorbitant fees for aeronautical facilities. There may be isolated 
exceptions to this general rule. However, the Department is not 
prepared to require the vast majority of airports to change their 
methods of doing business to address the extraordinary situation. In 
the extraordinary situation, the Department would consider airline 
complaints concerning significant disputes through an expedited 
administrative procedure (14 CFR Part 302). Other cases would be 
processed under the FAA's investigative and enforcement procedures (14 
CFR Part 13).
    The Supplemental Proposed Policy did not propose to permit every 
method for establishing fees for nonairfield assets, but only any 
reasonable method. Users are still free to demonstrate that in the 
circumstances of a particular airport, a particular method is 
unreasonable. For example, users may demonstrate that the method is not 
justified in the circumstances or applied on a consistent basis.
    As we noted in publishing the Supplemental Proposed Policy, our 
decision to take a flexible approach to the pricing of nonairfield 
facilities is based in part on the relative lack of disputes between 
carriers and airport proprietors over the reasonableness of fees for 
such facilities, even those deemed essential by the carriers. The 
widespread acceptance of these industry practices indicates their 
reasonableness and general fairness. By relying on industry practices 
in formulating our policy, the Department is fulfilling the Supreme 
Court's expectation that the Department would in large measure base its 
standards for reasonable airport fees on the relevant facts and 
circumstances of the industry. Kent County, 114 S.Ct. at 863, 864 n. 
14. We are not persuaded by carriers' arguments that this experience is 
unreliable.
    First, while residual agreements have been common in the industry, 
so were compensatory agreements. A 1984 Congressional Budget Office 
study reported that 42 percent of large hub airports (10 out of 24) and 
42 percent of medium hub airports employed a compensatory approach to 
rate-setting. Financing U.S. Airports in the 1980s, Congressional 
Budget Office (April 1984). The Kent County litigation stemmed in part 
from the airport proprietor's decision to continue its

[[Page 32008]]

historic compensatory approach to landing fees.
    Second, based on the comments and testimony in this docket, airport 
proprietors commonly use methods other than HCA valuation to establish 
fees for passenger terminal, cargo handling and other ``essential'' 
nonairfield facilities, as discussed above.
    Third, the examples of airport bond financing cited by the carriers 
do not show that airport proprietors are readily able to obtain debt-
financing for nonairfield facilities without carrier agreement. Denver 
International Airport involved construction of an entire airport in 
conjunction with the closure of Denver's then existing air carrier 
airport. Moreover, Denver was unable to maintain investment grade 
status for the bonds. The Grand Rapids experience involved bond 
financing for a new runway. Under the Final Policy, runways must be 
priced based on HCA valuation, absent agreement by the users.
    Likewise, the examples of airports that have dramatically raised 
fees cited by the carriers (Los Angeles, El Paso and Allentown) do not 
support the claim that airport proprietors exercise market power in 
establishing fees for nonairfield facilities. First, all three examples 
involved landing fees, which remain subject to the HCA valuation 
requirement and detailed guidance of the policy. Second, the conversion 
from residual to compensatory methodology accounts for much of the 
increase at two of the airports (Los Angeles and El Paso). ATA/RAA's 
other example, Orlando, has not yet established new fees. ATA/RAA 
relies on a projection of what Orlando might do when existing 
agreements lapse. Moreover, it assumes that the airport will convert 
from a residual to a compensatory methodology. October 17 Public 
Meeting Transcript at 38. The selection of either methodology has been 
deemed reasonable by Congress through enactment of section 47129(a)(2).
    Finally, the Department is not convinced that the threat of 
judicial review of fees for nonairfield facilities was a significant 
factor in preventing excessive charges. Relatively few airline/airport 
disputes over airport fees have been resolved by litigation. Of those 
few, only one or two did not involve charges for use of the airfield. 
In these circumstances, it is doubtful that the threat of litigation 
would have proved a significant deterrent to abuse of monopoly power, 
assuming that power existed.
    We have also concluded that, on balance, the approach of the 
Interim Policy could have additional undesirable results outlined by 
ACI/AAAE in their joint comments. For example, if market-based rates 
exceed HCA-based rates, the Interim Policy would have allowed airlines 
through their subleasing to enjoy the additional revenue, but would 
have effectively precluded airport proprietors from earning that 
additional revenue. Thus, that additional revenue would have been 
unavailable for investment in the national airport system. At a time 
when Federal resources for airport infrastructure investment are 
severely strained, we are loathe to restrict unduly the ability of 
airport proprietors to generate funds for such investment.
    The Department agrees that the threat of a Department investigation 
of accumulation of surplus aeronautical revenue by itself may not be a 
perfect check against unreasonably high fees for nonairfield 
facilities. However, we are not relying solely, or even primarily, on 
this threat. Rather, in our experience, the market generally functions 
to prevent excessive charges, and airport proprietors have not 
routinely imposed unreasonably high fees for nonairfield, aeronautical 
facilities. Moreover, the limitations on the use of airport revenue, 
including the actions mandated by section 112 of the Reauthorization 
Act, diminish one possible incentive to generate excessive surplus 
aeronautical revenue--use of the surplus to fund general governmental 
activities. At this time, we are not prepared to impose rigid industry-
wide pricing criteria for nonairfield facilities to address speculative 
concerns about a few airports. In explicitly reserving our right to 
investigate, the Department is signaling its intention to act in those 
rare situations where intervention would be appropriate. Further, we 
are signaling our intent to consider the reasonableness of nonairfield 
fees over the long term and not on the basis of a single year's 
results. We are, of course, prepared to revisit this issue if 
experience shows that our approach is not effective in preventing 
contention, controversy, and unreasonable practices in the pricing of 
nonairfield aeronautical facilities.
    For these reasons, we expect that pricing of nonairfield 
aeronautical facilities and services under the Final Policy will 
produce results consistent with the policy guidance that aeronautical 
charges should not produce unreasonable returns.
    The Final Policy merely allows airport proprietors to continue 
current pricing practices that have not resulted in excessive charges.
    Our policy on this issue is consistent with the position of the 
U.S. government in the dispute over landing fees at Heathrow. In that 
case, the U.S. government did not argue that the British Airports 
Authority and (later) BAA plc were not entitled to earn any surplus. 
Rather, the objections stemmed from circumstances that are unlikely to 
arise in the United States.
    The BAA establishes fees each year following consultation with the 
users, but without their agreement. The BAA imposed separate landing 
fees, aircraft parking charges and passenger terminal charges. During 
the period in dispute, BAA had unilaterally increased its airport user 
charges at Heathrow to finance on a pay-as-you-go basis substantial new 
capital improvements at London's Heathrow and Gatwick airports. The BAA 
had also sought to earn a rate of return on the funds invested in the 
new projects during construction. Nothing in the Final Policy precludes 
the Department from determining that an airport proprietor that is 
financing on a pay-as-you-go basis significant new capital development 
through unilaterally imposed terminal rents is charging unreasonably 
high terminal fees. Rather, we are relying on the market mechanism and 
negotiating process to prevent such an occurrence in the first 
instance. Nothing in our experience with the US airport industry 
indicates that a U.S. airport would be able to duplicate the BAA's 
approach to charging for terminal facilities.
    Likewise, the results of our approach to nonairfield assets is 
consistent with ICAO guidelines. First, the Final Policy does not 
permit fees to be established for these facilities by any method. 
Rather, the method must be reasonable. In addition, we rely on market 
discipline to assure that these fees, which are largely negotiated, are 
reasonable, and do not result in the generation of excessive profits 
(or rate of return). As IATA acknowledges elsewhere in its comments, 
the ICAO guidelines permit an airport proprietor to earn a reasonable 
return on its investment.
    We do not agree with carrier arguments that our approach to 
enforcing the prohibition on airport revenue diversion will provide 
incentives to airport proprietors to charge excessive fees for 
nonairfield facilities and services to obtain additional funds for 
general municipal purposes. Our approach to nonairfield assets will not 
undermine enforcement of the requirements on the use of airport 
revenues. The Department is committed to ensuring that airport revenues 
are

[[Page 32009]]

used for airport purposes, as required by law under 49 USC 
Sec. 47107(b). Moreover, in section 112 of the FAA Authorization Act of 
1994, codified at 49 U.S.C Sec. 47107(l), Congress added new 
requirements relating to both legal and illegal diversion of airport 
revenue in response to carrier concerns, as well as new sanctions for 
violations of the revenue diversion prohibition. On February 20, 1996, 
the FAA issued a Proposed Policy and Procedures Concerning the Use of 
Airport Revenues, Docket 28472 (61, FR 71344, February 26, 1996). In 
addition, on March 18, 1996, the FAA published formats for the 
preparation and filing of two reports by airport sponsors. One report 
would list amounts paid and services provided by the airport to other 
units of government, as well as explanations for claims of lawful 
diversion. The other report would detail the total revenue and 
expenditures at each commercial airport, including revenue surplus. 
These reports were required by section 111 of the 1994 Reauthorization 
Act.
    In addition, the statute prohibiting revenue diversion excludes 
from the prohibitions certain arrangements that were in place when the 
statute was enacted. Many instances of airport revenue diversion 
identified in the Congressional Report cited by the carriers involved 
``legal diversion'' under this statutory exception.
    To date, our experience does not indicate that the statutory 
provisions and FAA's actions in implementing them are ineffective in 
assuring that airport revenue is used for lawful purposes. At this 
time, concerns about airport revenue diversion do not justify 
curtailing airport proprietors' customary flexibility to establish fees 
for non airfield facilities.
    We are not adopting the NATA's suggestion that additional guidance 
be given for lease negotiations. As the NATA acknowledges, each lease 
negotiation will involve unique considerations and circumstances. A 
factor that is important in one negotiation may have no relevance in a 
second. Moreover, the Department is committed to applying the Final 
Policy to general aviation fees in a flexible way. By delineating 
criteria to be considered in negotiating leases, the policy would 
decrease, not increase, flexibility.
    Finally, the Department has reviewed the detailed guidance under 
Principle 2 and modified the provisions as appropriate to reflect the 
narrowing of the requirement for HCA-based fees. Not all of the 
paragraphs suggested by the commenter have been modified. In some cases 
the unrevised paragraphs implement statutory requirements in addition 
to the reasonable fee requirement.

14. Application of HCA Requirement to Airfield and Public Use Roadways

    The Supplemental Proposed Policy proposed that airfield facilities, 
airfield land and public-use roadways, be valued according to their 
historic cost to the original airport proprietor, except by agreement 
with users. Proposed para. 2.5.1. In addition, in proposed Paragraph 
2.5.1(a), the Department proposed methods for charging for land 
dedicated to the airfield and public use roadways (``airfield/roadway 
land''). This provision is discussed separately below. The Department 
also proposed to allow airport proprietors to charge more than a pro 
rata share of airfield costs to particular users to encourage efficient 
use of the airfield. Proposed Para. 2.5.1(b). This provision is also 
discussed separately below.
    Airport Proprietors: ACI/AAAE point out that their earlier 
acceptance of HCA valuation for airfields was not based on analogy to 
other industries, but based on their conclusion that vast majority of 
members would not be greatly disadvantaged. ACI/AAAE do not accept the 
carrier position that airports possess market power with respect to any 
airport facilities. ACI/AAAE urge the Department to implement the HCA 
valuation requirement flexibly, to permit direct resolution of 
disputes. ACI/AAAE also argue that, to be effective, peak-pricing 
systems must incorporate landing fees that are high enough to balance 
supply and demand, regardless of the airfield's historic cost. ACI/AAAE 
request the Department to clarify that an airport using an otherwise 
acceptable peak-hour pricing system may charge landing fees that are 
not based on historic cost.
    Massport asserts that in some cases, the HCA valuation requirement 
for the airfield is inconsistent with sound economic theory and 
efficient allocation of scarce airport resources. Massport suggests 
that the policy should define HCA valuation for the airfield as 
presumptively reasonable, but permit an airport proprietor to show that 
other valuation methods are reasonable.
    Los Angeles and San Francisco request that the HCA requirement for 
the airfield and public-use roadways be eliminated. Los Angeles argues 
that market-based rents are inherently reasonable, as the Department 
itself recognized in proposing to narrow the HCA requirement. Market-
based rates also reflect economic reality better. Los Angeles further 
argues that the reasonableness of market-based pricing has been 
sustained in judicial decisions, including Blum v. Stenson, 465 U.S. 
886, 892-95 (1984); Harmon City, Inc. v. United States, 733 F.2d 1381-
1382-84 (10th Cir. 1984); and Telesat Cablevision, Inc. v. City of 
Riviera Beach, 773 F.Supp. 383, 407 (S.D. FL 1991).
    Los Angeles and the City of San Francisco argue that market-based 
pricing for the airfield is most consistent with the requirement that 
airport proprietors establish a fee and rental structure that will make 
the airport as self-sustaining as possible. Both airport proprietors 
rely on the determination of the OIG that airports must receive no less 
than fair market value for aeronautical land and improvements in order 
to meet this mandate. Los Angeles also argues that its proposed method 
of determining FMV, based on the land's next best use, avoids any risk 
that the FMV determination will reflect the exercise of market power.
    Los Angeles further argues that even though the Supplemental 
Proposed Policy would allow the airport proprietor to amortize the 
costs of acquired land, the HCA requirement would not allow the airport 
proprietor to compensate itself for the opportunity costs of 
maintaining its investment in the airfield rather than using the 
property for other purposes. Los Angeles asserts that the courts now 
recognize opportunity costs as a real cost, citing among other 
decisions, Afram Export Corp. v. Metallurgiki Halyps, S.A., 772 F.2d 
1358, 1369 (7th Cir. 1985); Duff v. Marathon Petroleum Co., 985 F.2d 
339, 340 (7th Cir. 1993). Los Angeles also complains that the HCA 
valuation requirement fails to compensate the airport proprietor for 
the costs of inflation. At a minimum, the policy should be modified to 
permit adjustments to HCA valuation to reflect general inflation.
    Los Angeles also argues that the HCA valuation requirement results 
in an unconstitutional taking of the airport proprietor's property, 
because it precludes the airport proprietor from earning a fair return 
on investment. Los Angeles argues that, under Duquesne Light Co. v. 
Barasch, 488 U.S. 299, 307, 310 (1989), a rate set at a level that is 
confiscatory is unconstitutional. A rate that does not allow for a rate 
of return is per se confiscatory, according to Los Angeles, and 
therefore, unconstitutional. Los Angeles also suggests that the fair 
return must be based on the present value of the assets, citing Smyth 
v. Ames, 169 U.S. 466, 547; Denver Union Stockyard Co. v. United 
States, 304 U.S. 470, 473 (1938).

[[Page 32010]]

Los Angeles also argues (in its comments on the Interim Policy) that 
the property of public as well as private entities is protected by the 
takings clause of the Constitution, citing United States v. 50 Acres of 
Land, 469 U.S. 24, 31 (1984).
    Los Angeles further argues that requiring HCA valuation for 
airfield land subsidizes air carriers needlessly by transferring the 
value of the airfield assets to the carriers.
    In addition, Los Angeles argues that the HCA valuation requirement 
would make the charge for airfield land in the rate-base a function of 
happenstance--whether land is owned or leased. If land is leased, the 
airport proprietor would be able to charge its full rental payments--
reflecting fair market value--to the airfield users.
    Finally, the Metropolitan Airport Commission (``MAC'') requests the 
Department to modify the policy to permit any reasonable method for 
valuing public-use roadways. MAC asserts that off-airport commercial 
enterprises may attempt to use the provision to pay no more than the 
roadways' historic costs, even though these enterprises are not 
aeronautical users. MAC operates the Minneapolis-St. Paul International 
Airport.
    Carriers: Carriers support retaining the HCA valuation requirement 
for the airfield and public-use roadways consistent with their 
arguments against elimination of the HCA cost cap for total 
aeronautical revenues.
    General aviation: AOPA expressed general support for HCA valuation 
of airfield assets.
    Other commenters: The American Car Rental Association (``ACRA'') 
considers the HCA valuation requirement to be inconsistent with fees 
based on cost recovery. The HCA valuation requirement would, in ACRA's 
view, perpetuate a subsidy to airfield assets from other parts of the 
airport.
    The Final Policy: The Department is adopting the provisions of the 
Supplemental Proposed Policy without substantive change. After 
reviewing all comments, the Department has determined that the HCA 
valuation requirement for the airfield and public-use roadways should 
be retained. The requirement reflects nearly universal industry 
practice. See LAX I, Order 95-6-36 at 21. It is acceptable to the 
overwhelming majority of airport commenters who addressed the issue and 
has the unanimous support of aeronautical users. While we are willing 
to allow airports to use other reasonable methods for establishing fees 
for non-airfield facilities, the rationale for that decision does not 
apply to fees for airfield assets, as outlined in the previous section. 
Among other things, airfield fees have resulted in several major 
controversies.
    Moreover, HCA valuation is recognized as an acceptable method of 
valuing assets when determining reasonableness, even if it is not the 
only one. In this regard it is simpler than other methods, especially 
market valuation techniques. HCA valuation can generally be determined 
from accounting records. FMV methodologies would invite disputes over 
appraisals for the value of airfield land. Unlike typical commercial 
real estate, there is no generally acceptable methodology for 
identifying and valuing comparable uses for land dedicated to an 
airfield. Permitting FMV valuation for the airfield would turn landing 
fee disputes into debates between real estate appraisal experts with 
the Department in the role of referee. The Supreme Court has noted that 
the difficulties of calculating FMV caused regulatory agencies to 
abandon the use of FMV for valuing capital investments by public 
utilities. Duquesne Light, supra, 488 U.S. at 308-309.
    In addition, the HCA valuation requirement allows airport 
proprietors to fully recover their out-of-pocket costs of providing 
airfield facilities and services. The policy allows the airport 
proprietor to fully recover all of its capital expenditures --through 
depreciation and, for land, through amortization or imputed interest 
charges. For debt-financed expenditures, the airport proprietor may 
fully charge airfield users with the costs of paying principal and 
interest. Other provisions of the policy permit recovery of opportunity 
costs, and the costs of inflation, to the extent that an airport 
proprietor is entitled to such recovery, as discussed below. Thus, the 
HCA valuation requirement for the airfield is not inconsistent with the 
statutory requirement on self-sustainability. For these same reasons, 
the HCA requirement is consistent with the principle of cost recovery 
urged by ACRA and does not result in a subsidy to airfield users.
    The Department notes that the Inspector General (in numerous audits 
of the FAA's monitoring of airport revenue) has recommended that 
aeronautical leases must be set at fair market value to comply with the 
self-sustainability requirement. This recommendation is not, as Los 
Angeles asserts, a basis for eliminating the HCA requirement for the 
airfield. The Secretary of Transportation, not the Inspector General, 
is responsible for establishing policy and interpreting the 
requirements of the AAIA. In promulgating this policy, the Secretary of 
Transportation has determined that the requirement of self-
sustainability does not mandate FMV-based valuation of airfield assets 
and of other aeronautical assets. The pricing of these assets is also 
subject to the standard of reasonableness.
    The standard of reasonableness and the standard of self-
sustainability are not identical in application. The requirement of a 
fee and rental structure that will make the airport as self-sustaining 
as possible does not apply to the setting of a particular fee. Rather, 
the requirement applies to managing the airport's revenues and 
establishing a schedule of fees that generates sufficient earnings to 
meet current expenditures, to offset future deficits, and avoid the 
necessity of reliance on taxation. See, e.g., Clifton v. Passaic Valley 
Water Commission, 557 A.2d 299 (N.J. 1989).
    Even if we interpreted the self-sustainability requirement to apply 
to individual fees, that requirement does not override the requirement 
of reasonableness. A fee set to maximize revenue (as the OIG assumes 
FMV-based fees do) may be consistent with the requirement of self-
sustainability. However, if the fees resulted in surpluses, those fees 
might be unreasonable. Congress has declared as a matter of policy that 
airport proprietors should not seek to create revenue surpluses that 
exceed the amounts to be used for system purposes and other lawful 
purposes. 49 USC Sec. 47101(13).
    The Department has carefully considered the other objections to the 
HCA valuation requirement, particularly those expressed by Los Angeles. 
However, Los Angeles has failed to show that the Department's approach 
is wrong. While the FMV technique has been sustained in judicial 
decisions as meeting the standard of reasonableness, Los Angeles has 
cited no authority establishing that the FMV technique is the only 
reasonable method for determining rates. Indeed, as Los Angeles 
acknowledges, the Supreme Court in Federal Power Commission v. Hope 
Natural Gas Co., 320 U.S. 591, 605 (1944), held that HCA valuation is 
also a valid basis for determining reasonableness. In that case, the 
Court abandoned its earlier preference for present valuation of assets 
expressed in the Smyth v. Ames and Denver Union Stock Yard cases cited 
by Los Angeles. The courts have recognized that regulatory agencies 
normally use historic costs for rate cases. Duquesne Light, supra, 488 
U.S. at 309-310; Jersey Central Power & Light Co. v. FERC, 810

[[Page 32011]]

F.2d 1168, 1175 (D.C. Cir. 1987) (en banc).
    The Department likewise is not persuaded that FMV-based landing 
fees are required to compensate airport proprietors for the opportunity 
costs of airfield investments. Los Angeles' claim for opportunity costs 
assumes that airport proprietors are free to disinvest in the airfield 
and put their capital to other uses. Most airport proprietors subject 
to this policy, including Los Angeles, are not. These airport 
proprietors have accepted Federal financial assistance or free Federal 
land for airport development. Los Angeles has accepted both. In 
exchange for this Federal assistance, they have committed to continue 
to operate their airports as airports. Los Angeles' compensation for 
devoting the LAX airfield for use as an airfield was the Federal 
financial assistance and donated Federal land.
    In any event, to the extent that the airport proprietor is entitled 
to recover any opportunity costs in the airfield rate base, these costs 
may be recovered through the imputed interest charge under the Final 
Policy. The imputed interest charge is intended to compensate the 
airport proprietor for the use of internally generated funds invested 
in the airfield and not elsewhere on the airport.
    Similarly, an airport proprietor may look to the imputed interest 
allowance to be compensated for inflation. The Final Policy permits an 
airport proprietor to charge imputed interest at a reasonable rate. The 
airport proprietor's adoption of an appropriate and reasonable market-
based rate should compensate the airport for inflation. Investors in 
capital markets expect to be compensated for inflation, as well as the 
opportunity cost of investment. Therefore, market-based imputed 
interest rates ordinarily reflect investors' expectations on the future 
rate of inflation.
    The HCA valuation requirement will not violate the Constitutional 
rights of airport proprietors by denying their right to earn a return 
on their investment or by taking their property without just 
compensation.
    The requirement does not deny airports--whether privately or 
publicly-owned--their Constitutional right to a rate of return on their 
investment. The Supreme Court, after all, has held that a regulatory 
agency's use of HCA valuation in rate-making cases does not violate the 
Constitutional principle that regulated firms must be allowed the 
opportunity to earn a return on their investment. See, Duquesne Light, 
supra, 488 U.S. at 308-310.
    In addition, paragraph 2.4 of the Final Policy explicitly allows 
private owners of airports to earn a rate of return. Assuming that 
state and local government agencies operating airports were entitled to 
earn a rate of return, the Final Policy does not deny them that right. 
The Final Policy allows an airport proprietor to charge imputed 
interest on its investment in the airfield, except to the extent those 
investments were made with funds derived from fees paid for the use of 
the airfield. This imputed interest represents compensation for the 
airport proprietor's capital invested in the airport, as would a return 
on investment.
    The HCA valuation requirement thus does not violate the takings 
clause of the Constitution. The Supreme Court considers three factors 
in determining whether government action constitutes a taking: the 
action's character, its economic impact, and the extent to which the 
action interferes with investment-backed expectations. See Connolly v. 
Pension Benefit Guaranty Corp., 475 U.S. 211, 224-225(1986); Concrete 
Pipe & Products v. Construction Laborers Pension Trust, 508 U.S. 602; 
113 S.Ct. 2264, 2291 (1993). The Final Policy's limits on airfield fees 
cannot constitute a taking under these standards.
    First, the HCA valuation requirement causes no physical invasion or 
permanent appropriation of an airport's property. Instead, as is 
typical of many regulatory programs, the HCA valuation requirement 
adjusts the benefits and burdens of economic life in order to promote 
the common good. That type of regulation is not normally deemed a 
taking of property.
    Second, the economic impact on airports is not severe. As admitted 
by Los Angeles' expert witness in LAX I, every airport in the United 
States except LAX has valued airfield land at historic cost in setting 
fees. Order 95-6-36 at 21. Even LAX used HCA valuation before 1993, 
when it implemented the FMV-based fees found unreasonable, in part, by 
the Department in LAX I. Moreover, the HCA valuation requirement 
enables airports to recover the actual costs of their investment in 
airfield facilities, and airports may also obtain imputed interest on 
their investment, unless the invested funds were derived from airfield 
fees.
    Third, requiring HCA valuation cannot interfere with any airport's 
investment expectations, as demonstrated by the Court's analysis in 
Connolly, 475 U.S. 226-227. The HCA requirement merely ratifies the 
airports' existing practices for pricing airfield assets. In addition, 
as both ATA/RAA and ACI/AAAE point out, state and local governments 
invest in airports in order to further the well-being and general 
welfare of their citizens, not in order to make a profit. Furthermore, 
federal statutes have limited airport aeronautical fees for many years 
and imposed other restrictions on the use of airport funds and property 
by airport owners.

    Los Angeles' concern about anomalous treatment between leased and 
owned airfield land does not justify abandoning the HCA valuation 
requirement for the airfield. First, the situation in which an airport 
proprietor leases an airfield from an independent entity, rather than 
owns it, is extremely rare. The Department is aware of only two airport 
proprietors that lease their airfields--the Port Authority of New York 
and New Jersey and the Metropolitan Washington Airports Authority. In 
both cases the airport proprietor is leasing from other governmental 
entities. Second, even as between two airport proprietors that own 
their airfields, the Final Policy may well require one airport to 
charge lower fees than the other, because the former has lower costs. 
Two airports could have different costs for a number of reasons, 
including the following: differences in land costs at the time of 
acquisition; differences in the acreage of the respective airfields; 
differences in the interest rates payable on bonds used to finance the 
airfield;, and even differences in the salary and benefit structure of 
the two airport proprietors. Moreover, even with airfield assets valued 
at FMV, airfield rates could be determined by a factor that could be 
deemed ``happenstance''--the market conditions at the time each 
airport's fees are established. However, the Department would consider 
each airport proprietor's costs in determining the reasonableness of 
its airfield fees because each airport's costs vary. This variation is 
not a reason to ignore those costs, or to avoid using HCA valuation.

    The Department will not adopt the suggestion that the HCA valuation 
requirement be adopted as a rebutable presumption. The practice of 
using HCA valuation for the airfield is wide-spread and long-standing. 
Therefore, the Department does not see a need to allow airport 
proprietors to argue routinely that a different valuation methodology 
is reasonable. Such arguments could greatly add to the burden of 
processing complaints under section 47129. However, the Department, on 
a case-by-case basis, has allowed airport proprietors to argue that the 
HCA valuation requirement should not be

[[Page 32012]]

applied to them because of unusual circumstances. See, e.g., LAX I, 
Order 95-6-33 at 15-17. We would continue to do so.
    In addition, the Department is retaining the HCA valuation 
requirement for the public-use roadways. Public-use roadways are more 
like the airfield than like terminals. Roadways are common use 
facilities, like the airfield. An aeronautical user cannot derive 
commercial or competitive benefit vis-a-vis competitors through the use 
of the roadways, and aeronautical users do not separately bargain for 
the use of the roadways.
    MAC acknowledges that the provisions of the Final Policy governing 
reasonable fees do not apply to fees paid by nonaeronautical users. 
Therefore, nonaeronautical users may not rely on the Final Policy to 
claim a right to roadway access charges based on HCA valuation.
    Airport proprietor concerns about the relationship between the HCA 
valuation requirement and peak pricing are addressed in the disposition 
of comments on peak pricing.

15. Airfield Revenue Cap Based on HCA Valuation

    The Supplemental Proposed Policy proposed that airfield revenues 
may not exceed airfield costs (proposed para. 2.2) and included 
detailed guidance on how airfield costs may be determined. Among other 
things, airfield assets must be valued based on their historic cost to 
the original airport proprietor. Proposed para. 2.5.1. Together, these 
provisions would create a cap on total airfield revenue based on HCA 
valuation of airfield assets.
    The comments: Los Angeles and San Francisco oppose the cap on 
airfield revenues based on HCA costs. Both airport proprietors assert 
that the cap provision violates section 47129(a)(3), which directs that 
the Secretary ``shall not set the level of the fee.'' Los Angeles 
argues that the cap deprives the airport proprietor of substantial 
latitude to set fees. Los Angeles further argues that the cap is 
inconsistent with the airport proprietor's right to use fair market 
values for airfield land. In addition, the cap would serve no purpose 
but to encourage airport proprietors to tinker with fees to keep them 
in sync with costs. San Francisco also argues that the cap amounts to a 
subsidy to airfield users.
    Carriers and general aviation commenters generally support the HCA 
cap for the airfield.
    The Final Policy: The Department is adopting the provisions of the 
Supplemental Proposed Policy without modification.
    The contention that the HCA cap requirement illegally ``sets'' the 
fee for airfield use within the meaning of section 47129(a)(3) is 
wrong. The Final Policy provides detailed guidance on the total costs 
that may be recovered through airfield fees, but it does not establish 
a single, comprehensive formula for determining the amount of total 
airfield revenues. For example, the policy does not establish a single 
methodology to allocate common costs between the airfield and other 
cost centers, or to allocate indirect costs. Likewise, the policy does 
not establish a single permissible time-frame over which to depreciate 
and amortize airfield assets or a single permissible rate for the 
imputed interest charge. Each of these decisions is left to the 
discretion of the airport proprietor and will affect the total amount 
of revenue that the airfield may generate.
    Moreover, the Final Policy does not establish a mandatory formula 
for charging individual airfield users. Rather, the airport proprietor 
also has some latitude in setting individual fees to recover total 
airfield revenue. The airport proprietor has some discretion to 
allocate costs among airfield users and to establish the basis of the 
charge. Airport proprietors can and do establish weight-based charges, 
operations-based charges, or charges based on a combination. Each of 
these decisions will affect the level of fee that an individual user 
pays.
    In these circumstances, the HCA revenue cap cannot be said to 
``set'' the level of an airfield fee. Furthermore, Congress has 
directed the Department to develop reasonableness guidelines. Since the 
Department has determined that airfield fees must be based on costs to 
assure that fees are reasonable, the required guidelines must set forth 
cost standards for those fees.
    The Department has concluded that airport proprietors do not have a 
right to value airfield land at fair market value. Therefore, the HCA 
revenue cap cannot violate that purported right. Assuming, for the sake 
of argument, that an airport proprietor has a right to be compensated 
for the opportunity costs of its investment in the airfield, the Final 
Policy permits an imputed interest charge to be included in the rate-
base. Moreover, as discussed above, the HCA cap does not provide a 
subsidy to airfield users, because it permits the airport proprietor to 
fully recover the costs of providing airfield services and facilities.
    The airfield cost cap merely implements the Department's approach 
to pricing the airfield. As noted previously, the fundamental 
requirement of reasonableness for airfield fees is that the fees 
reflect the costs of providing services and facilities for users. The 
Department has chosen to impose a specific requirement to achieve that 
result and provide detailed guidance on acceptable methods for 
determining costs. The HCA cap follows logically from this approach.
    The HCA cap on airfield revenue does not require a constant 
tinkering with fees to assure that fees never exceed costs in any 
charging period. The Department expects airport proprietors to set fees 
prospectively based on their reasonable projections of traffic and of 
costs determined in accordance with the policy. The Department also 
expects that airport proprietors will periodically review their fees 
and adjust them, on a prospective basis, based on projected changes in 
costs and traffic. This expectation is based on the standard of 
reasonableness; it is reflected in a separate provision of the Final 
Policy (paragraph 2.3), which is independent of the HCA cost cap. 
Moreover, Los Angeles has chosen to set fees on an interim basis and to 
make periodic adjustments based on actual results. This approach 
renders its concerns about tinkering moot.

16. Amortization of HCA Value of Airfield Land

    The Supplemental Proposed Policy included provisions describing how 
the airport proprietor might recover the cost of airfield land through 
airfield fees. The Department proposed that, if land was acquired with 
debt financing, the airport proprietor may include a charge for all 
related debt-service costs, including principal, interest and debt 
service coverage. For land acquired with internally generated airport 
funds or donated by the sponsor, the Supplemental Proposed Policy 
proposed that the airport proprietor could amortize the land. The 
Department further proposed that upon completion of the amortization or 
retirement of the debt, the land may no longer be included in the rate 
base. Proposed para. 2.5.1(a). The Department did not propose to allow 
any other treatment.
    Airport proprietors: Two individual airport proprietors 
specifically endorse the approach of the Supplemental Proposed Policy 
on this issue. Other airport proprietors did not comment. In addition, 
one airport proprietor argues that the amortization provisions should 
apply to facilities as well as land.
    Carriers: Carriers object to the amortization of the cost of land 
acquired

[[Page 32013]]

by means other than bond financing, because land is not a wasting 
asset. Therefore, amortization of land is not permitted by accounting 
or tax rules, and there is no reasonable basis for determining an 
amortization schedule for land. The carriers argue that if the 
Department permits amortization of land, the Department should set 
forth clear guidelines for the period of amortization. ATA/RAA argue 
that this period should be considerably longer than 39 years, which is 
the minimum depreciation period for commercial buildings under the 
Internal Revenue Code.
    General aviation: Other aeronautical users did not comment on this 
issue.
    Other commenters: One individual commenter requests the Department 
to limit the meaning of the term amortization to recovery of 
expenditures for land. This commenter points out that some airport 
proprietors define amortization as recovering the costs of land plus 
imputed interest.
    The Final Policy: The Final Policy adopts the approach of the 
Supplemental Proposed Policy on recovering the cost of debt-financed 
land without modification. The Final Policy is being modified to permit 
an airport proprietor to choose one of two options for recovering the 
airport sponsor's cost of other land used for the airfield and public-
use roadways. First, the airport proprietor may impose a reasonable 
amortization charge based on the HCA valuation of the land, and remove 
the land from the rate base upon completion of the amortization. 
Second, the airport proprietor may retain the original HCA value of the 
land in the rate-base indefinitely and charge imputed interest, to the 
extent permitted by this policy. To avoid overcompensation for this 
land, the airport proprietor may not alternate between methodologies. 
Amortization is being permitted, in part, because it is used by some 
airport proprietors and appears to be a reasonable alternative, as 
discussed below.
    The ATA/RAA position on land that was not acquired with debt 
financing is unreasonable, because ATA/RAA would not permit the airport 
proprietor to charge either amortization or imputed interest on amounts 
invested in such land. Thus, ATA/RAA would deny any form of 
compensation to airport proprietors for their investment in airfield/
roadway land.
    However, as the carriers argue, land is not a wasting asset. 
Utility regulators do not generally permit a regulated entity to 
amortize the cost of land, but permit the regulated industry to include 
the value of land in the investment base on which it earns a rate of 
return.
    For this reason, the Department has concluded that the Policy 
should not mandate amortization as the sole means of cost recovery. 
However, the Department is not persuaded that amortization should be 
precluded.
    While objecting to the practice, ATA/RAA did not argue that the 
practice is uncommon. Amortization is used at some airports in the 
United States and has not generated significant controversy at 
individual airports.
    Further, over the long run, it is not clear that the two approaches 
would produce substantially different results. During the amortization 
period, amortization would produce higher annual charges. However, 
eventually, the land would be removed from the rate base and charges 
would be reduced. In contrast, if the full HCA value of land is 
retained in the rate base, airfield fees would include an imputed 
interest charge indefinitely. Over the long run, the imputed interest 
charges imposed indefinitely may balance out the higher charges imposed 
for a fixed period under amortization.
    In addition, while the Final Policy may contain some provisions 
that favor debt-financing over internal financing, the Department seeks 
to avoid providing unnecessary incentives for debt-financing. The 
Department is concerned that prohibiting the amortization of airfield 
land that is not financed with debt could bias some airport proprietors 
toward using debt-financing for land acquisition.
    Finally, the Final Policy precludes charging imputed interest on 
funds generated by airfield fees that are invested in the airfield. If 
funds attributable to airfield fees were invested in airfield land and 
the airport proprietor could not amortize the value of that investment, 
the airport proprietor would have no means of being compensated for its 
investment in the land.
    Based on these considerations, the Final Policy permits either 
methodology. The airport proprietor may include a reasonable 
amortization charge, provided that the land is removed from the rate 
base upon completion of the amortization period. Alternatively, the 
airport proprietor may retain the HCA value of the land in the rate 
base and impose a reasonable imputed interest charge, to the extent 
permitted by the Final Policy. The Final Policy also prohibits an 
airport proprietor from alternating between methodologies, to obtain 
undue compensation.
    The Final Policy requires that when an airport proprietor elects to 
amortize its investment the charge must be reasonable. One factor in 
determining reasonableness is the amortization period. The Final Policy 
does not specify a particular period because what is reasonable will 
depend on the individual circumstances of a case. In reviewing the 
reasonableness of an amortization period, the Department will consider, 
among other things, whether the airport proprietor has selected a 
period that gives appropriate recognition to land's character as a non-
wasting asset.
    The Department will neither permit, nor prohibit, in this policy, 
the inclusion of an imputed interest element in the amortization 
charge. The Department would consider an airport proprietor's decision 
to include an imputed interest element as part of its review of the 
reasonableness of the amortization charge.
    The Department is not adopting the suggestion to expand the 
provision on amortization to capital assets other than land. Other 
capital assets are subject to depreciation under generally accepted 
accounting principles (``GAAP''), and no specific provision in the 
Final Policy is required to permit depreciation charges. The Final 
Policy addresses land specifically because land is treated differently 
than other capital assets under GAAP.

17. Costs of Airport Systems

    The Supplemental Proposed Policy proposed that the rate base of one 
airport could include the costs of a second airport currently in use 
only if the airport proprietor owns both airports; the second airport 
is currently in use; and the costs of the second airport to be included 
in the rate base are reasonably related to the benefits that the second 
airport provides to the aeronautical users of the first airport. 
Proposed Para. 2.5.4. The Department also proposed that the latter 
element would be presumed satisfied if the second airport has been 
designated as a reliever airport for the first airport by the FAA. 
Proposed para. 2.5.4(a).
    Airport proprietors: The PANYNJ objects to the common ownership 
requirement. The PANYNJ argues that the owner of a commercial service 
airport should be able to contribute to the costs of an airport that 
serves a critical reliever function, even if the reliever is under 
separate ownership. The PANYNJ would make benefits the sole criterion.
    The State of Alaska argues that by limiting the multiple airport 
system rate base to airports that have a direct traffic

[[Page 32014]]

relationship, the approach of the supplemental notice is more 
restrictive than the airport system approach provided in the FAA's 
grant assurances, and is excessively restrictive for the operator of a 
large system, like Alaska. The State operates 253 airports and seaplane 
bases.
    Carriers: IATA opposes the approach of the Supplemental Proposed 
Policy. IATA argues that pricing must be airport specific to promote 
transparency and that carriers should not be required to pay for 
airport facilities that they do not or could not use.
    General aviation: General aviation users did not comment on this 
issue.
    Other commenters: One commenter--a law firm involved in bond 
financing--argues that the Department's approach does not give adequate 
consideration to the obligation of owners of airport systems to operate 
their systems in a financially self-sufficient way, as reflected in 49 
USC Sec. 47107(a)(13). This commenter stated that some airport 
proprietors may operate systems that are financially linked, but that 
are operationally distinct.
    The Final Policy: The Department is adopting the provision of the 
Supplemental Proposed Policy without substantive modification. However, 
we are making editorial revisions to clarify that the provisions apply 
to systems of more than two airports. In addition, the Department will 
permit an airport proprietor to show that its existing practice of 
subsidizing an airport from another airport's airfield fees is 
reasonable, even if all of the criteria required by the Final Policy 
are not met. The Department does not wish to disrupt existing practices 
that have not generated controversy.
    The approach of the Final Policy is based on the requirement of 
reasonableness. Generally speaking, the standard of reasonableness 
permits an airport proprietor to charge only for the facilities that it 
provides that are used by the rate-payer or that benefit the rate-
payer. If an airport proprietor does not own the other airport, it 
cannot be providing those facilities. If the other airport is not 
currently in use, airfield users cannot be using the other airport or 
benefiting from it. For these reasons, the common ownership and 
currently-in-use requirements are retained. The requirement of benefit 
will be retained as well. It can be reasonable to charge a rate-payer 
for the costs of a facility from which it benefits, even if the rate 
payer does not directly use that facility.
    This principle may be especially true in the case of a commercial 
airport/reliever airport system. The reliever airport's function is to 
draw general aviation traffic away from the commercial service airport. 
If the airport proprietor had to charge the full cost of the reliever 
airport to general aviation users, the increased price might cause 
those users to elect the commercial service airport--increasing 
congestion and the carriers' costs of operating there.
    However, the requirement of benefit does not mean that a direct 
traffic relationship is required in all cases. An airport's status as a 
designated reliever creates a presumption of benefit. However, an 
airport proprietor is free to show a benefit exists even when the 
subsidized airport is not a designated reliever.
    The State of Alaska's argument regarding the treatment of airport 
systems appears to refer to the grant assurance on the use of airport 
revenue. The assurance permits airport revenue from any source to be 
used for any airport in a local airport system. However, charges to 
aeronautical users are subject to a separate and more stringent 
standard of reasonableness. Similarly, the comment about airport 
financial systems overlooks the reasonableness requirement. Financial 
self-sufficiency is also a Federal grant obligation. However, the Final 
Policy is clear that this obligation does not justify charging the 
users of the airfield more than the costs of operating the airfield to 
cover the losses incurred elsewhere at an airport. It follows that this 
standard does not independently justify charging the users of the 
airfield more than its costs to cover losses incurred at a separate 
airport. Moreover, section 47107(a)(13) in fact refers to charges that 
will make the airport, not the airport system, self sufficient.
    In response to the State of Alaska's concerns about its approach to 
financing its airport system, the Department is modifying the Final 
Policy to provide for consideration, on a case-by-case basis, of the 
reasonableness of an existing practice that does not satisfy all three 
criteria listed in the Final Policy. This modification also furthers 
another Department goal: minimizing disruption of existing, non-
controversial practices.
    In addition, the policy on this issue does not preclude an airport 
proprietor from supporting another airport when the conditions 
specified in the policy are not met. It only precludes adding the cost 
of that support to the airfield rate base. Even this limitation can be 
waived by agreement with airfield users. Thus, the airport proprietor 
has the opportunity to persuade airfield users that the benefits of the 
second airport justify including some of its costs in the landing fee.
    The Department's approach to airport systems is not inconsistent 
with our policy favoring transparency. An airport proprietor seeking to 
charge the users of one airport for the costs of another must justify 
the charge. The Department expects that as part of that justification, 
the costs of the other airport will be separately identified and the 
basis for the cost allocation explained.

18. Charging For Closed Airports

    The Supplemental Proposed Policy proposed that, if an airport 
proprietor closes an airport as part of an approved plan for the 
construction and opening of a new airport, reasonable costs of 
disposition of the closed airport could be included in the rate base of 
the new airport, to the extent that the costs of disposition exceed the 
proceeds. Proposed para. 2.5.4(b).
    Airport proprietors: The City of Chicago requests the Department to 
clarify that, if an airport is closed and its costs could be included 
in the rate-base of another airport, then the environmental remediation 
costs of the closed airport can be included in the rate-base. The City 
and County of Denver supports the approach of the Supplemental Proposed 
Policy, because that approach recognizes that an airport proprietor 
cannot dispose of an airport overnight.
    The PANYNJ suggests that the policy should not be limited to 
airports closed as part of a plan to open a new airport. Rather, the 
charges also should be permitted if the FAA decides that continued 
operations at the airport being closed interfere with operations at an 
existing airport.
    Carriers: ATA/RAA urge the Department to delete proposed paragraph 
2.5.4(b) from the final policy. ATA/RAA argue that the provision is 
inconsistent with the fundamental principle that charges be just and 
reasonable and the requirement in proposed paragraph 2.5 that costs be 
limited to the capital and operating costs directly and indirectly 
associated with facilities currently in use. ATA/RAA also argue that by 
permitting airports to fund facilities not in use (the old airport), 
the provision is inconsistent with the principle underlying the 
prohibition of prefunding facilities not yet built. ATA/RAA also argue 
that the Supplemental Proposed Policy would provide a disincentive to 
airport proprietors to dispose of airports swiftly and efficiently.
    General aviation: General aviation commenters did not address this 
issue.
    Other commenters: Other commenters did not address this issue.

[[Page 32015]]

    The Final Policy: The Department is adopting the provision of the 
Supplemental Proposed Policy with one modification. The Final Policy 
would permit an airport proprietor to add to the rate base of the new 
airport the reasonable costs of maintenance of the old airport while 
disposition is pending, so long as proceeds of disposition are applied 
first to credit or refund fees previously paid. This provision would 
not, however, apply if the terms of the Department's approved plan or 
user agreement provide otherwise.
    The Department has determined that where an airport closure is part 
of an approved plan for a new airport, reasonable disposition costs, in 
excess of proceeds, may be included in the rate base of the new 
airport.
    While ATA/RAA argue that the Department's approach requires airport 
users to pay for the costs of a facility they do not use, the 
Department considers its approach to be analogous to a situation in 
which structures must be acquired and demolished to make way for 
construction of new airfield improvements at an operating airport. The 
costs of acquiring those structures and demolishing them could be 
included in the airfield rate base, once the new facilities are in use, 
even though the demolished structures are never used by the carriers. 
Where the FAA has determined that an existing airport must be closed in 
connection with the opening of a new airport, the FAA has determined 
that the new airport, and hence its users, will benefit from that 
closure. Because the new airport users will benefit, it is reasonable 
to include in the rate base reasonable disposition costs, to the extent 
that they exceed the proceeds from disposition.
    The requirement of reasonableness is intended to encourage swift 
and efficient disposition. While not defining reasonableness in detail, 
the Department states that it would not ordinarily consider 
redevelopment costs to be reasonable. The Department would also 
consider the diligence with which the airport proprietor pursues 
disposal.
    After reviewing the comments, the Department has determined that 
additional clarification is appropriate. The Department recognizes that 
in some circumstances disposition expenses may be incurred before an 
airport's disposition. A new provision is added to the Final Policy 
permitting an airport proprietor to charge reasonable maintenance costs 
to airfield users before disposition, only if those costs are credited 
or refunded to the users upon receipt of the proceeds from a whole or 
partial disposition. In reviewing the reasonableness of a charge in 
this circumstance, the Department would also consider the 
reasonableness of the airport proprietor's disposal efforts. The 
Department would ordinarily consider it unreasonable to continue 
charging for maintenance of the closed airport beyond the time the 
airport proprietor could have reasonably disposed of that airport. The 
Department's approach assures that the airport proprietor is not 
burdened with the costs of maintaining the old airport until the 
completion of a long disposition process, while also assuring that the 
users of the new airport are not burdened with the costs of 
disposition, when disposition proceeds ultimately exceed the airport 
proprietor's disposition costs.
    The Department will not adopt the suggestion that environmental 
remediation costs of disposed airports be singled out for special 
treatment. The Department confirms that environmental remediation may 
qualify as a disposition cost, as discussed above under Issue 9, 
``Allowance For Environmental Costs.'' However, the commenter has not 
offered any explanation for treating environmental remediation 
differently than any other disposition cost.
    The PANYNJ suggests that the policy should permit the disposition 
costs of a closed airport to be added to the rate-base of an existing 
airport when the FAA determines that the closure is required to 
accommodate the operations of the existing airport. The Department is 
not adopting this suggestion. The PANYNJ's proposed modification would 
be a solution in search of a problem. The PANYNJ has not offered any 
examples of this problem arising in the past, and the Department is 
unaware of any instance in which operations at existing airports have 
necessitated the closing of nearby airports. Should the situation arise 
in the future, the Department will address the issue in the context of 
that specific situation.

19. Charges to Non-Signatory Carriers

    The Supplemental Proposed Policy proposed that the prohibition on 
unjust discrimination would not prevent an airport proprietor from 
establishing reasonable classifications of carriers, such as signatory 
and non-signatory carriers, and charging higher fees based on these 
distinctions. Proposed para. 3.1.1.
    The comments: The City of Chicago argues that the historic cost 
requirement for the airfield could lead to some anomalies as applied to 
existing arrangements. Some rate agreements provide for signatory 
carriers to pay, under a residual system, for facilities in addition to 
the airfield. Thus, they are paying more than the HCA-based rates for 
the airfield. Non-signatory carriers are required to pay even higher 
rates. Chicago argues that non-signatory carriers may claim that they 
are entitled to a compensatory HCA-based rate that is lower than the 
signatory rate. The City of Chicago requests that the Department 
clarify that an airport proprietor may impose a surcharge on non-
signatory carriers, even if the signatory rates exceed HCA-based 
compensatory rates.
    Other commenters did not address this issue.
    The Final Policy: The Department will adopt the provision of the 
Supplemental Proposed Policy without modification.
    The Department agrees that the Final Policy should not make non-
signatory status more attractive to carriers than signatory status. 
Such a result would conflict with the first principle of the Final 
Policy, reliance on direct negotiation and agreement to establish 
reasonable fees. In addition, it is accepted industry practice to 
charge non-signatory carriers higher rates than signatory carriers, 
based on the decision of the former not to assume all of the 
obligations associated with signatory status. The Airport and Airway 
Improvement Act expressly permits the establishment of classifications 
based on status as a signatory carrier. See, 49 U.S.C. 
Sec. 47107(a)(2)(B)(ii).
    The Department has concluded that the provisions of the 
Supplemental Proposed Policy on signatory/non-signatory fees provide 
adequate flexibility to airport proprietors to charge reasonable 
surcharges to non-signatory carriers. No modifications are necessary to 
address Chicago's concerns.
    The costs of serving a non-signatory carrier would ordinarily be 
higher than a compensatory rate reflecting the costs of serving 
exclusively signatory carriers. For example, non-signatory carriers may 
increase an airport proprietor's risk of revenue fluctuation. The 
increased risk in turn would justify higher reserves. In addition, the 
administrative costs of dealing with non-signatory carriers would 
ordinarily be higher. Further, an airport proprietor might be able to 
argue that due to their irregularity, or relative infrequency, 
operations by non-signatory carriers cost more to serve than a 
corresponding number of operations performed on a regular basis by 
signatory carriers. Each of these considerations would provide a 
justification for imposing a surcharge, in some amount, on non-
signatory carriers.

[[Page 32016]]

    In addition, signatory carriers usually assume obligations or 
responsibilities that non-signatory carriers do not undertake. Airport 
proprietors receive intangible benefits from having carriers at the 
airport undertake these additional responsibilities. A surcharge for 
non-signatory carriers may be justifiable, in part, as compensation to 
the airport proprietor for the reduction in these intangible benefits 
when a carrier elects non-signatory status.
    The Department is not prepared at this time to modify the Final 
Policy to permit on a routine basis non-signatory charges that cause 
total airfield revenues to exceed airfield costs. However, we will 
review the reasonableness of such non-signatory charges on a case-by-
case basis in light of the considerations outlined above.

20. Peak Period Charges

    The Supplemental Proposed Policy proposed that under certain 
conditions, a properly structured peak pricing system would not be 
considered unjustly discriminatory. Proposed para. 3.2. The 
Supplemental Proposed Policy did not list prerequisites for peak 
pricing and did not propose a method for determining peak charges or 
peak/off peak differentials.
    In addition, the Department proposed to permit airport proprietors 
to charge some segments of airfield users more than their pro rata 
share of accounting costs based on HCA valuation, to enhance efficient 
use of the airfield, if the airport proprietor uses a reasonable and 
not unjustly discriminatory methodology. Proposed para. 2.5.1(b).
    Airport proprietors: ACI/AAAE and the PANYNJ argue that, to be 
effective, peak prices must be set without regard to HCA valuation. 
ACI/AAAE request the Department to clarify the meaning of proposed par. 
2.5.1 and specify that an otherwise acceptable peak-pricing system may 
charge landing fees that are not based on HCA valuation.
    Carriers: ATA/RAA argue that the subject of peak-period pricing is 
too complicated and potentially injurious to users to be addressed as 
one element in the larger policy on airport fees. ATA/RAA urge the 
Department to delete all references to peak pricing.
    IATA argues that peak pricing cannot enhance the efficient 
utilization of airports, especially for international East-West 
operations.
    General aviation: AOPA expresses concerns that the standard 
proposed--enhancing the efficient utilization of the airport--may 
provide sufficient latitude to invite abuse. AOPA doubts that many 
airports are sufficiently congested to justify peak pricing. AOPA 
suggests that the Supplemental Proposed Policy could serve as an excuse 
for unreasonable ratesetting.
    Other Commenters: Other commenters did not address this issue.
    The Final Policy: The Department is adopting the provisions of the 
Supplemental Proposed Policy without substantive modification.
    The Department's policy regarding peak pricing was established in 
its decision in the Massport PACE fee case. Massport Order, supra. In 
that decision, the Department concluded that a properly structured peak 
pricing system could be found reasonable and not unjustly 
discriminatory. Massport Order at 8-9. The Department's purpose in 
referring to peak pricing in this policy is not to break new ground or 
expand on the Department's earlier decision. Rather, it is to confirm 
our support for that decision.
    The Department understands the concerns of airport users regarding 
abuse. The Department does not intend the policy statement to function 
as a blanket authorization for peak pricing. In reviewing a peak 
pricing system, the Department would scrutinize it carefully to 
determine first whether the airport in fact suffers from congestion, 
and whether the peak-pricing system is an appropriate response.
    Regarding the linkage between peak pricing and HCA valuation, 
Paragraphs 3.2 and 2.5.1(b) each address the allocation of costs among 
users or user groups. The purpose of these provisions is to make clear 
that if a properly structured and justified congestion pricing system 
is in place, the airport proprietors may, during periods of congestion, 
charge airfield users more than their allocated share of accounting 
costs determined using HCA valuation. These provisions do not exempt 
airport proprietors from the requirement that total airfield revenues 
not exceed total airfield costs as determined in accordance with the 
Final Policy. Of course, the peak charge may also reflect any 
additional accounting costs the airport proprietor incurs in serving 
traffic during peak periods.

21. Reservation of Authority to Investigate Progressive Accumulation of 
Aeronautical Surpluses

    In connection with the proposal to eliminate the HCA cost cap for 
all aeronautical revenue, the Supplemental Proposed Policy included a 
new provision on accumulation of surplus aeronautical revenue. The 
Department proposed that the progressive accumulation of substantial 
surplus aeronautical revenue may warrant an FAA inquiry into whether 
aeronautical fees are consistent with the airport proprietor's 
obligation to make the airport available on fair and reasonable terms. 
Proposed para. 4.2.1. In discussing the treatment of nonairfield fees, 
we explained that the Department expects nonairfield aeronautical fees, 
over, time, to reflect aeronautical costs, including the airport's 
capital investment needs. 60 FR 47013.
    Airport proprietors: Some individual airport proprietors objected 
to this provision. They are concerned that this provision combined with 
the referenced explanatory statement means that the Department may be 
introducing an implicit aeronautical cost cap.
    Carriers: Carriers argue that tying the investigation of the 
reasonableness of aeronautical fees to the sustained accumulation of 
surpluses does not provide adequate protection against the exercise of 
market power in pricing nonairfield facilities. The carriers argue that 
without clear accounting and cost allocation guidelines, the policy 
will encourage airports to overallocate costs to aeronautical users to 
mask aeronautical profits. In addition, they contend that the policy 
will not provide an adequate mechanism to monitor the accumulation of 
surplus revenues. ATA/RAA also object that a Department investigation 
would be triggered only after years of surplus accumulation.
    General aviation: AOPA also suggests that the protection will be 
ineffectual because the investigation would only be triggered after a 
long period of accumulation.
    Other commenters: ACRA requests the Department to clarify that it 
will investigate the disposition of all airport revenues, not just 
aeronautical revenues, and that an investigation would be triggered by 
the accumulation of surplus airport revenues.
    The Final Policy: The Department is adopting the provision of 
Supplemental Proposed Policy without modification.
    As discussed above, in the Department's experience, the setting of 
fees for the use of aeronautical facilities other than the airfield--
whether by negotiation or otherwise--has generally produced reasonable 
results. Further, we do not accept the carriers' argument that those 
reasonable results were a function of circumstances that are no longer 
present. Given the low risk of unreasonable results, the Department 
considers its approach to involve an appropriate level of intervention.
    We reiterate that the decision to eliminate the HCA cap for all 
aeronautical revenue is based in part on our determination that a rigid 
HCA cap is not necessary to assure that fees for

[[Page 32017]]

nonairfield aeronautical facilities and services are reasonable.
    Furthermore, the Department has recently made available standard 
financial reporting formats for airports. Notice of Availability and 
Request for Comments on Airport Financial Reports, Docket No. 28495 (61 
FR 11077, March 18, 1996). These formats, once in use, should assist in 
monitoring nonairfield aeronautical revenues. In addition, to further 
enhance the consultation process envisioned by Paragraphs 1.1.1 and 
1.1.2, Appendix 1 of the Final Policy is modified to include the 
Airport Financial Reports with the information the Department expects 
airport proprietors to make available in user-charge consultations.
    As to the concerns of airport proprietors, the Department has 
recognized that a reasonable charge for nonairfield facilities may 
include a reasonable rate of return on the airport proprietor's 
invested capital. An airport proprietor would not be entitled to more 
under the common understanding of the standard of reasonableness and 
the limits imposed by international obligations, regardless of whether 
the Department had promulgated a policy statement. In stating the 
expectation that, over time, aeronautical revenues would not exceed 
reasonable aeronautical costs, including reasonable capital costs, the 
Department is not foreclosing the generation of returns--at reasonable 
levels.
    In addition, the Department emphasizes that an inquiry would be 
focused on the progressive accumulation of surpluses. The Department 
would not consider a single year's surplus in isolation. Thus, an 
airport proprietor need not fear that, over time, losses generated by 
nonairfield assets in some years cannot be balanced out against profits 
earned in other years.
    Further, if the Department determined that nonairfield fees were 
unreasonably high, and that airfield fees were reasonable, the 
Department would not ordinarily specify corrective action involving 
airfield fees. In addition, the corrective action would ordinarily be 
prospective in nature.
    Finally, with respect to the comment by ACRA, progressive 
accumulation of surplus airport revenue from all sources is governed by 
Paragraph 5.2 of the Final Policy. In an inquiry conducted pursuant to 
Paragraph 5.2, the FAA would not be investigating the reasonableness of 
fees charged to nonaeronautical users.

Policy Statement Regarding Airport Fees

    For the reasons discussed above, the Department adopts the 
following statement of policy for airport fees charged to aeronautical 
users:

Policy Regarding the Establishment of Airport Rates and Charges

Introduction

    It is the fundamental position of the Department that the issue of 
rates and charges is best addressed at the local level by agreement 
between users and airports. The Department is adopting this Policy 
Statement on the standards applicable to airport fees imposed for 
aeronautical use of the airport to provide guidance to airport 
proprietors and aeronautical users, to encourage direct negotiation 
between these parties, to minimize the need for direct Federal 
intervention to resolve differences over airport fees and to establish 
the standards which the Department will apply in addressing airport fee 
disputes under 49 USC Sec. 47129 and in addressing questions of airport 
proprietors' compliance with Federal requirements governing airport 
fees.

Applicability of the Policy

A. Scope of Policy
    Under the terms of grant agreements administered by the Federal 
Aviation Administration (FAA) for airport improvement, all aeronautical 
users are entitled to airport access on fair and reasonable terms 
without unjust discrimination. Therefore, the Department considers that 
the principles and guidance set forth in this policy statement apply to 
all aeronautical uses of the airport. The Department recognizes, 
however, that airport proprietors may use different mechanisms and 
methodologies to establish fees for different facilities, e.g., for the 
airfield and terminal area, and for different aeronautical users, e.g., 
air carriers and fixed-base operators. Various elements of the policy 
reflect these differences. In addition, the Department will take these 
differences into account if we are called upon to resolve a dispute 
over aeronautical fees or otherwise consider whether an airport sponsor 
is in compliance with its obligation to provide access on fair and 
reasonable terms without unjust discrimination.
B. Aeronautical Use and Users
    The Department considers the aeronautical use of an airport to be 
any activity that involves, makes possible, is required for the safety 
of, or is otherwise directly related to, the operation of aircraft. 
Aeronautical use includes services provided by air carriers related 
directly and substantially to the movement of passengers, baggage, mail 
and cargo on the airport. Persons, whether individuals or businesses, 
engaged in aeronautical uses involving the operation of aircraft, or 
providing flight support directly related to the operation of aircraft, 
are considered to be aeronautical users.
    Conversely, the Department considers that the operation by U.S. or 
foreign air carriers of facilities such as a reservations center, 
headquarters office, or flight kitchen on an airport does not 
constitute an aeronautical use subject to the principles and guidance 
contained in this policy statement with respect to reasonableness and 
unjust discrimination. Such facilities need not be located on an 
airport. A carrier's decision to locate such facilities is based on the 
negotiation of a lease or sale of property. Accordingly, the Department 
relies on the normal forces of competition for nonaeronautical 
commercial or industrial property to assure that fees for such property 
are not excessive.
C. Applicability of Sec. 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

[[Page 32018]]

covenant that is in effect on August 23, 1994.
    The Department interprets Sec. 47129 to apply to fees imposed on 
foreign as well as U.S. air carriers.
    In addition, the Department does not interpret Sec. 47129 to repeal 
or narrow the scope of the basic requirement that fees imposed on all 
aeronautical users be reasonable and not unjustly discriminatory or to 
narrow the obligation on the Secretary to receive satisfactory 
assurances that, inter alia, airport sponsors will provide access on 
reasonable terms before approving Airport Improvement Program (``AIP'') 
grants. Moreover, the Department does not interpret sections 47129(e) 
and (f) to preclude the Department from adopting policy guidance to 
carry out the Department's statutory obligation to assure that 
aeronautical fees are being imposed at AIP-funded airports in a manner 
that is consistent with the obligation to provide airport access on 
reasonable terms.
    Therefore, the Department will apply the policy guidance in all 
cases in which we are called upon to determine if an airport sponsor is 
carrying out its obligation to make the airport available on reasonable 
terms. However, a dispute that is not subject to processing under the 
expedited procedures mandated by Sec. 47129, including a dispute over 
matters described by Secs. 47129 (e) and (f), will be processed by the 
FAA under procedures applicable to airport compliance matters in 
general. In considering such a dispute, the FAA's role is to determine 
whether the airport proprietor is in compliance with its grant 
obligations and statutory obligations relating to airport fees. The FAA 
proceeding is not intended to provide a mechanism for adjudicating the 
respective rights of the parties to a fee dispute.
    In addition, the Department will not entertain a complaint about 
the reasonableness of a fee set by agreement filed by a party to the 
agreement setting the disputed fee. In the case of a complaint about 
the reasonableness of a fee set by agreement filed by an aeronautical 
user who is not a party to the agreement, the Department may take into 
account the existence of an agreement between air carriers and the 
airport proprietor, in making a determination on the complaint.
    Further, the FAA will not ordinarily investigate the reasonableness 
of a general aviation airport's fees absent evidence of a progressive 
accumulation of surplus aeronautical revenues.
D. Components of Airfield
    The Department considers the airfield assets to consist of ramps or 
aprons not subject to preferential or exclusive lease or use 
agreements, runways, taxiways, and land associated with these 
facilities. The Department also considers the airfield to include land 
acquired for the purpose of assuring land-use compatibility with the 
airfield, if the land is included in the rate base associated with the 
airfield under the provisions of this policy.

Principles Applicable to Airport Rates and Charges

    1. In general, the Department relies upon airport proprietors, 
aeronautical users, and the market and institutional arrangements 
within which they operate, to ensure compliance with applicable legal 
requirements. Direct Federal intervention will be available, however, 
where needed.
    2. Rates, fees, rentals, landing fees, and other service charges 
(``fees'') imposed on aeronautical users for aeronautical use of 
airport facilities (``aeronautical fees'') must be fair and reasonable.
    3. Aeronautical fees may not unjustly discriminate against 
aeronautical users or user groups.
    4. Airport proprietors must maintain a fee and rental structure 
that in the circumstances of the airport makes the airport as 
financially self-sustaining as possible.
    5. In accordance with relevant Federal statutory provisions 
governing the use of airport revenue, airport proprietors may expend 
revenue generated by the airport only for statutorily allowable 
purposes.

Local Negotiation and Resolution

    1. In general, the Department relies upon airport proprietors, 
aeronautical users, and the market and institutional arrangements 
within which they operate, to ensure compliance with applicable legal 
requirements. Direct Federal intervention will be available, however, 
where needed.
    1.1  The Department encourages direct resolution of differences at 
the local level between aeronautical users and the airport proprietor. 
Such resolution is best achieved through adequate and timely 
consultation between the airport proprietor and the aeronautical users 
about airport fees.
    1.1.1  Airport proprietors should consult with aeronautical users 
well in advance, if practical, of introducing significant changes in 
charging systems and procedures or in the level of charges. The 
proprietor should provide adequate information to permit aeronautical 
users to evaluate the airport proprietor's justification for the change 
and to assess the reasonableness of the proposal. For consultations to 
be effective, airport proprietors should give due regard to the views 
of aeronautical users and to the effect upon them of changes in fees. 
Likewise, aeronautical users should give due regard to the views of the 
airport proprietor and the financial needs of the airport.
    1.1.2  To further the goal of effective consultation, Appendix 1 of 
this policy statement contains a description of information that the 
Department considers would be useful to the U.S. and foreign air 
carriers and other aeronautical users to permit meaningful consultation 
and evaluation of a proposal to modify fees.
    1.1.3  Airport proprietors should consider the public interest in 
establishing airport fees, and aeronautical users should consider the 
public interest in consulting with airports on setting such fees.
    1.1.4  Airport proprietors and aeronautical users should consult 
and make a good-faith effort to reach agreement. Absent agreement, 
airport proprietors are free to act in accordance with their proposals, 
subject to review by the Secretary or the Administrator on complaint by 
the user or, in the case of fees subject to 49 U.S.C. Sec. 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. Sec. 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. Sec. 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.

[[Page 32019]]

    1.2  Where airport proprietors and aeronautical users have been 
unable, despite all reasonable efforts, to resolve disputes between 
them, the Department will act to resolve the issues raised in the 
dispute.
    1.2.1  In the case of a fee imposed on one or more U.S. air 
carriers or foreign air carriers, the Department will issue a 
determination on the reasonableness of the fee upon the filing of a 
written request for a determination by the airport proprietor or, if 
the Department determines that a significant dispute exists, upon the 
filing of a complaint by one or more U.S. air carriers or foreign air 
carriers, in accordance with 49 U.S.C. 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. U.S. air carriers and foreign air carriers may 
request the assistance of the Department in advance of or in lieu of 
the formal complaint procedure described in 1.2.1.; however, the 60-day 
period for filing a complaint under 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. Other aeronautical users may also 
request the assistance of the Department in advance of, or in lieu of, 
the filing of a formal complaint with the FAA.
    1.3  Airport proprietors must retain the ability to respond to 
local conditions with flexibility and innovation. An airport proprietor 
is encouraged to achieve consensus and agreement with its aeronautical 
users before implementing a practice that would represent a major 
departure from this guidance. However, the requirements of any law, 
including the requirements for the use of airport revenue, may not be 
waived, even by agreement with the aeronautical users.

Fair and Reasonable Fees

    2. Rates, fees, rentals, landing fees, and other service charges 
(``fees'') imposed on aeronautical users for the aeronautical use of 
the airport (``aeronautical fees'') must be fair and reasonable.
    2.1  Federal law does not require a single approach to airport 
rate-setting. Fees may be set according to a ``residual'' or 
``compensatory'' rate-setting methodology, or any combination of the 
two, or according to another rate-setting methodology, as long as the 
methodology used is applied consistently to similarly situated 
aeronautical users and conforms with the requirements of this policy. 
Airport proprietors may set fees for aeronautical use of airport 
facilities by ordinance, statute or resolution, regulation, or 
agreement.
    2.1.1  Aeronautical users may receive a cross-credit of 
nonaeronautical revenues only if the airport proprietor agrees. 
Agreements providing for such cross-crediting are commonly referred to 
as ``residual agreements'' and generally provide a sharing of 
nonaeronautical revenues with aeronautical users. The aeronautical 
users may in turn agree to assume part or all of the liability for non-
aeronautical costs. An airport proprietor may cross-credit 
nonaeronautical revenues to aeronautical users even in the absence of 
such an agreement, but an airport proprietor may not require 
aeronautical users to cover losses generated by nonaeronautical 
facilities except by agreement.
    2.1.2  In other situations, an airport proprietor assumes all 
liability for airport costs and retains all airport revenues for its 
own use in accordance with Federal requirements. This approach to 
airport rate-setting is generally referred to as the compensatory 
approach.
    2.1.3  Airports frequently adopt rate-setting systems that employ 
elements of both approaches.
    2.2  Revenues from fees imposed for use of the airfield (``airfield 
revenues'') may not exceed the costs to the airport proprietor of 
providing airfield services and airfield assets currently in 
aeronautical use unless otherwise agreed to by the affected 
aeronautical users.
    2.3  The ``rate base'' is the total of all costs of providing 
airfield facilities and services to aeronautical users (which may 
include a share of public-use roadway costs allocated to the airfield 
in accordance with this policy) that may be recovered from aeronautical 
users through fees charged for providing airfield aeronautical services 
and facilities (``airfield fees''). Airport proprietors must employ a 
reasonable, consistent, and ``transparent'' (i.e., clear and fully 
justified) method of establishing the rate base and adjusting the rate 
base on a timely and predictable schedule.
    2.4  Except as provided in paragraph 2.5.3(a) below or by agreement 
with aeronautical users, costs properly included in the rate base are 
limited to all operating and maintenance expenses directly and 
indirectly associated with the provision of airfield aeronautical 
facilities and services, including environmental costs, as set forth 
below, (and may include a share of public-use roadway costs allocated 
to the airfield in accordance with this policy); all capital costs 
associated with the provision of airfield aeronautical facilities and 
services currently in use, as set forth below; and current costs of 
planning future aeronautical airfield facilities and services. In 
addition, a private equity owner of an airport can include a reasonable 
return on investment in the airfield.
    2.4.1  The airport proprietor may include in the rate base, at a 
reasonable rate, imputed interest on funds used to finance airfield 
capital investments for aeronautical use or lands acquired for airfield 
use, as provided below, except to the extent that the funds are 
generated by airfield fees. However, the airport proprietor may not 
include in the rate base imputed interest on funds obtained by debt-
financing if the debt-service costs of those funds are also included in 
the rate base.
    (a) A private equity owner of an airport who has included a 
reasonable rate of return element in the rate base may not include an 
imputed interest charge as well.
    2.4.2  Airport proprietors may include reasonable environmental 
costs in the rate base to the extent that the airport proprietor incurs 
a corresponding actual expense. All revenues received based on the 
inclusion of these costs in the rate base are subject to Federal 
requirements on the use of airport revenue. Reasonable environmental 
costs include, but are not necessarily limited to, the following:

    (a) the costs of investigating and remediating environmental 
contamination caused by airfield operations at the airport at least 
to the extent that such investigation or remediation is required by 
or consistent with local, state or federal environmental law, and to 
the extent such requirements are applied to other similarly situated 
enterprises.
    (b) the cost of mitigating the environmental impact of an 
airport development project (if the development project is one for 
which

[[Page 32020]]

costs may be included in the rate base), at least to the extent that 
these costs are incurred in order to secure necessary approvals for 
such projects, including but not limited to approvals under the 
National Environmental Policy Act and similar state statutes;
    (c) the costs of aircraft noise abatement and mitigation 
measures, both on and off the airport, including but not limited to 
land acquisition and acoustical insulation expenses, to the extent 
that such measures are undertaken as part of a comprehensive and 
publicly-disclosed airport noise compatibility program; and
    (d) the costs of insuring against future liability for 
environmental contamination caused by current airfield activities. 
Under this provision, the costs of self-insurance may be included in 
the rate base only to the extent that they are incurred pursuant to 
a self-insurance program that conforms to applicable standards for 
self-insurance practices.

    2.4.3  Airport proprietors are encouraged to establish fees with 
due regard for economy and efficiency.
    2.4.4  The airport proprietor may include in the rate base amounts 
needed to fund debt service and other reserves and to meet cash flow 
requirements as specified in financing agreements or covenants (for 
facilities in use), including, but not limited to, reasonable amounts 
to meet debt-service coverage requirements; to fund cash reserves to 
protect against the risks of cash-flow fluctuations associated with 
normal airfield operations; and to fund reasonable cash reserves to 
protect against other contingencies.
    2.4.5  Unless otherwise agreed by aeronautical users, the airport 
proprietor must allocate capital and operating costs among cost centers 
in accordance with the following guidance, which is based on the 
principle of cost causation:

    (a) Costs of airfield facilities and services directly used by 
the aeronautical users may be fully included in the rate base, in a 
manner consistent with this policy. For example, the capital cost of 
a runway may be included in the rate base used to establish landing 
fees.
    (b) Costs of airport facilities and services used for both 
aeronautical and non-aeronautical uses (shared costs) may be 
included in the rate base if the facility or service in question 
supports the airfield activity reflected in that rate base. The 
portion of shared costs allocated to aeronautical users and among 
aeronautical uses should not exceed an amount that reflects the 
respective aeronautical purposes and proportionate aeronautical uses 
of the facility in relation to each other and in relation to the 
nonaeronautical use of the facility, and must be allocated by a 
reasonable, ``transparent'' and not unjustly discriminatory 
methodology. Aeronautical users may not be allocated all costs of 
facilities or services that are used by both aeronautical and 
nonaeronautical users unless they agree to that allocation. 
Likewise, the airfield may not be allocated all of the aeronautical 
share of commonly-used facilities or services, unless the airfield 
is the only aeronautical use the facility or service supports.

    2.5  Airport proprietors must comply with the following practices 
in establishing the rate base, provided, however, that one or more 
aeronautical users may agree to a rate base that deviates from these 
practices in the establishment of those users' fees.
    2.5.1  In determining the total costs that may be recovered from 
fees for the use of airfield assets and public-use roadways in the rate 
base, the airport proprietor must value them according to their 
historic cost to the original airport proprietor (HCA). Subsequent 
airport proprietors generally shall acquire the cost basis of such 
assets at the original airport proprietor's historic cost, adjusted for 
subsequent improvements.

    (a) Where the land associated with airfield facilities and 
public use roadways was acquired with debt-financing, the airport 
proprietor may include such land in the rate base by charging all 
debt service expenditures incurred by the airport proprietor, 
including principal, interest and reasonable amounts to meet debt-
service coverage requirements.
    (b) If such land was acquired with internally generated funds or 
donated by the airport sponsor (the entity that executes grant 
agreements with the FAA for airport improvements), the airport 
proprietor may elect to either include a reasonable amortization 
charge in the rate base or to retain the full value of the land in 
the rate base and charge imputed interest in accordance with this 
policy. The Department considers it unreasonable to alternate 
between methodologies to obtain undue compensation.
    (c) In determining whether an amortization charge is reasonable 
under paragraph (b), the Department will consider, among other 
factors, whether the airport proprietor selected an amortization 
period that gives appropriate recognition to the non-wasting nature 
of land.
    (d) Upon retirement of the debt or completion of the 
amortization (when the airport proprietor has elected amortization), 
the land may no longer be included in the rate base.
    (e) The airport proprietor may use a reasonable and not unjustly 
discriminatory methodology to allocate the total airfield costs 
among individual components of the airfield to enhance the efficient 
use of the airfield, even if that methodology results in fees 
charged for a particular segment that exceed that segment's pro rata 
share of costs based on HCA valuation.

    2.5.2  When assets in the rate-base have different costs, the 
airport proprietor may combine the costs of comparable assets to 
develop a single cost basis for those assets.
    2.5.3  Except as provided below or as otherwise agreed by airfield 
users, the costs of facilities not yet built and operating may not be 
included in the rate base. However, the debt-service and other carrying 
costs incurred by the airport proprietor during construction may be 
capitalized and amortized once the facility is put in service. The 
airport proprietor may include in the rate base the cost of land that 
facilitates the current operations of the airfield.

    (a) The Department will consider an airport proprietor's claim 
that inclusion of the costs of land acquired for future airport 
development is reasonable if (i) costs of land surrounding the 
airport are rising;
    (ii) incompatible uses and development are encroaching on 
available land;
    (iii) land probably will not be available for airport use in the 
future; and
    (iv) the development for which the land is being acquired is 
contained in the airport proprietor's currently effective five-year 
capital improvement plan for the airport.

    2.5.4  The rate base of an airport may include costs associated 
with another airport currently in use only if: (1) The proprietor of 
the first airport is also the proprietor of the other airport; (2) the 
other airport is currently in use; and (3) the costs of the other 
airport to be included in the first airport's rate base are reasonably 
related to the aviation benefits that the other airport provides or is 
expected to provide to the aeronautical users of the first airport.

    (a) Element no. 3 above will be presumed to be satisfied if the 
other airport is designated as a reliever airport for the first 
airport in the FAA's National Plan of Integrated Airport Systems 
(``NPIAS'').
    (b) In the case of a methodology of charging for a system of 
airports that is in place on the effective date of this policy, the 
Department will consider an airport proprietor's claim that the 
methodology is reasonable, even if all three elements are not 
satisfied.
    (c) If an airport proprietor closes an operating airport as part 
of an approved plan for the construction and opening of a new 
airport, reasonable costs of disposition of the closed airport 
facility may be included in the rate base of the new airport, to the 
extent that such costs exceed the proceeds from the disposition. The 
Department would not ordinarily consider redevelopment costs to be a 
reasonable cost of disposition.
    (d) Pending reasonable disposition of the closed airport, the 
airport proprietor may charge airfield users at the new airport for 
reasonable maintenance costs of the old airport, provided that those 
costs are refunded or credited-back to those users upon the receipt 
of the proceeds from a whole or partial disposition.

    2.6  For other facilities and land not covered by Paragraph 2.2, 
the airport proprietor may use any reasonable methodology to determine 
fees, so long as the methodology is justified and

[[Page 32021]]

applied on a consistent basis to comparable facilities, subject to the 
provisions of paragraphs 2.7 and 4.2.1 below.
    2.6.1  Reasonable methodologies may include, but are not limited 
to, historic cost valuation, direct negotiation with aeronautical 
users, or objective determinations of fair market value.
    2.6.2  If an airport proprietor determines fees for such other 
facilities on the basis of HCA costs, the airport proprietor must 
follow the guidance set forth in paragraph 2.4.5 for the allocation of 
shared costs.
    2.7  At all times, airport proprietors must comply with the 
following practices:
    2.7.1  Indirect costs may not be included in the fees charged for 
aeronautical use of the airport unless they are based on a reasonable, 
``transparent'' cost allocation formula calculated consistently for 
other units or cost centers within the control of the airport sponsor.
    2.7.2  The costs of airport development or planning projects paid 
for with federal government grants and contributions or passenger 
facility charges (PFCs) may not be included in the fees charged for 
aeronautical use of the airport.

    (a) In the case of a PFC-funded project for terminal 
development, for gates and related areas, or for a facility that is 
occupied by one or more carriers on an exclusive or preferential use 
basis, the fees paid to use those facilities shall be no less than 
the fees charged for similar facilities that were not financed with 
PFC revenue.

Prohibition on Unjust Discrimination

    3. Aeronautical fees may not unjustly discriminate against 
aeronautical users or user groups.
    3.1  The airport proprietor must apply a consistent methodology in 
establishing fees for comparable aeronautical users of the airport. 
When the airport proprietor uses a cost-based methodology, aeronautical 
fees imposed on any aeronautical user or group of aeronautical users 
may not exceed the costs allocated to that user or user group under a 
cost allocation methodology adopted by the airport proprietor that is 
consistent with this guidance, unless aeronautical users otherwise 
agree.
    3.1.1  The prohibition on unjust discrimination does not prevent an 
airport proprietor from making reasonable distinctions among 
aeronautical users (such as signatory and non-signatory carriers) and 
assessing higher fees on certain categories of aeronautical users based 
on those distinctions (such as higher fees for non-signatory carriers, 
as compared to signatory carriers).
    3.2  A properly structured peak pricing system that allocates 
limited resources using price during periods of congestion will not be 
considered to be unjustly discriminatory. An airport proprietor may, 
consistent with the policies expressed in this policy statement, 
establish fees that enhance the efficient utilization of the airport.
    3.3  Relevant provisions of the Convention on International Civil 
Aviation (Chicago Convention) and many bilateral aviation agreements 
specify, inter alia, that charges imposed on foreign airlines must not 
be unjustly discriminatory, must not be higher than those imposed on 
domestic airlines engaged in similar international air services and 
must be equitably apportioned among categories of users. Charges to 
foreign air carriers for aeronautical use that are inconsistent with 
these principles will be considered unjustly discriminatory or unfair 
and unreasonable.
    3.4  Allowable costs--costs properly included in the rate base--
must be allocated to aeronautical users by a transparent, reasonable, 
and not unjustly discriminatory rate-setting methodology. The 
methodology must be applied consistently and cost differences must be 
determined quantitatively, when practical.
    3.4.1  Common costs (costs not directly attributable to a specific 
user group or cost center) must be allocated according to a reasonable, 
transparent and not unjustly discriminatory cost allocation methodology 
that is applied consistently, and does not require any aeronautical 
user or user group to pay costs properly allocable to other users or 
user groups.

Requirement To Be Financially 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 attract and retain 
commercial aeronautical services. 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. Sec. 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

[[Page 32022]]

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.

    Issued in Washington, DC, on June 14, 1996.
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, and any financial reports prepared by the 
airport proprietor to satisfy the provisions of 49 USC 
Secs. 47107(a)(19) and 47107(k).
    2. Justification. Economic, financial and/or legal justification 
for changes in the charging methodology or in the level of 
aeronautical rates and charges at the airport. Airports should 
provide information on the aeronautical costs they are including in 
the rate base.
    3. Traffic Information. Annual numbers of terminal passengers 
and aircraft movements for each of the two preceding years.
    4. Planning and Forecasting Information.
    (a) To the extent applicable to current or proposed fees, the 
long-term airport strategy setting out long-term financial and 
traffic forecasts, major capital projects and capital expenditure, 
and particular areas requiring strategic action. This material 
should include any material provided for public or government 
reviews of major airport developments, including analyses of demand 
and capacity and expenditure estimates.
    (b) Accurate, complete information specific to the airport for 
the current and the forecast year, including the current and 
proposed budgets, forecasts of airport charges revenue, the 
projected number of landings and passengers, expected operating and 
capital expenditures, debt service payments, contributions to 
restricted funds, or other required accounts or reserves.
    (c) To the extent the airport uses a residual or hybrid charging 
methodology, a description of key factors expected to affect 
commercial or other nonaeronautical revenues and operating costs in 
the current and following years.

[FR Doc. 96-15687 Filed 6-19-96; 8:45 am]
BILLING CODE 4910-13-P