[Federal Register Volume 68, Number 86 (Monday, May 5, 2003)]
[Proposed Rules]
[Pages 23627-23630]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-11185]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 330

[Docket OST-2001-10885]
RIN 2105-AD27


Procedures for Compensation of Air Carriers

AGENCY: Office of the Secretary (OST) DOT.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This proposed rule would adjust the amount of compensation 
available to two classes of carriers under the Air Transportation 
Safety and System Stabilization Act. The effect of the change would be 
to permit increased compensation for some small air carriers.

DATES: Comments on the subject of this proposed rule must be received 
on or before May 19, 2003.

ADDRESSES: Interested persons should send comments to Docket Clerk, 
Docket OST-2001-10885, Department of Transportation, 400 7th Street, 
SW., Room PL-401, Washington, DC 20590. Commenters wishing to have 
their submissions acknowledged should include a stamped, self-addressed 
postcard with their comments. The Docket Clerk will date stamp the 
postcard and return it to the commenter. Comments will be available for

[[Page 23628]]

inspection at the above address from 10 a.m. to 5 p.m., Monday through 
Friday. Comments also may be sent electronically to the Dockets 
Management System (DMS) at the following Internet address: http://dms.dot.gov/. Commenters who wish to file comments electronically 
should follow the instructions on the DMS Web site. Interested persons 
can also review comments through this same Web site.
    You may search the electronic form of all comments received into 
any of our dockets by the name of the individual submitting the comment 
(or signing the comment, if submitted on behalf of an association, 
business, labor union, etc.). You may review DOT's complete Privacy Act 
Statement in the Federal Register published on April 11, 2000 (65 FR 
19477-78) or you may visit http://dms.dot.gov.

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

SUPPLEMENTARY INFORMATION: As a consequence of the terrorist attacks on 
the United States on September 11, 2001, the U.S. commercial aviation 
industry suffered severe financial losses. These losses placed the 
financial survival of many air carriers at risk. Acting rapidly to 
preserve the continued viability of the U.S. air transportation system, 
President Bush sought and Congress enacted the Air Transportation 
Safety and System Stabilization Act.
    Under section 101(a)(2)(A)-(B) of the Stabilization Act, a total of 
$5 billion in compensation is provided for ``direct losses incurred 
beginning on September 11, 2001, by air carriers as a result of any 
Federal ground stop order issued by the Secretary of Transportation or 
any subsequent order which continues or renews such stoppage; and the 
incremental losses incurred beginning September 11, 2001 and ending 
December 31, 2001, by air carriers as a direct result of such 
attacks.''
    Section 103 of the Stabilization Act established the basis for 
determining the amount of compensation payable to each carrier. Under 
section 103(b), that amount, for each passenger and combination 
passenger-cargo carrier, was the lesser of (1) the amount of its direct 
and incremental losses, or (2) the product of $4.5 billion and the 
ratio of the number of available seat miles reported for the month of 
August 2001 by the particular carrier to the number of available seat 
miles of all such air carriers reported for that month.
    Thereafter, a number of carriers expressed concern that the 
Stabilization Act's use of approximate market share ratios as one of 
the alternate tests for compensation--i.e., measuring each carrier's 
available seat miles (ASMs) against the total number of industry ASMs--
would not adequately compensate some classes of carriers for their 
losses. Since ASMs are the product of the number of seats available for 
revenue use and the miles they are flown, 14 CFR 330.3, these carriers 
pointed out that those who operate aircraft having relatively few seats 
and/or fly for relatively short distances, such as air ambulances and 
air tour operators, do not accumulate ASMs as quickly as carriers 
operating large aircraft and flying longer distances. They argued that 
an ASM ratio formula, if used as a ceiling for compensation, would 
place such carriers at a disadvantage to larger carriers and result in 
compensation payments that were well below the losses these carriers 
had sustained from the attacks.
    Subsequently, Congress enacted Section 124(d) of the Aviation and 
Transportation Security Act (Pub. L. 107-71, Nov. 19, 2001), which 
amended section 103 of the Stabilization Act. The purpose of this 
amendment, according to the Conference Report (H.R. REP. No. 107-296 at 
79), was ``to allow for a modified system of providing compensation to 
air tour operators and air ambulances to better address their needs 
after industry-wide losses.'' The following is the text of this 
amendment:

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

    On January 2, 2002 (67 FR 263), the Department requested comments 
concerning whether it should utilize this discretionary authority to 
set-aside of a portion of funds, and if so, in what manner and to what 
classes of air carriers. Following receipt and consideration of written 
comments, the Department determined that the statutory formula in the 
Stabilization Act did result in disproportionately smaller recoveries 
for smaller passenger carriers, and that it would be appropriate to use 
the set-aside authority to address that situation. In analyzing the 
financial information submitted to that point by smaller carriers, the 
Department found that air taxi, commuter, and regional carriers 
reporting fewer than 10 million ASMs would receive disproportionately 
less relative to their losses under the Stabilization Act formula than 
carriers that had higher ASM levels. Moreover, the smallest of these--
those who reported an average of 10,000 or fewer per day, or 310,000 
for the reporting period of August 2001--seemed to fall even further 
behind in compensation levels relative to their expected losses.
    Therefore, in its final rule on the subject (67 FR 18468-78, April 
16, 2002) the Department established a set-aside program and created 
two classes of small carrier for purposes of prospective compensation 
under that program. A Class I air carrier was defined as an air taxi, 
regional, or commuter air carrier that reported 310,000 or fewer 
available seat miles to the Department for the month of August 2001. A 
Class II air carrier was defined as an air taxi, regional, or commuter 
air carrier that reported between 310,001 and 10 million available seat 
miles to the Department for that month. 67 FR 18477, codified at 14 CFR 
330.43. (Indirect carriers reporting 310,000 or fewer, and from 310,001 
to 10 million ASMs, were added to these two classes in a final rule 
published on August 20, 2002, 67 FR 54058-83.) The rule further stated 
that compensation for Class I carriers would be calculated using a 
fixed ASM rate equivalent to the mean losses per ASM for all Class I 
carriers applying for compensation. Compensation for Class II carriers 
would be calculated using a graduated ASM rate equivalent to (i) the 
mean loss per ASM for all Class I carriers applying for compensation, 
for each of the first 310,000 ASMs reported and (ii) the mean loss per 
ASM for all Class II carriers applying for compensation for each ASM in 
excess of 310,000. 67 FR 18478, codified at 14 CFR 330.45(b).
    Another subsection of the regulation set a ``floor'' for payment to 
qualifying set-aside carriers, equivalent to 25% of their direct and 
incremental transportation-related losses, to ensure that even air 
carriers with very high loss/ASM ratios would receive compensation at a 
rate more consistent with those being paid to larger carriers having 
high loss/ASM ratios. A further

[[Page 23629]]

provision was necessary to ensure that carriers under the set-aside 
would not receive a higher percentage of compensation for losses, on 
average, than non set-aside carriers. Thus, we provided that 
compensation for set-aside carriers would not be more than an amount 
equivalent to the mean percentage of compensation for losses received 
by passenger and combination passenger-cargo air carriers that were not 
eligible for the set-aside funds. Finally, we provided that if a set-
aside carrier would receive more compensation under the Stabilization 
Act formula than under the set-aside formula, it would receive 
compensation at the higher amount. 14 CFR 330.35(c).
    Important to these calculations are, of course, the amounts that 
represented the mean losses per ASM for Class I and Class II carriers. 
In the Preamble to the April rule, the Department made clear that these 
amounts could be calculated only after all applications had been 
received from Class I and II carriers, and only after the amounts of 
actual losses could be verified. However, for purposes of illustration, 
the Department offered estimates of the basis upon which each Class 
would be compensated, relying upon the forecasted losses made by the 
air carriers that had already applied and would qualify for Class I and 
Class II. As an example, for Class I carriers, the Department estimated 
that the mean loss per ASM was $0.82, based upon this preliminary data. 
Thus, for Class I carriers, the Department projected that a carrier 
with 100,000 ASMs might receive $82,000 in total compensation if this 
formula were used. For Class II carriers, the average losses might be 
expected to be in the range of 25 to 50 cents per ASM, but to achieve 
consistency with the compensation rates for the Class I carriers this 
amount would need to be averaged over the first 310,000 ASMs and those 
between 310,000 and 10 million. The Department projected that if the 
$0.82 per ASM rate were used for the initial 310,000 ASMs, the overall 
mean, based on these forecast data, would be reached by applying a rate 
of $0.19 per ASM for those over the first 310,000 ASMs. As an example, 
we estimated that a carrier with 750,000 ASMs might receive 
approximately $337,800 in total compensation under this formula. Again, 
we cautioned that these were estimates, and that, depending on the 
actual losses and ASMs that would be validated for set-aside 
applicants, the ASM rates for both Class I and Class II carriers could 
change. See 67 FR 18470.
    The Department has now received and processed the carrier 
applications under the set-aside program. We have determined that the 
losses incurred by Class I carriers were significantly lower than our 
earlier estimates, averaging only $0.42 per ASM. This was primarily due 
to carriers reporting actual losses lower than they had forecast 
earlier, although disallowance of some claimed losses also played a 
part. Losses for Class II carriers, on the other hand, were more 
consistent with earlier estimates, ranging generally from 25 to 32 
cents per ASM. We also found that the smallest carriers in Class I, 
those reporting fewer than 75,000 ASMs, reported losses that were on 
average significantly higher per ASM than the larger carriers in Class 
I.
    As a result, air carriers in Class I have been processed for 
payments in amounts that are often less than anticipated. Also, the 
smallest of the carriers, because they have, on average, reported 
comparatively higher losses per ASM than other set-aside eligible 
carriers, still seem to have received disproportionately smaller 
amounts relative to those other carriers. On the other hand, because 
the verified loss amounts on a cumulative basis have been less than 
those we estimated, the Department has flexibility to modify the set-
aside rule to provide more equitable treatment for the smaller set-
aside carriers without disadvantaging the larger ones.
    We are, therefore, considering changes to the definitions for the 
two classes of set-aside air carrier in 14 CFR 330.43. Class I would 
now consist of those carriers reporting 75,000 or fewer ASMs to the 
Department for the month of August 2001, while Class II would consist 
of those reporting between 75,001 and 10 million ASMs for that month. 
The set-aside formula for Class I carriers would be based on a mean ASM 
rate for that class of $0.984 per ASM. The formula for Class II 
carriers would be based on the rate of $0.984 for each of the first 
75,000 ASMs, and $0.24 for each ASM from 75,001 to 10 million. Use of 
these mean ASM rates would not reduce the payments any set-aside 
carrier has received. They would increase the maximum possible payment 
for set-aside carriers that reported 310,000 or fewer ASMs, but, 
primarily, would increase payments to the smallest carriers in that 
group.
    To illustrate the effects of this change, the following table shows 
the approximate maximum payments that three fictional carriers would 
receive under both the preexisting and the proposed mean ASM rates and 
class definitions:


----------------------------------------------------------------------------------------------------------------
                                                                                      Maximum         Maximum
                                                                  ASMS in August   compensation    compensation
                             Carrier                                   2001       under April 16   under amended
                                                                                       rule            rule
----------------------------------------------------------------------------------------------------------------
ABC Airways.....................................................          60,000         $25,200         $59,040
DEF Airways.....................................................         250,000         105,000         115,800
GHI Airways.....................................................       5,000,000       1,255,800       1,255,800
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    In addition to use of this formula for compensation, the Department 
may utilize several other alternatives as bases for compensation of 
set-aside carriers. These other alternatives are currently available 
under 14 CFR 330.45(c), and no change is being made to that subsection. 
Thus, the compensation paid to qualifying set-aside carriers will not 
be less than an amount equivalent to 25 percent of the direct and 
incremental transportation-related losses that they demonstrate to the 
satisfaction of the Department were incurred as result of the terrorist 
attacks. This would ensure that there would be a ``floor'' of 
compensation at the 25 percent level available for extreme cases of 
loss.
    In that same subsection, the Department had set a ceiling rate for 
compensation to ensure that set-aside carriers are not compensated at 
levels that would be excessive relative to other carriers. Passenger 
and combination passenger-cargo air carriers that were not eligible for 
the set-aside have received compensation computed at a mean of 71 
percent of their losses. Accordingly, the Department would compensate 
set-aside carriers at that level if the amount that would be received 
is less than that computed under the set-aside formula.

[[Page 23630]]

    Finally, the Department has noted that, in some unusual 
circumstances, the ASM-based formula established originally under the 
Stabilization Act would provide a greater level of compensation to a 
set-aside carrier than the 71 percent calculation based on the mean 
level of compensation for non set-aside carriers noted above. Because 
Congress afforded discretion to the Department in the Security Act to 
assist, not disadvantage, smaller carriers, we would provide 
compensation in this case based on the Stabilization Act formula, up 
to, but not to exceed, compensation for all air transportation-related 
losses.

Regulatory Analyses and Notices

Regulatory Assessment

    This rulemaking is a nonsignificant regulatory action under section 
3(f) of Executive Order 12866 and has not been reviewed by the Office 
of Management and Budget under that Order. This rule is also not 
significant under the regulatory policies and procedures of the 
Department of Transportation, 44 FR 11034.
    This rule does not impose unfunded mandates or requirements that 
will have any impact on the quality of the human environment.

Small Business Impact

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq., was 
enacted by Congress to ensure that small entities are not unnecessarily 
and disproportionately burdened by government regulations. The Act 
requires agencies to review proposed regulations that may have a 
significant economic impact on a substantial number of small entities. 
For purposes of this rule, small entities include approximately 50 
small air carriers. The Department certifies that this rule does not 
have a significant economic impact on a substantial number of small 
entities because the rule will increase payouts to such a limited 
number of small air carriers. Therefore, an Initial Regulatory 
Flexibility Analysis has not been performed.

Collection of Information

    This rule calls for no new collection of information under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

Federalism Assessment

    This proposed rule has been reviewed in accordance with the 
principles and criteria contained in Executive Order 13132 dated August 
4, 1999, and it is determined that this action does not have a 
substantial direct effect on the States, or the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government. This rule 
will not limit the policymaking discretion of the State nor preempt any 
State law or regulation.

Comment Period

    The Department has shortened the comment period for this rule for 
good cause pursuant to 5 U.S.C. 553 (d)(3). First, this proposal will 
benefit a number of carriers by providing additional funds. Second, the 
shortened comment period will allow the Department to finalize the rule 
expeditiously, which will permit final payments to be made to these 
carriers sooner.

List of Subjects in 14 CFR Part 330

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

    For the reasons set forth in the preamble, the Department proposes 
to amend 14 CFR part 330 as follows:

PART 330--[AMENDED]

    1. The authority citation for 14 CFR part 330 continues to read 
as follows:

    Authority: Pub. L. 107-42, 115 Stat. 230 (49 U.S.C. 40101 note); 
sec. 124(d), Pub. L. 107-71, 155 Stat. 631 (49 U.S.C. 40101 note).

    2. Revise Sec.  330.43 (a) and (b) as follows:


Sec.  330.43  What classes of air carriers are eligible under the set-
aside?

* * * * *
    (a) You are a Class I air carrier if you are an air taxi, regional, 
commuter or indirect air carrier and you reported 75,000 or fewer ASMs 
to the Department for the month of August, 2001.
    (b) You are a Class II air carrier if you are an air taxi, 
regional, commuter or indirect air carrier and you reported between 
75,001 and 10 million ASMs to the Department for the month of August 
2001.
    3. Revise Sec.  330.45 (b)(2) (i) and (ii) as follows:


Sec.  330.45  What is the basis on which air carriers will be 
compensated under the set-aside?

* * * * *
    (b) * * *
    (2) As a Class II carrier, your compensation will be calculated 
using a graduated ASM rate equivalent to --
    (i) The mean loss per ASM for all Class I carriers applying for 
compensation, for each of the first 75,000 ASMs reported; and
    (ii) The mean remaining loss per ASM for all Class II carriers 
applying for compensation for each ASM in excess of 75,000.
* * * * *

    Issued in Washington, DC, this 1st day of May, 2003.
Read C. Van de Water,
Assistant Secretary for Aviation and International Affairs.
[FR Doc. 03-11185 Filed 5-1-03; 2:38 pm]
BILLING CODE 4910-62-P