[Federal Register Volume 68, Number 146 (Wednesday, July 30, 2003)]
[Proposed Rules]
[Pages 44675-44678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-19455]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 204

[Docket No. OST-03-15759]
RIN: 2105-AD25


Review of Data Filed by Certificated or Commuter Air Carriers To 
Support Continuing Fitness Determinations Involving Citizenship Issues

AGENCY: Office of the Secretary, DOT.

ACTION: Advance notice of proposed rulemaking (ANPRM); request for 
comments.

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SUMMARY: In response to a report by the Inspector General of the U.S. 
Department of Transportation, the Department is asking for comments on 
two issues relating to air carrier continuing fitness determinations 
involving citizenship issues. First, the Inspector General identified a 
list of criteria the Department typically uses to determine actual 
control of an air carrier when evaluating the citizenship of an air 
carrier during a continuing fitness review. We seek comments on whether 
there are any other factors or criteria the Department routinely 
considers in its evaluations that should be added to this list. Second, 
the Department seeks comments on the need for a regulatory change to 
the requirements of 14 CFR part 204 applicable to certificated and 
commuter air carriers proposing to undergo a substantial change in 
operations, ownership, or management that may impact their U.S. 
citizenship status. The Inspector General found that the Department's 
informal process is not well-suited to complex, contentious, and 
controversial cases involving citizenship determinations and suggested 
that the Department allow greater transparency and public participation 
in such matters, including public notice when such a review is 
initiated and completed, as well as public access to information filed 
with the Department during such reviews.

DATES: Comments due on or before September 29, 2003. To the extent 
practicable, we will consider late-filed comments as we consider 
further action.

ADDRESSES: Submit comments to the Dockets Management System, U.S. 
Department of Transportation, Room PL 401, 400 Seventh Street, SW., 
Washington, DC 20590-0001. Comments should identify Docket Number OST-
03-15759. If you wish to receive confirmation of receipt of your 
written comments, include a self-addressed, stamped postcard. You may 
also submit comments by e-mail by accessing the Dockets Management 
System Web site at http://dms.dot.gov and following the instructions 
for submitting a document electronically.
    The Dockets Management System is located on the Plaza level of the 
Nassif Building at the Department of Transportation at the above 
address. You can review public dockets there between the hours of 9 
a.m. and 5 p.m., Monday through Friday, except Federal holidays. You 
can also review comments on-line at the DOT Dockets Management System 
Web site at http://dms.dot.gov.
    Anyone is able to search the electronic form of all comments 
received into any of our dockets by the name of the individual 
submitting the comment (or signing the comment, if submitted on behalf 
of an association, business, labor union, etc.). You may review DOT's 
complete Privacy Act Statement in the Federal Register published on 
April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit 
http://dms.dot.gov.

FOR FURTHER INFORMATION CONTACT: Patricia L. Thomas, Chief Air Carrier 
Fitness Division, Department of Transportation, 400 Seventh Street, 
SW., Washington, DC 20590, (202) 366-9721.

SUPPLEMENTARY INFORMATION:

I. Electronic Access

    An electronic copy of this document may be downloaded from the 
Internet using the universal resource locator (URL): http://dms.dot.gov. It is available 24 hours each day, 365 days each year. 
Please follow the instructions online for more information and help.

[[Page 44676]]

II. Background

    Under 14 CFR 204.5, certificated and commuter air carriers that 
undergo or propose to undergo a substantial change in operations, 
ownership, or management must submit certain updated fitness 
information to the Department.\1\ Section 204.5(c) specifies that, if 
such information is being filed in support of an application for new or 
amended certificate authority, it shall be filed in the docket seeking 
such authority as part of a public proceeding. For example, a 
certificated or commuter air carrier must apply for new or amended 
authority if its existing authority is not adequate for the performance 
of its planned service (e.g., if a carrier wishes to serve a new city 
pair route in foreign air transportation, if a carrier holding all-
cargo authority wishes to conduct passenger service, or if a carrier 
currently operating only small aircraft wishes to operate large 
aircraft). If the substantial change being proposed does not affect the 
carrier's authority to perform its service under its existing 
authority, then the information is reported directly to the 
Department's staff and is reviewed as part of an informal continuing 
fitness investigation, without a public proceeding. Examples of 
substantial changes that may not require a carrier to apply for new or 
amended authority include changes in the carrier's stockholders or 
management. The purpose of these informal reviews is to decide whether 
a more formal, public proceeding is warranted, and, thus, whether the 
carrier's authority should be modified, suspended, or revoked or the 
carrier should be subject to enforcement action.
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    \1\ Section 204.2(l) defines substantial change in operations, 
ownership, or management as including but not limited to the 
following events: ``(1) changes in operations from charter to 
scheduled service, cargo to passenger service, short-haul to long-
haul service, or (for a certificated air carrier) small-aircraft to 
large-aircraft operations; (2) the filing of a petition for 
reorganization or a plan of reorganization under Chapter 11 of the 
federal bankruptcy laws; (3) the acquisition by a new shareholder or 
the accumulation by an existing shareholder of beneficial control of 
10 percent or more of the outstanding voting stock in the 
corporation; and (4) a change in the president, chief executive 
officer or chief operating officer, and/or a change in at least half 
of the other key personnel within any 12-month period or since its 
latest fitness review, whichever is the more recent period.''
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    During a continuing fitness review, Department staff may examine 
the carrier's ownership structure and whether the air carrier continues 
to satisfy all statutory citizenship tests and continues to be under 
the actual control of U.S. citizens. Under the control standard, we 
examine all of the facts to determine whether a foreign interest will 
have a substantial ability to influence the carrier's activities. See 
Acquisition of Northwest Airlines by Wings Holdings, Inc., Order 89-9-
51, issued September 29, 1989, at 5; Application of Discovery Airways, 
Inc., Order 89-12-41, issued December 22, 1989, at 10; In the matter of 
USAir and British Airways, Order 93-3-17, issued March 15, 1993, at 19; 
and Application of North American Airlines, Inc., Order 89-11-8, issued 
November 6, 1989, at 6.
    On March 4, 2003, the Inspector General of the U.S. Department of 
Transportation issued a letter to the Chairman of the House 
Transportation and Infrastructure Committee on the subject of the 
Department's procedures for making air carrier citizenship 
determinations in continuing fitness reviews, as well as a docketed 
proceeding before the Department (In the matter of the citizenship of 
DHL Airways, Inc., Docket OST-2002-13089). By this notice, we seek 
comments only on the procedural issues raised in the letter, not on the 
matter of DHL Airways.\2\ The letter, which contains all of the 
Inspector General's recommendations on such procedural matters, is 
available in this docket at http://dms.dot.gov.
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    \2\ On March 5, 2003, in Docket OST-2002-13089, the Department 
issued a notice requesting comments on the Inspector General's 
report as it related to the matter of the citizenship of DHL 
Airways, Inc.
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    In the letter, the Inspector General recommended, first, that the 
Department should publicly address the factors used to determine 
whether an air carrier is under the ``actual control'' of U.S. citizens 
and, second, that the Department should consider whether to modify its 
procedures for reviewing an air carrier's citizenship status during a 
continuing fitness review.
    With respect to the first recommendation, the Inspector General 
states, ``There are seven factors that frequently recur in past orders 
of the Department addressing the issue of actual control. These 
factors, while known to Department and aviation attorneys, have not 
been delineated in any one public document. Good public policy would 
suggest that the Department address these and other factors in a 
document that is widely available.'' The seven factors cited are: (1) 
Control via supermajority or disproportionate voting rights; (2) 
negative control/power to veto; (3) buy-out clauses; (4) equity 
ownership; (5) significant contracts; (6) credit agreements/debt; and 
(7) family relationships/business relationships.
    We seek comments on whether there are other factors or criteria 
that the Department routinely considers in addition to those listed 
above. However, it is important to note that, in its decisions, the 
Department has repeatedly stated that citizenship determinations are 
necessarily made on a case-by-case basis due to the fact that every 
case has its own unique set of circumstances. Accordingly, the 
Department believes that its administrative precedent, published in 
Civil Aeronautics Board and Department of Transportation Orders, as 
noted above, shows that no single list of factors and criteria will be 
inclusive, due to the changing legal and market circumstances faced by 
carriers when organizing their corporate and financial structures.
    With respect to the second recommendation, the Inspector General 
states that ``[t]he informal process used for citizenship reviews can 
be beneficial when the issues are not complex or contentious by 
providing for open dialogue between the Department and carriers to 
resolve matters expeditiously.'' However, the recommendation we seek 
comments on is as follows: ``For the future, we believe the Department 
should give consideration to a more transparent and formal process in 
complex and contentious cases. To that end, the Department's procedures 
would have to be modified to provide public notice of the initiation 
and completion of citizenship reviews; create dockets for third-party 
comments; provide third-party access to confidential documents, similar 
to those used in the Alliance Carrier review;\3\ and obtain sworn or 
certified statements.''
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    \3\ The ``Alliance Carrier review'' refers to the Delta/
Northwest/Continental code-share and frequent-flyer program 
reciprocity proceeding.
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III. Comments

    In response to the Inspector General's letter, the Department seeks 
comments on the list of factors frequently used to evaluate whether an 
air carrier is actually controlled by U.S. citizens and the need for a 
regulatory change to its procedures for determining the citizenship of 
U.S. air carriers after a substantial change in operations, ownership, 
or management. Accordingly, this ANPRM requests comments on the 
Inspector General's proposals and on alternatives to such proposals.
    Specifically, we invite commenters to submit data and information 
on the recommendations of the Inspector General and on the following 
issues as

[[Page 44677]]

well as any other related issues that commenters believe may warrant 
consideration:
    [sbull] The Inspector General letter identifies a list of criteria 
typically used to determine actual control of an air carrier (i.e., (1) 
control via supermajority or disproportionate voting rights; (2) 
negative control/power to veto; (3) buy-out clauses; (4) equity 
ownership; (5) significant contacts; (6) credit agreements/debt; and 
(7) family relationships/business relationships). Are there any other 
factors or criteria the Department routinely considers that should be 
added to this list?
    [sbull] Is the Department's current informal, undocketed process 
for reviewing the citizenship of certificated and commuter air carriers 
following a substantial change in operations, ownership, or management 
sufficient to meet the statutory goals and requirements of evaluating a 
carrier's continuing fitness prior to any decision to take public 
action?
    [sbull] Should air carriers proposing a substantial change in 
operations, ownership, or management that may affect their citizenship 
status be subject to a formal, public review of their citizenship, and 
if so, under what circumstances?
    [sbull] What are the benefits and burdens, including time, effort, 
or financial resources expended, to generate, maintain, or provide 
information that would be subject to such a docketed public review? How 
would an air carrier's ability to obtain timely financing be affected?
    [sbull] What are the advantages and disadvantages of retaining the 
current rule at 14 CFR 204.5 without revision?
    [sbull] Should the Department establish separate procedures for 
handing complex, contentious, and controversial citizenship questions 
that arise in the context of continuing fitness reviews? If so, what 
procedures would be appropriate, and what standards should be used to 
designate such cases?
    [sbull] Should the Department issue a public notice when it 
initiates and/or completes a citizenship determination in the context 
of a continuing fitness review? How would such notice impact an air 
carrier's business? What impact would such notice have on the 
willingness of an air carrier contemplating a future change in 
ownership, operations, and/or management to have candid discussions 
with the Department before formalizing any transaction?
    [sbull] How should competition issues and business confidentiality 
issues be addressed in any change to the current procedures?
    To ensure that the Department identifies and considers a full range 
of issues related to any rulemaking action that may be proposed, 
comments and suggestions are invited from all interested parties, 
including certificated and commuter air carriers, industry groups, and 
the public.

Regulatory Analyses and Notices

    All comments received before the close of business on the comment 
closing date indicated above will be considered and will be available 
for examination in the docket at the above address. Comments received 
after the comment closing date will be filed in the docket and will be 
considered to the extent practicable. In addition to late comments, the 
Department will also continue to file relevant information in the 
docket as it becomes available after the comment period closing date, 
and interested persons should continue to examine the docket for new 
material. A NPRM may be issued at any time after close of the comment 
period.

Executive Order 12866 (Regulatory Planning and Review) and DOT 
Regulatory Policies and Procedures

    The Department has determined preliminarily that this document is a 
significant regulatory action under section 3(f) of Executive Order 
12866 and, therefore, will be reviewed by the Office of Management and 
Budget. The Department has also determined preliminarily that this 
document is significant under the Department's regulatory policies and 
procedures given the degree of Congressional interest in this matter. 
It is not economically significant. At this time, the Department does 
not believe any proposed regulatory changes will interfere with any 
action taken or planned by another agency or to materially alter the 
budgetary impact of any entitlements, grants, user fees, or loan 
programs.
    Changes to the way citizenship issues are addressed in continuing 
fitness reviews may cause increased burdens on the part of the air 
carriers, as well as the Department. Currently, there are approximately 
175 carriers that hold certificates or commuter authorizations from the 
Department. All of these carriers are subject to the continuing fitness 
requirements, and all must report substantial changes in operations, 
ownership, or management to the Department for review. During calendar 
years 2001 and 2002, the Department instituted an average of 52 new 
continuing fitness cases each year, some of which involved citizenship 
issues. Based on the information received in response to this ANPRM, 
the Department intends to carefully consider the costs and benefits 
associated with this rulemaking.

Executive Order 13132 (Federalism Assessment)

    The Department has analyzed this rulemaking action in accordance 
with the principles and criteria set forth in Executive Order 13132 and 
has determined that it does not have sufficient federalism implications 
to warrant consultation with State and local officials. The Department 
anticipates that any action taken will not preempt a State law or State 
regulation or affect the States' ability to discharge traditional State 
government functions. We encourage commenters to consider these issues, 
as well as matters concerning any costs or burdens that might be 
imposed on the States as a result of actions considered here.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601, et seq.) requires an 
agency to review regulations to assess their impact on small entities 
unless the agency determines that a rule is not expected to have a 
significant impact on a substantial number of small entities. The 
Department will analyze any action that might be proposed for the 
purpose of the Regulatory Flexibility Act.

Paperwork Reduction Act

    Under the Paperwork Reduction Act, 44 U.S.C. 3501-3520, Federal 
agencies must obtain approval from the Office of Management and Budget 
(OMB) for each collection of information they conduct, sponsor, or 
require through regulations. Any action that might be contemplated in 
subsequent phases of this proceeding may involve a collection of 
information requirement for the purpose of the Paperwork Reduction Act 
of 1995. The Department, however, will evaluate any actions that might 
be considered in accordance with the terms of the Paperwork Reduction 
Act. We encourage commenters to consider these issues, as well as 
matters concerning any burdens that might be imposed as a result of 
actions considered here. Accordingly, the Department solicits comments 
on this issue.

Regulation Identifier (RIN)

    A regulation identifier (RIN) is assigned to each regulatory action 
listed in the Unified Agenda of Federal Regulations. The Regulatory 
Information Service Center publishes the Unified Agenda in April and 
October of each year. The RIN contained in the heading of this document 
can be used to cross-

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reference this action with the Unified Agenda.

Unfunded Mandates Reform Act

    The Department will analyze any action that might be proposed for 
the purpose of the Unfunded Mandates Reform Act of 1995 to assess 
whether a rulemaking would impose unfunded mandates.

National Environmental Policy Act

    The Department will analyze any action that might be proposed for 
the purpose of the National Environmental Policy Act of 1969 (42 U.S.C. 
4321-4347) to determine whether there would be any effect on the 
quality of the environment.

(Authority: 49 U.S.C. Chapters 401, 411, 417; 14 CFR Part 204.)

    Dated: July 24, 2003.
Michael W. Reynolds,
Acting Assistant Secretary for Aviation and International Affairs.
[FR Doc. 03-19455 Filed 7-25-03; 4:27 pm]
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