[Federal Register Volume 69, Number 53 (Thursday, March 18, 2004)]
[Rules and Regulations]
[Pages 12940-12948]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6096]



[[Page 12939]]

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Part V





Department of Transportation





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Federal Aviation Administration



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14 CFR Part 158



Revisions to Passenger Facility Charge Rule for Compensation to Air 
Carriers; Final Rule

  Federal Register / Vol. 69, No. 53 / Thursday, March 18, 2004 / Rules 
and Regulations  

[[Page 12940]]


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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 158

[Docket No. FAA-2002-13918; Amendment No.158-2]
RIN 2120-AH43


Revisions to Passenger Facility Charge Rule for Compensation to 
Air Carriers

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Final rule.

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SUMMARY: This final rule amends the passenger facility charge (PFC) 
regulations by changing the amount of money that an air carrier may 
keep as compensation for collecting and handling PFC revenue for public 
agencies. Specifically, this action allows air carriers to keep $0.11 
of each PFC they collect. This action is pursuant to a statutory 
requirement to establish a rate of compensation for air carriers that 
reflects the average necessary and reasonable expenses for collecting 
and handling PFCs.

DATES: Effective May 1, 2004.

FOR FURTHER INFORMATION CONTACT: Joseph Hebert, Passenger Facility 
Charge Branch, APP-530, Federal Aviation Administration, 800 
Independence Avenue, SW., Washington, DC 20591; telephone (202) 267-
3845; facsimile (202) 267-5302.

SUPPLEMENTARY INFORMATION:

Availability of Rulemaking Documents

    You can get an electronic copy using the Internet by:
    (1) Searching the Department of Transportation's electronic Docket 
Management System (DMS) Web page (http://dms.dot.gov/search);
    (2) Visiting the Office of Rulemaking's Web page at http://www.faa.gov/avr/arm/index.cfm; or
    (3) Accessing the Government Printing Office's Web page at http://www.access.gpo.gov/su_docs/aces/aces140.html.
    You can also get a copy by submitting a request to the Federal 
Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence 
Avenue, SW., Washington, DC 20591, or by calling (202) 267-9680. Make 
sure to identify the amendment number or docket number of this 
rulemaking.
    Anyone is able to search the electronic form of all comments 
received into any of our dockets by the name of the individual 
submitting the comment (or signing the comment, if submitted on behalf 
of an association, business, labor union, etc.). You may review DOT's 
complete Privacy Act statement in the Federal Register published on 
April 11, 2000 (volume 65, number 70, pages 19477-78), or you may visit 
http://dms.dot.gov.

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act (SBREFA) of 
1996 requires FAA to comply with small entity requests for information 
or advice about compliance with statutes and regulations within its 
jurisdiction. Therefore, any small entity that has a question regarding 
this document may contact its local FAA official, or the person listed 
under FOR FURTHER INFORMATION CONTACT. You can find out more about 
SBREFA on the Internet at http://www.faa.gov/avr/arm/sbrefa.htm, or by 
e-mailing us at [email protected].

Background

    The Aviation Safety and Capacity Expansion Act of 1990 (ASCE Act), 
codified under 49 U.S.C. 40117, set up the passenger facility charge 
(PFC) program. The ASCA Act allows public agencies to impose a PFC of 
$1, $2, or $3 for each enplaned passenger at a commercial service 
airport the public agency controls. Public agencies use the money from 
such PFC collections to finance FAA-approved, eligible airport-related 
projects. Section 158.53 of title 14, Code of Federal Regulations 
prescribes the amount of money that air carriers may retain as 
compensation for collecting and handling PFCs. Initially, Sec.  158.53 
allowed air carriers to keep $0.12 of each PFC remitted to recover the 
costs of setting up $1, $2, or $3 charges under the PFC program. On 
June 28, 1994, FAA reduced the rate of compensation from $0.12 to $0.08 
for each PFC collected because air carriers should have recovered the 
cost of program implementation by that time. Currently, air carriers 
may keep $0.08 of each PFC collected and remitted.
    In April 2000, the Wendell H. Ford Aviation Investment and Reform 
Act for the 21st Century (AIR-21) changed the PFC program to allow 
public agencies to collect PFCs of $4 or $4.50. The issue of air 
carrier compensation rose again during the congressional proceedings 
leading up to the passage of AIR-21. In House Report 106-513, which 
accompanied AIR-21, Congress noted that several air carriers 
communicated to the conferees their views that compensation at $.08 is 
too low. Congress urged FAA to give the air carriers an opportunity to 
support their argument in a rulemaking action.
    On April 27, 2000, the Department of Transportation Office of the 
Inspector General (OIG) issued a memorandum recommending to FAA 
procedures for conducting rulemaking on PFC collection costs. 
Specifically, OIG suggested the type of data FAA should collect to 
ensure the agency receives the information necessary for evaluation. 
Further, OIG recommended accounting and audit procedures that ensure 
the costs are supportable.
    To be responsive to Congress and OIG, FAA initiated contacts in 
April 2000 with the air carrier industry to learn about cost categories 
compatible with air carrier cost accounting capabilities that might 
meet the specifications of OIG. In addition, FAA consulted with 
independent accountants familiar with the accounting methods of the air 
carriers to learn the extent to which independent accountants would be 
able to determine if costs reported by air carriers are 
``supportable.'' Based on these contacts, FAA sent a letter to the air 
carriers suggesting cost categories and instructions for collecting 
incremental costs associated with PFC collection, handling, remittance, 
reporting, recordkeeping, and/or auditing to facilitate the collection 
of data to be evaluated. These categories consisted of the following:
    (a) Credit card fees;
    (b) Audit fees;
    (c) PFC disclosure;
    (d) Reservations;
    (e) Passenger service;
    (f) Revenue accounting, data entry, accounts payable, tax, and 
legal;
    (g) Corporate property department;
    (h) Training reservations, ticket agents, and other departments;
    (i) Carrier ongoing information systems;
    (j) Computer reservation systems on-going;
    (k) PFC absorption;
    (l) Airline Tariff Publishing Company (ATPCO);
    (m) Airline Reporting Corporation (ARC); and
    (n) Interest income.
    FAA noted in its letter that listing an item in the cost 
definitions did not necessarily represent a final FAA determination 
that the item represents a cost of collecting and remitting PFC revenue 
that is reimbursable from PFC revenue. Rather, some items were included 
because they had been proposed by at least one air carrier as 
collection or handling costs. From the responses to the letter, FAA 
found the average PFC handling fee reported by

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the air carriers was $0.0896 for each $3 PFC collected in 1999 and 
$0.0995 for each $3 PFC remitted in 1999. Had a $4.50 PFC been in place 
that year, the air carriers estimate the increase in their costs would 
have raised their overall cost to $0.1065 for each $4.50 PFC collected 
and $0.1184 for each $4.50 PFC remitted. On November 20, 2002, FAA 
issued Notice of Proposed Rulemaking (NPRM) No. 02-19, ``Revisions to 
Passenger Facility Charge Rule for Compensation to Air Carriers,'' (67 
FR 70878, November 27, 2002). In that rulemaking action, FAA proposed 
to amend 14 CFR 158.53 to allow air carriers to keep $0.10 of each PFC 
they collect in calendar years 2002 through 2004. From 2005 forward, 
the amount would increase to $0.11 for each PFC collected. FAA based 
its proposal on cost data received from Alaska Airlines, Inc., American 
Airlines, Inc., Continental Airlines, Inc., Delta Air Lines, Inc., 
Northwest Airlines, Inc., Southwest Airlines Company, TransWorld 
Airlines, Inc., United Airlines, Inc, and US Airways, Inc. FAA 
initially reviewed the data submitted by the air carriers to check for 
consistent data categories and formats, and then consolidated all the 
information into a single summary table. This table can be found in the 
preamble to the NPRM (67 FR 70880, November 27, 2002). FAA concluded 
the cost categories used to determine the amount of compensation for 
this rule represented the incremental costs directly associated with 
PFC collection, handling, remittance, reporting, recordkeeping and 
auditing.

Discussion of Comments

    FAA received 11 comments in response to Notice No. 02-19. The 
commenters include airport operators, scheduled air carriers, and 
aviation industry trade associations. Most of the commenters support 
FAA's proposal to increase carrier compensation for handling PFCs. 
However, many commenters disagree with how FAA determined the proposed 
rate of compensation.
    FAA received comments from the Allegheny County Airport Authority 
(ACAA); the Port Authority of New York and New Jersey (PANYNJ); the 
International Air Transport Association (IATA); the Maryland Aviation 
Administration (MAA); Southwest Airlines Company (Southwest); the 
Airports Council International--North America (ACI-NA) jointly with the 
American Association of Airport Executives (AAAE); American Airlines, 
Inc. (American); United Airlines, Inc. (United); the Air Transport 
Association (ATA); and Continental Airlines, Inc. (Continental).

Compensation Based on Remitted PFCs vs. Collected PFCs

    Comments: Although ACAA, PANYNJ, and MAA support FAA's proposal to 
increase the rate of carrier compensation, they disagree with FAA's 
proposal to change the basis for compensation from PFCs remitted to 
PFCs collected. They assert that changing the basis for calculating 
compensation might erode the money available to public agencies.
    PANYNJ and MAA contend the difference between these compensation 
bases becomes apparent when passengers refund tickets. ACAA asserts 
that if carriers receive compensation for PFCs collected, then airports 
would be subsidizing the carriers for passengers who cancel their 
reservations and never travel through airports. In such instance, 
carriers would not remit PFCs to the airports. ACAA argues that FAA's 
proposal violates 49 U.S.C. 40117, which, according to ACAA, requires 
the Secretary to base compensation solely on money paid to the public 
agency. The commenters suggest that FAA reconsider the basis for 
compensation and clarify the issue of refunded tickets.
    United supports the use of PFCs collected as the basis of carrier 
compensation. United claims that Congressional intent for air carrier 
compensation is based on PFCs collected and contends that FAA's past 
rulemaking supports this position. United also claims that when FAA 
promulgated the rules for carrier compensation, the agency only 
requested data based on collected PFCs, not remitted PFCs. Further, 
United contends that FAA's past rulemaking action appeared to use the 
terms ``collected'' and ``remitted'' interchangeably. Based on the 
above, United requests FAA to issue a statement that either (i) 
clarifies that carriers are (and have been) entitled to retain the 
designated amount of each PFC collected or (ii) recognizes explicitly 
that a dispute exists over the interpretation of the existing rule and 
states that FAA is expressing no view as to whether the old 
compensation fee was based on PFCs collected or PFCs remitted, or 
whether the term ``remitted'' was used interchangeable with (and deemed 
to have the same meaning as ``collected'' under the old rule).
    FAA Response: FAA disagrees. The intent of FAA's proposal is to set 
a rate of carrier compensation on a basis that is clearly defined. FAA 
notes that 49 U.S.C. 40117 only requires the rate of compensation to be 
``* * * a uniform amount the Secretary determines reflects the average 
necessary and reasonable expenses * * * incurred in collecting and 
handling the fee.'' It does not require the Secretary to base the rate 
of compensation solely on money paid to the public agency.
    The issue of compensation for handling refunded tickets has been a 
long-standing concern for both airports and air carriers. The preamble 
discussion in the NPRM addresses the issue of refunded tickets, where 
FAA notes that regardless of whether air carriers receive compensation 
based on PFCs collected or remitted, the aggregate amount of PFC 
revenue kept by the carriers for compensation is not significantly 
different.
    Also, FAA notes that carriers incur expenses in collecting and 
handling PFCs even when they refund tickets. FAA chose not to adopt 
these comments, but to base carrier compensation on PFCs collected to 
account for widely varying refund rates between air carriers, while 
preserving PFC revenue for airports.
    Finally, the request from United for one of two possible statements 
from the FAA regarding the existing rule is outside the scope of this 
rulemaking and FAA will take no action on this request.

Disproportional Cost for International Carriers

    Comments: IATA supports FAA's proposed increase in the rate of air 
carrier compensation. However, IATA claims there is a disproportional 
cost for international carriers to collect and remit PFCs to airports 
they do not serve. With the development of airline alliances, IATA 
asserts that international air carriers often sell tickets and collect 
PFCs for airports they do not serve. IATA notes that for smaller 
airports, international carriers may collect only one or two PFCs each 
month. Therefore, IATA requests that FAA consider adopting quarterly 
remittance and reporting for international carriers when the total 
monthly collection for an individual public agency does not exceed 
$300.
    FAA Response: FAA disagrees. IATA's proposed changes to the 
collection and reporting requirements are beyond the scope of this 
rulemaking action. Therefore, FAA has not made any changes to the rule 
in response to IATA's comments.

Disclosure Costs

    Comments: ATA, Southwest, and United oppose FAA's proposal to use 
reduced disclosure costs for Southwest in calculating the rate of 
compensation.

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Disclosure costs are those costs associated with disclosing, in 
applicable advertising, the existence of PFCs to the general public. 
The commenters claim that FAA's failure to use the full amount of 
Southwest's disclosure costs in calculating the increased rate of 
carrier compensation will result in under-compensation of air carriers. 
In response to NPRM, Southwest sent more data supporting its disclosure 
costs (Docket No.: FAA-2003-13918).
    FAA Response: FAA agrees. FAA has considered the commenters' 
arguments and has analyzed Southwest's data. Tables A-1, A-2 and B show 
FAA's analysis. FAA has determined that Southwest's data conforms to 
the agreed-upon audit procedures that OIG recommended as a valid means 
of measuring the incremental disclosure costs associated with PFC 
collections. Therefore, FAA has included these costs in calculating the 
new rate of carrier compensation. Including the full amount of 
Southwest's disclosure costs has the effect of raising the rate of 
compensation by one cent during the time frame before January 1, 2005. 
Therefore, the FAA has set the new PFC rate of air carrier compensation 
at $0.11 for PFCs collected, effective 30 days from the date of 
publication of this final rule.
BILLING CODE 4910-13-P

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[GRAPHIC] [TIFF OMITTED] TR18MR04.000


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[GRAPHIC] [TIFF OMITTED] TR18MR04.001

Notes for Tables A-1 and A-2

    \1\ Actual costs incurred. Agreed upon procedures have been 
applied by the independent account to actual 1999 costs.
    \2\ Assumes the same volume as 1999, but with 100[percnt] of 
PFCs Collected at $4.50 per PFC--this only impacts Credit Card Fees 
and Interest revenue. Does not include Continental.
    \3\ For any costs associated with the implementation of the new 
maximum $4.50 PFC rate. This column is not year specific.
    \4\ 2000 estimate total based on 1999 actual performance. Does 
not include TWA results.
    \5\ Does not include any one time IT Costs (Implementation 
Costs).
    \6\ Assumes 3 months with 100[percnt] of PFC's Collected at $3. 
Assumes 9 months with 50[percnt] at $3 and 50[percnt] at $4.50.
    \7\ Assumes 12 months with 100[percnt] of PFCs at $4.50.
    \8\ WEFA US Economic Outlook 2000-05--US Cycle Monitor, 
September 2000, page 201. All Items--Urban Wage Earners.
    \9\ Labor contracts require union members to receive annual 
raises which are an average of United, American, Delta and 
Northwest's union contracts plus an additional 1[percnt].

[[Page 12945]]

[GRAPHIC] [TIFF OMITTED] TR18MR04.002

BILLING CODE 4910-13-C

Rate of Adoption of the $4.50 PFC Level

    Comment: American, ATA, and Southwest urged FAA to reconsider its 
estimated mix of airports adopting the $4.50 PFC level. American 
contends more airports have adopted the $4.50 PFC than FAA estimated in 
its proposal. American, therefore, asserts that air carriers should 
receive a higher rate of compensation (by one cent) for PFC 
collections. Southwest agreed with American's claim.
    FAA Response: FAA disagrees. FAA found that by January 1, 2003, 53 
percent of airports collecting PFCs had adopted the $4.50 PFC level. 
This adoption rate is slightly higher than FAA's projected rate in the 
NPRM that 50 percent of all PFCs collected in 2002 would be at $4.50. 
However, the 53 percent adoption rate is a year-end rate and does not 
represent the average adoption rate for 2002. Based on this, FAA 
believes the 50 percent projected adoption rate is consistent with the 
actual average adoption rate for 2002.

Retroactivity of Increased Compensation Level

    Comments: Many of the commenters urge FAA to make the proposed 
change to the air carrier compensation rule retroactive to January 1, 
2002. The commenters claim the data in FAA's proposal clearly indicates 
that carriers have been under-compensated since 1999. The commenters 
state that air carriers should not have to ``absorb'' the cost of 
handling PFCs in the years they were under-compensated.
    Also, ATA requests that FAA establish a ``start up'' rate of 
compensation that would give air carriers credits against landing fees 
and other airport charges. ATA request that FAA at least provide a 
temporary adjustment to allow air carriers to ``catch up'' on the 
shortfall. Specifically, Continental recommends that FAA adopt a $0.12 
level for a period of time to allow carriers to recover money lost 
during the time that air carriers were under-compensated. Also, 
Continental requests that FAA make the increased rate of compensation 
effective the date that FAA issued the proposed rulemaking.
    FAA Response: FAA disagrees. Nothing in the PFC statute authorizes 
retroactive compensation. Therefore, FAA does not have the authority to 
retroactively authorize compensation for PFCs. Accordingly, FAA has not 
adjusted the rate of compensation to provide a retroactive increase.

Periodic Review of Air Carrier Compensation

    Comments: ATA recommends that FAA consider setting up a mechanism 
for formal review of air carrier compensation on a periodic basis, such 
as every two years. ATA noted that such a review process would be less 
costly and burdensome on air carriers, airports, and FAA than engaging 
the rulemaking process.
    FAA Response: FAA agrees with the commenter and will establish a 
process to periodically review air carrier compensation for handing 
PFCs.

Cost Categories

    Comments: In a joint comment, ACI-NA and AAAE note that OIG 
suggested that FAA limit cost data to air carrier incremental costs 
associated directly with PFC collection, handling, and remittance. The 
commenters assert they do not believe that ATA and the air carriers 
have made sufficient argument for increasing carrier compensation on 
PFCs collected. Specifically, the commenters state that much of the 
data that air carriers submitted to FAA for analysis does not meet 
OIG's ``intent and legitimacy test.''
    The commenters agree with FAA's proposal to exclude PFC absorption 
as a legitimate cost. Also, the commenters agree with FAA's proposal to 
include credit card fees for remitted PFCs. However, the commenters 
disagree with the inclusion of credit card fees for refunded tickets. 
In addition, the commenters oppose three of the cost categories FAA 
used in calculating the proposed rate of compensation. Specifically, 
the commenters oppose accepting reservation services, disclosure costs, 
and passenger service expenses as categories associated directly with 
PFC collection and remittance. The commenters contend these categories, 
although included in the agreed-upon procedures, provide flexibility 
for interpretation that allows arbitrariness, miscalculation, and 
error. The commenters claim these costs are not associated directly 
with PFC collection and remittance. The commenters note that if FAA 
removes these costs from the calculations, the actual rate of 
compensation decreases by $0.04. The commenters also contend that PFC 
conversion from a remitted PFC to a collected PFC would cause carriers 
to incur high changeover costs. Finally, some commenters object to FAA 
basing the compensation rate on

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average costs. They assert that such action rewards high cost carriers 
for their inefficiency in processing PFCs.
    FAA Response: FAA disagrees. FAA has found that air carriers do 
incur credit card costs on refunded transactions and has found that 
carriers incur a service fee with such transactions. FAA also confirmed 
these refund costs were included in the carrier cost data. Accordingly, 
these costs are retained for the purposes of determining compensation.
    FAA also disagrees with the commenters with regard to the potential 
for high changeover costs for a new charge level. FAA notes that PFC 
revenue remitted by the air carriers is already net of compensation. 
Therefore, the carriers would only have to restructure their accounting 
systems for the change in rate and basis. No carrier filing comments to 
FAA's proposal objected to costs associated with the changeover. Some 
air carriers have always used collected PFCs, such as United, and their 
accounting systems operate that way today.
    FAA has reexamined OIG's recommended procedures and the air carrier 
cost categories and data. FAA has determined the categories used to 
determine the rate of compensation are those that most accurately 
reflect the costs to the carriers for collecting, handling, and 
remitting PFC revenue to collecting airports. FAA agrees these 
categories may not capture purely ``incremental'' costs. However, as 
the commenters noted, it is difficult to fully isolate these 
incremental costs. FAA is not convinced that isolating these costs 
would add significant value and added accuracy in calculating the costs 
associated with collecting and handling PFCs. FAA notes, however, these 
considerations do not diminish the validity of using these categories 
to arrive at a PFC rate of compensation.
    Finally, FAA notes the governing statute mandates that FAA 
establish a uniform amount reflecting the ``average reasonable and 
necessary expenses'' of collecting and handling the PFC. Therefore, in 
order to determine the ``average'' of any cost category which meets 
OIG's ``intent and legitimacy test,'' FAA must consider the costs of 
both high cost carriers and low cost carriers.

Revisions to PFC Audit Requirements

    Comments: In a joint comment, ACI-NA and AAAE request that FAA 
revise its audit requirements to include financial information gathered 
from the two air carrier ticket clearing houses.
    FAA Response: The request to revise audit requirements is outside 
the scope of this rulemaking and FAA will take no action on this 
request.

Interest Rate on Float

    Comments: In a joint comment, ACI-NA and AAAE agree with FAA's 
decision to include a ``float'' interest in calculating carrier 
compensation. However, the commenters recommend using a ten-year 
average interest rate in place of the shorter-term rate in FAA's 
proposal to mitigate extraneous benefits to the carriers by using a 
rate at a historically low level.
    FAA Response: FAA disagrees with the commenter's recommendation. 
The data that each air carrier provided to FAA, in accordance with the 
agreed-upon procedures, reflects the carrier's audited interest 
earnings during the base year. FAA's approach is to calculate the 
compensation rate using actual carrier earned interest. OIG concurs 
with this approach. Using this calculation for the base year as an 
offset to costs is the most consistent methodology. Moreover, the PFC 
statute specified that carrier compensation be set after offsetting the 
interest earned by the carriers, not after applying an interest index.

Bankruptcy Protection

    Comments: In a joint comment, ACI-NA and AAAE contend that if FAA 
increases the rate of carrier compensation for PFCs, airports will need 
improved protection in carrier bankruptcy proceedings. Specifically, 
the commenters suggest that FAA prohibit air carriers from commingling 
PFCs with other air carrier funds. The commenters want to ensure that 
air carriers will have easy access to PFC funds even when they have 
entered bankruptcy. Also, PANYNJ requests that FAA include language 
that clarifies the status of PFC funds when carriers enter bankruptcy.
    FAA Response: The issues the commenters raise are outside the scope 
of this rulemaking. In addition, FAA notes that some of these proposals 
may require changes to bankruptcy statutes or regulations that are 
beyond the authority of the FAA.

Summary and Conclusion

    FAA has considered the commenters' arguments and has determined 
that a compensation rate of $0.11 per PFC collected reflects the 
average necessary and reasonable expenses incurred by the air carriers 
in collecting and handling the PFC for airports. Accordingly, the 
compensation rate of $0.11 per PFC collected will be effective 30 days 
after the publication of this rule.

Paperwork Reduction Act

    Information collection requirements in the amendment to part 158 
previously have been approved by the Office of Management and Budget 
(OMB) under the provisions of the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)), and have been assigned OMB Control Number 2120-0557. 
Nine air carriers voluntarily submitted most of the data FAA used in 
this rulemaking action.

International Compatibility

    In keeping with U.S. obligations under the Convention on 
International Civil Aviation, it is FAA policy to comply with 
International Civil Aviation Organization (ICAO) Standards and 
Recommended Practices to the maximum extent practicable. FAA determined 
there are no ICAO Standards and Recommended Practices that correspond 
to this compensation adjustment.

Economic Assessment, Regulatory Flexibility Determination, Trade Impact 
Assessment, and Unfunded Mandates Assessment

    Changes to Federal regulations must undergo several economic 
analyses. First, Executive Order 12866 directs each Federal agency to 
adopt a regulation only upon a reasoned determination that the benefits 
of the intended regulation justify its costs. Second, the Regulatory 
Flexibility Act of 1980 requires agencies to analyze the economic 
impact of regulatory changes on small entities. Third, the Trade 
Agreements Act (19 U.S.C. 2531-2533) prohibits agencies from setting 
standards that create unnecessary obstacles to the foreign commerce of 
the United States. In developing U.S. standards, this Trade Act also 
requires agencies to consider international standards and, where 
appropriate, use them as the basis of U.S. standards. Fourth, the 
Unfunded Mandates Reform Act of 1995 (Public Law 104-4) requires 
agencies to prepare a written assessment of the costs, benefits, and 
other effects of proposed or final rules that include a Federal mandate 
likely to result in the expenditure by State, local, or tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more annually (adjusted for inflation).
    In conducting these analyses, FAA has determined this rule (1) has 
benefits that justify its costs, is a ``significant regulatory action'' 
as defined in section 3(f) of Executive Order 12866 and is 
``significant'' as defined in DOT's Regulatory Policies and Procedures; 
(2) will not have a significant economic

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impact on a substantial number of small entities; (3) will not reduce 
barriers to international trade; and (4) does not impose an unfunded 
mandate on state, local, or tribal governments, or on the private 
sector. These analyses, available in the docket, are summarized below.

Economic Assessment

Analysis of Costs

    This change in compensation to air carriers is limited to what is 
allowed by statute. Once FAA has determined air carriers' average, 
necessary and reasonable expenses incurred in collecting and handling 
PFCs, the compensation rate is not subject to FAA discretion.

Costs to Airports

    For airports, the principal effect of the higher rate of 
compensation is the marginal erosion of the airports' PFC revenue 
stream. FAA is changing the basis of compensation from a PFC remitted 
basis to a PFC collected basis. A rate of compensation of $0.11 for 
each PFC collected equals about $0.12 for each PFC remitted. Average 
air carrier ticket refund rates, which account for the difference 
between PFCs collected and remitted, are about 9 percent.
    The increase in compensation will lead to redistribution of $21 
million each year in PFC collections to air carriers from airports 
based on 1999 enplanements. The sum amounts to a loss of slightly more 
than one percent of the projected annual PFC stream. However, the 
increase in compensation will not erode approved collection authority 
for airports. Rather, the higher compensation will result in a small 
extension of the time period required to collect an authorized amount 
of PFC revenue. For example, an authorized PFC collection amount, such 
as $1 million, would currently take a public agency one year to collect 
at a $4.50 PFC level. This assumes the air carrier retains $0.08 for 
each remitted PFC. Under the new compensation rate of $0.11, it would 
take one year plus 3.3 days to collect $1 million at a $4.50 level.
    It is possible that some airports may be impacted negatively by the 
slight increase in the time it would take, because of the increase in 
the compensation level, to raise authorized PFC amounts for projects. 
However, most airports with PFC-funded projects already in place 
originally planned to finance these projects based on a $3 PFC level. 
Now, under AIR-21, they can implement a $4 or $4.50 PFC level to 
supplement funding. New projects based on the $4.50 PFC level can be 
planned around the higher rate of compensation, if necessary.
    The group of airports that will be impacted the most by the 
increase would be those airports that do not increase their PFC to a $4 
or $4.50 PFC level. FAA assumes that 80 percent of all airports will 
move to a $4.50 PFC by 2005. This assumption reflects the almost 
uniform adoption of the $3 PFC level by airports before AIR-21, even 
though they had the option of either a $1, $2, or $3 PFC level. To 
date, some airports have decided to remain at the $3 level because of 
market or other local conditions. Similarly, some large or medium hub 
airports may not be able to develop a sufficient volume of projects to 
qualify at the $4.50 level. In the case of any airport remaining at a 
$3 level, the airport's annual PFC revenue erosion would increase to 
1.3 percent. For example, it would take a public agency one year to 
collect an authorized amount, such as $1 million, at a $3.00 PFC level. 
This assumes the air carrier retains $0.08 for each remitted PFC. Under 
the new rate of compensation, it would take the public agency one year 
plus 5.1 days to collect $1 million at a $3.00 level. This higher 
percentage loss of revenue for the limited number of airports that 
remain at the $3 level will not severely affect their infrastructure 
improvement plans.

Costs to Air Carriers

    Air carriers will incur only slight costs in adjusting their 
accounting and ticketing programs to accommodate the increased 
compensation amount of $0.11 for each PFC collected. Before June 28, 
1994, air carrier accounting and ticketing programs allowed a 
compensation rate of $0.12 for each remitted PFC. Therefore, air 
carriers should be able to adjust such programs to accommodate the 
$0.11 rate of compensation. The primary cost of the amendment is 
associated with the change in the compensation basis from remitted PFCs 
to collected PFCs. This new basis of compensation may require some new 
programming. However, FAA believes the reprogramming costs, if any, to 
allow this change will be minor.

Impact on Air Passengers

    The adjustment to PFC collection compensation will not affect the 
PFC amount or the ticket prices paid by airline passengers for any 
given flight. The amendment will only affect amounts of the PFC 
retained by the air carrier. Instead of retaining $.08 for each PFC 
remitted to a public agency, air carriers will retain $0.11 for each 
PFC they collect. The only potential impact on air passengers would 
arise from the effects of the slightly reduced annual PFC remittances 
to airports. Since it would take an airport slightly longer to collect 
a specific amount of PFC revenues to fund a project, the period of time 
during which a PFC would be collected would be longer. In some cases, 
the longer collection period could slightly delay PFC-funded projects 
intended to benefit air passengers. The effect of such delays, however, 
would be minor.

Analysis of Compensation Effects

    Compensating air carriers based on PFCs collected rather than PFC 
remitted is subject to FAA discretion. In the case of refunded tickets, 
FAA reasoned the additional handling cost of collecting and refunding a 
PFC to a passenger would add to the overall expense of collecting and 
handling PFCs. Such costs would be embedded in the overall collection 
and handling cost data provided by the air carriers. If all air 
carriers had identical refund rates, use of an average compensation 
amount for each PFC collected or for each PFC remitted would be equally 
fair to individual carriers. For example, assume that total industry 
collection and handling costs were $12 million for 120 million PFCs 
collected. If 20 million PFCs were refunded and 100 million remitted to 
the airports, then a compensation rate of $0.10 for each PFC collected 
or $0.12 for each PFC remitted PFC would generate the same total 
compensation to the industry. Moreover, if all air carriers had 
equivalent refund rates, all airports would be reimbursed equally for 
these refund expenses. However, refund rates among individual air 
carriers in 1999 varied from 5 percent of total collected PFCs refunded 
to as high as 20 percent. By selecting compensation method based on 
PFCs collected, individual carriers would be reimbursed in a manner 
that more closely corresponds to actual handling levels. This approach, 
while not affecting the overall amount of compensation received, 
provides a closer match between each individual carrier's actual 
handling costs and its PFC handling compensation.

Summary of Costs and Compensation Effects

    FAA concludes this final rule is a cost-effective means of meeting 
the statutory requirement. It provides a uniform rate of compensation 
that fully covers the reasonable and necessary costs of air carriers 
for collecting and handling PFCs for airports. FAA estimates that a 
compensation rate of $0.11 for each PFC collected will allow

[[Page 12948]]

air carriers to recover fully their collection and handling expenses 
over a 10-year period.

Regulatory Flexibility Determination

    The Regulatory Flexibility Act of 1980 (RFA) establishes ``as a 
principle of regulatory issuance that agencies shall endeavor, 
consistent with the objective of the rule and of applicable statutes, 
to fit regulatory and informational requirements to the scale of the 
business, organizations, and governmental jurisdictions subject to 
regulation.'' To achieve that principle, the Act requires agencies to 
solicit and consider flexible regulatory proposals and to explain the 
rationale for their actions. The Act covers a wide-range of small 
entities, including small businesses, not-for-profit organizations and 
small governmental jurisdictions.
    Agencies must perform a review to determine whether a proposed or 
final rule will have a significant economic impact on a substantial 
number of small entities. If the determination is that it will, the 
agency must prepare a regulatory flexibility analysis as described in 
the Act.
    However, if an agency determines that a proposed or final rule is 
not expected to have a significant economic impact on a substantial 
number of small entities, section 605(b) of the 1980 act provides that 
the head of the agency may so certify and a regulatory flexibility 
analysis is not required. The certification must include a statement 
providing the factual basis for this determination, and the reasoning 
should be clear.
    FAA has determined the rule will have only a negligible impact on 
small commercial service airports. All costs are recoverable fully 
through the PFC by making small adjustments to the period of PFC 
collection. Any adverse impact on small air carriers that collect and 
handle PFCs will be minor and the result of statutory law. Also, FAA 
expects the final rule to result in higher compensation for air 
carriers even after incurring minor up-front administrative costs to 
convert ticketing systems to accommodate the new rate of compensation.
    FAA conducted the required review of this final rule and determined 
that it would not have a significant economic impact. Accordingly, 
pursuant to the Regulatory Flexibility Act, 5 U.S.C. 605(b), the 
Federal Aviation Administration certifies this rule will not have a 
significant impact on a substantial number of small entities.

International Trade Impact Assessment

    The Trade Agreement Act of 1979 prohibits Federal agencies from 
engaging in any standards or related activities that create unnecessary 
obstacles to the foreign commerce of the United States. Legitimate 
domestic objectives, such as safety, are not considered unnecessary 
obstacles. The statute also requires consideration of international 
standards and where appropriate, that they be the basis for U.S. 
standards
    In accordance with the above statute, FAA has assessed the 
potential affect of this final rule and has determined that, to the 
extent it imposes any costs affecting international entities, it will 
impose the same costs on domestic entities for comparable services and 
thus has a neutral trade impact. The additional compensation to air 
carriers for handling PFCs will not affect the cost of international 
travel. The existing rule imposes the same requirements to collect the 
PFC on tickets issued in the United States on domestic air carriers and 
on foreign air carriers. All international air carriers will receive 
higher compensation levels to reimburse their reasonable costs of 
collecting and handling PFCs.

Unfunded Mandates Assessment

    The Unfunded Mandates Reform Act of 1995 (the Act) is intended, 
among other things, to curb the practice of imposing unfunded Federal 
mandates on State, local, and tribal governments. Title II of the Act 
requires each Federal agency to prepare a written statement assessing 
the effects of any Federal mandate in a proposed or final agency rule 
that may result in an expenditure of $100 million or more (adjusted 
annually for inflation) in any one year by State, local, and tribal 
governments, in the aggregate, or by the private sector; such a mandate 
is deemed to be a ``significant regulatory action.''
    This final rule does not contain such a mandate. The requirements 
of Title II of the Act, therefore, do not apply.

Executive Order 13132, Federalism

    The FAA has analyzed this final rule under the principles and 
criteria of Executive Order 13132, Federalism. We determined that this 
action will not have a substantial direct effect on the States, or the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government, and therefore does not have federalism implications.

Environmental Analysis

    FAA Order 1050.1D defines FAA actions that may be categorically 
excluded from preparation of a National Environmental Policy Act (NEPA) 
environmental impact statement. In accordance with FAA Order 1050.1D, 
appendix 4, paragraph 4(j), this rulemaking action qualifies for a 
categorical exclusion.

Energy Impact

    The energy impact of the notice has been assessed in accordance 
with the Energy Policy and Conservation Act (EPCA) Public Law 94-163, 
as amended (42 U.S.C. 6362) and FAA Order 1053.1. We have determined 
that the final rule is not a major regulatory action under the 
provisions of the EPCA.

List of Subjects in 14 CFR Part 158

    Air carriers, Airports, Passenger facility charge, Public agencies, 
Collection compensation.

The Amendment

0
In consideration of the foregoing, the Federal Aviation Administration 
amends part 158 of Title 14 of the Code of Federal Regulations as 
follows:

PART 158--PASSENGER FACILITY CHARGES (PFC'S)

0
1. The authority citation for part 158 continues to read as follows:

    Authority: 49 U.S.C. 106(g), 40116-40117, 47106, 47111, 47114-
47116, 47524, 47526.


0
2. Amend Sec.  158.53 by revising paragraph (a) to read as follows:


Sec.  158.53  Collection compensation.

    As compensation for collecting, handling, and remitting the PFC 
revenue, the collecting air carrier is entitled to:
    (a) Retain $0.11 of each PFC collected;
* * * * *

    Issued in Washington, DC, March 11, 2004.
Marion C. Blakey,
Administrator.
[FR Doc. 04-6096 Filed 3-17-04; 8:45 am]
BILLING CODE 4910-13-P