[Federal Register Volume 71, Number 95 (Wednesday, May 17, 2006)]
[Proposed Rules]
[Pages 28604-28611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-4619]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AF29


Small Business Size Standards; Air Traffic Control, Other Airport 
Operations, and Other Support Activities for Air Transportation

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA) proposes to 
increase the size standard for the Air Traffic Control (North American 
Classification Systems (NAICS) 488111), Other Airport Operations (NAICS 
488119), and Other Support Activities for Air Transportation (NAICS 
488190) industries from $6.5 million in average annual receipts to $21 
million. The proposed revisions are being made to better define the 
size of a small business in these industries based on a review of 
industry characteristics.

DATES: Comments must be received by SBA on or before June 16, 2006.

ADDRESSES: You may submit comments, identified by RIN 3245-AF29, by one 
of the following methods: (1) Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments; 
(2) Fax: (202) 205-6390; or (3) Mail/Hand Delivery/Courier: Gary M. 
Jackson, Assistant Administrator for Size Standards, 409 Third Street, 
SW., Mail Code 6530, Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Diane Heal, Office of Size Standards, 
(202) 205-6618 or [email protected].

SUPPLEMENTARY INFORMATION: SBA has received a request from a Federal 
agency that contracts for services in the Other Airport Operations 
Industry to review this industry's existing $6.5 million size standard. 
This size standard was last revised in 2005 to incorporate an inflation 
adjustment to receipt-based size standards (70 FR 72577, December 19, 
2005). SBA has not conducted a review of this industry's 
characteristics since the early 1980's. This agency believes that SBA 
should create a special size standard under NAICS 488119 for Federal 
contracts consisting of processing passengers and servicing aircraft 
for long range or international flights. Many of these contracts 
involve coordinating all aspects of passenger service (including 
customs clearances, security requirements) as well as aviation services 
(such as food service, janitorial services, and aircraft fueling 
services). The agency also pointed some of these activities 
individually have higher size standards (i.e., the Food Service 
Contractors Industry and the Janitorial Services Industry have size 
standards of $19 million and $15 million, respectively, while the 
Aircraft Fueling Industry carries a 500-employee size standard). 
Although the Federal agency requested a review of the Air Airport 
Operations Industry, SBA decided to review also the Air Traffic Control 
Industry and Other Support Activities for Air Transportation Industries 
because many firms that perform Other Airport Operation Services also 
are active in these two industries.
    Below is a discussion of the methodology used by SBA to review its 
size standards, and the analysis leading to the proposal to increase 
the size standard for the three industries comprising air 
transportation support activities from $6.5 million to $21 million in 
average annual receipts.
    Size Standards Methodology: Congress granted SBA discretion to 
establish detailed size standards (15 U.S.C. 632(a)(2)). SBA's Standard 
Operating Procedure (SOP) 90 01 3, ``Size Determination Program'' 
(available on SBA's Web site at http://www.sba.gov/library/soproom.html) describes four factors SBA considers for establishing and 
evaluating size standards: (1) The structure of the industry and its 
various economic characteristics; (2) SBA program objectives and the 
impact of different size standards on these programs; (3) whether a 
size standard successfully excludes those businesses which are dominant 
in the industry; and (4) other factors if applicable. Other factors, 
including the impact on other Federal agencies' programs, may come to 
the attention of SBA during the public comment period or from SBA's own 
research on the industry. No formula or weighting has been adopted so 
that the factors may be evaluated in the context of a specific 
industry. Below is a discussion of SBA's analysis of the economic 
characteristics of an industry, the impact of a proposed size standard 
on SBA programs, and the evaluation of whether a firm at or below a 
size standard could be considered dominant in the industry.
    Industry Analysis: Section 3(a)(3) of the Small Business Act (15 
U.S.C. 632 (a)(3)) requires that size standards vary by industry to the 
extent necessary to reflect differing industry characteristics. SBA has 
two ``base'' or ``anchor'' size standards that apply to most 
industries--500 employees for manufacturing industries and $6.5 million 
in average annual receipts for nonmanufacturing industries. SBA 
established 500 employees as the anchor size standard for the 
manufacturing industries at SBA's inception in 1953 and shortly 
thereafter established a $1 million average annual receipts size 
standard for the nonmanufacturing industries. The receipts-based anchor 
size standard for the nonmanufacturing industries has been adjusted 
periodically for inflation so that, currently, the anchor size standard 
is $6.5 million. Anchor size standards are presumed to be appropriate 
for an industry unless its characteristics indicate that larger firms 
have a much greater significance within that industry than the 
``typical industry.''
    When evaluating a size standard, the characteristics of the 
specific industry under review are compared to the characteristics of a 
group of industries, referred to as a ``comparison group.'' A 
comparison group is a large number of industries grouped together to 
represent the typical industry. It can be comprised of all industries, 
all manufacturing industries, all industries with receipt-based size 
standards, or some other logical grouping. For purposes of this 
proposed rule, one comparison group comprises industries with the

[[Page 28605]]

nonmanufacturer anchor size standard of $6.5 million to assess whether 
the presumed anchor size standard is appropriate for the industry under 
review. SBA's analysis may also examine a second comparison group to 
evaluate thoroughly an appropriate size standard for an industry (which 
is the case for this proposed rule).
    If the characteristics of a specific industry are similar to the 
average characteristics of the nonmanufacturer anchor comparison group, 
then the anchor size standard is considered appropriate for the 
industry. If the specific industry's characteristics are significantly 
different from the characteristics of the nonmanufacturer anchor 
comparison group, a size standard higher or, in rare cases, lower than 
the anchor size standard may be considered appropriate. The larger the 
differences between the specific industry's characteristics and the 
nonmanufacturer anchor comparison group's characteristics, the larger 
the difference between the appropriate industry size standard and the 
anchor size standard. SBA will consider adopting a size standard below 
the anchor size standard only when (1) All or most of the industry 
characteristics are significantly smaller than the average 
characteristics of the comparison group, or (2) other industry 
considerations strongly suggest that the anchor size standard would be 
an unreasonably high size standard for the industry under review.
    The primary evaluation factors that SBA considers in analyzing the 
structural characteristics of an industry include average firm size, 
distribution of firms by size, start-up costs, and industry competition 
(13 CFR 121.102 (a) and (b)). SBA also examines the possible impact of 
a size standard revision on SBA's programs as an evaluation factor. SBA 
generally considers these five factors to be the most important 
evaluation factors in establishing or revising a size standard for an 
industry. However, it will also consider and evaluate other information 
that it believes relevant to the decision on a size standard for a 
particular industry. Public comments submitted on proposed size 
standards are also an important source of additional information that 
SBA closely reviews before making a final decision on a size standard. 
Below is a brief description of each of the five evaluation factors.
    1. ``Average firm size'' is simply total industry receipts (or 
number of employees) divided by the number of firms in the industry. If 
the average firm size of an industry were significantly higher than the 
average firm size of the nonmanufacturer anchor comparison industry 
group, this fact would be viewed as supporting a size standard higher 
than the anchor size standard. Conversely, if the industry's average 
firm size is similar to or significantly lower than that of the 
nonmanufacturer anchor comparison industry group, it would be a basis 
to adopt the anchor size standard or, in rare cases, a lower size 
standard.
    2. ``Distribution of firms by size'' is the proportion of industry 
receipts, employment, or other economic activity accounted for by firms 
of different sizes in an industry. If the preponderance of an 
industry's economic activity is attributable to smaller firms, this 
tends to support adopting the anchor size standard. A size standard 
higher than the anchor size standard is supported for an industry in 
which the distribution of firms indicates that economic activity is 
concentrated among the largest firms in an industry.
    In this proposed rule, SBA examines the percent of total industry 
sales cumulatively generated by firms up to a certain level of sales. 
For example, assume for the industry under review that 30 percent of 
total industry sales are generated by firms of less than $10 million in 
sales. This statistic is compared to a comparison group. For the 
nonmanufacturer anchor comparison group used in this proposed rule, 
firms of less than $10 million in sales cumulatively generated 49.4 
percent of total industry sales. Viewed in isolation, the lower figure 
for the industry under review indicates a more significant presence of 
larger-sized firms in this industry than firms in the industries 
comprising the nonmanufacturing anchor comparison group and, therefore, 
a higher size standard may be warranted.
    3. ``Start-up costs'' affect a firm's initial size because entrants 
into an industry must have sufficient capital to start and maintain a 
viable business. To the extent that firms entering into one industry 
have greater financial requirements than firms do in other industries, 
SBA is justified in considering a higher size standard. In lieu of 
direct data on start-up costs, SBA uses a proxy measure to assess the 
financial burden for entry-level firms. For this analysis, SBA has 
calculated average firm assets within an industry. Data from the Risk 
Management Association's Annual Statement Studies, 2000-2001, provide 
average sales to total assets ratios. These were applied to the average 
receipts size of firms in an industry to estimate average firm assets. 
An industry with a significantly higher level of average firm assets 
than that of the nonmanufacturer anchor comparison group is likely to 
have higher start-up costs, which would tend to support a size standard 
higher than the anchor size standard. Conversely, if the industry 
showed a significantly lower level of average firm assets when compared 
to the nonmanufacturer anchor comparison group, the anchor size 
standard would be considered the appropriate size standard or in rare 
cases, a lower size standard.
    4. ``Industry competition'' is assessed by measuring the proportion 
or share of industry receipts obtained by firms that are among the 
largest firms in an industry. In this proposed rule, SBA compares the 
proportion of industry receipts generated by the four largest firms in 
the industry--generally referred to as the ``four-firm concentration 
ratio''--to the average four-firm concentration ratio for industries in 
the comparison groups. If a significant proportion of economic activity 
within the industry is concentrated among a few relatively large 
companies, SBA tends to set a size standard relatively higher than the 
anchor size standard in order to assist firms in a broader size range 
to compete with firms that are larger and more dominant in the 
industry. In general, however, SBA does not consider this an important 
factor in assessing a size standard if the four-firm concentration 
ratio falls below 40 percent for an industry under review.
    5. ``Impact of a size standard revision on SBA programs'' refers to 
the possible impact a size standard change may have on the level of 
small business assistance. This assessment most often focuses on the 
proportion or share of Federal contract dollars awarded to small 
businesses in the industry in question. In general, the lower the share 
of Federal contract dollars awarded to small businesses in an industry 
which receives significant Federal contracting receipts, the greater is 
the justification for a size standard higher than the existing one.
    Another factor to evaluate the impact of a proposed size standard 
on SBA's programs is the volume of guaranteed loans within an industry 
and the size of firms obtaining those loans. This factor is sometimes 
examined to assess whether the current size standard may be restricting 
the level of financial assistance to firms in that industry. If small 
businesses receive significant amounts of assistance through these 
programs, or if the financial assistance is provided mainly to small 
businesses much lower than the size standard, a change to the size 
standard (especially

[[Page 28606]]

if it is already above the anchor size standard) may not be necessary.
    Evaluation of Industry Size Standard: The two tables below show the 
industry structure characteristics for the industries of Air Traffic 
Control, Other Airport Operations, and Other Support Activities for Air 
Transportation, and for two comparison groups. The first comparison 
group is comprised of all industries with a $6.5 million receipts-based 
size standard referred to as the nonmanufacturing anchor group. Because 
SBA's size standards analysis is assessing whether the Air Traffic 
Control, the Other Airport Operations, and the Other Support Activities 
for Air Transportation Industries' size standard should be moderately 
higher, or much higher than the nonmanufacturing anchor size standard, 
this is the most logical set of industries to group together for the 
industry analysis. In addition, this group includes a sufficient number 
of firms to afford a meaningful assessment and comparison of industry 
characteristics. The second comparison group consists of the 
nonmanufacturing industries with the highest receipt-based size 
standards established by SBA. SBA refers to this comparison group as 
the ``nonmanufacturing higher-level size standard group.'' This group's 
size standards range from $23 million to $32.5 million. If an 
industry's characteristics are significantly larger than those of the 
nonmanufacturing anchor group, SBA will compare them to the 
characteristics of the higher-level size standards group. By doing so, 
SBA can assess whether a size standard should be among the highest size 
standards or somewhere between the anchor size standard and the highest 
receipts-based size standards.
    SBA examined 2002 industry data prepared for SBA's Office of 
Advocacy by the U.S. Bureau of the Census (http://www.sba.gov/advo/research/us_rec02.txt), data from a U.S. Bureau of the Census report 
entitled ``U.S. All Industries Data by Receipt: 2002,'' and data from 
the Risk Management Association's Annual Statement Studies, 2000-2001. 
SBA also examined Federal contract award data for fiscal years 2003-
2004 from the U.S. General Service Administration's Federal Procurement 
Data Center, and SBA's internal loan database on SBA guaranteed loans.
    Industry Structure Considerations: Table 1 shows data on three 
evaluation factors for the Air Traffic Control Industry, the Other 
Airport Operations Industry, the Other Support Activities for Air 
Transportation Industry, and the two comparison groups. These factors 
are average firm size, average firm assets, and the four-firm 
concentration ratio.

                        Table 1.--Selected Industry Characteristics by Industry Category
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                                                              Average firm      Average firm        Four-firm
                     Industry category                        size receipts        assets         concentration
                                                                (million)        (millions)     ratio  (percent)
----------------------------------------------------------------------------------------------------------------
Air Traffic Control.......................................             $2.44             $2.47              88.7
Other Airport Operations..................................             $4.61             $1.49              34.3
Other Support Activities for Air Transportation...........             $2.97             $0.66              22.4
Nonmanufacturing Anchor Group.............................             $1.29             $0.60              14.4
Higher-level Size Standard Group..........................             $4.73             $2.00              26.4
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    For the Air Traffic Control Industry, its average firm size in 
receipts is almost twice that of the average firm size in the 
nonmanufacturer anchor group, but it is significantly lower than the 
average firm size in the higher-level size standards group. This factor 
indicates a size standard within a range of $12 million to $14 million, 
which is approximately double the $6.5 million anchor size standard, 
may be warranted. The average firm assets factor is above the higher-
level size standard group and provides a basis for increasing the 
current size standard within the $23 million to $32.5 million range. 
The four-firm concentration ratio provides support for a change to the 
current size standard. The factor is appreciably higher than the 
higher-level size standard group and it is at a sufficient level to 
suggest that the largest firms in the industry may have the ability to 
control the industry. To encourage competition, a very substantial 
increase to the size standard should be considered. In relation to the 
higher-level size standards group, the four-firm concentration ratio 
suggests a standard higher than $23 million is reasonable.
    For the Other Airport Operations Industry, its average firm size is 
almost that of the higher-level size standards group. This factor 
indicates a size standard in the lower range of $23 million to $32.5 
million may be warranted. The average firm assets factor is above the 
nonmanufacturing anchor group, but below the higher-level size standard 
group, and provides a basis for increasing the current size standard to 
a $14 million to $16 million range. The four-firm concentration ratio 
provides some support for a change to the current size standard, but is 
below the 40 percent level that would suggest the size standard should 
be changed because of this factor (see previous discussion of SBA's 
``Size Standards Methodology''). While the factor is appreciably higher 
than the average industry in the two comparison groups, the level of 
the size standard, however, should be based on the consideration of the 
other factors.
    For the Other Support Activities for Air Transportation Industry, 
its average firm size in receipts is more than twice that of the 
average firm size in the nonmanufacturer anchor. This factor indicates 
a size standard within a range of $15 to $16 million, which is slightly 
more than double the $6.5 million anchor size standard, may be 
warranted. The average firm assets factor is almost equal to the 
nonmanufacturing anchor group and does not provide a basis for 
increasing the existing size standard. The four-firm concentration 
ratio provides some support for a change to the current size standard, 
but is below the 40 percent level that would suggest the size standard 
should be changed because of this factor (see previous discussion of 
SBA's ``Size Standards Methodology''). While the factor is appreciably 
higher than the average industry in the nonmanufacturing anchor group, 
the level of the size standard, however, should be based on the 
consideration of the other evaluation factors.
    Table 2 below examines the size distribution of firms. For this 
factor, SBA evaluates the percent of total sales cumulatively generated 
by firms at or below specific receipts sizes. For example, firms in the 
Air Traffic Control, Other Airport Operations, and Other Support 
Activities for Air

[[Page 28607]]

Transportation Industries with $10 million or less in receipts 
cumulatively obtained 24.4 percent, 21.4 percent, and 24.8 percent, 
respectively, of total industry sales. Within the nonmanufacturing 
anchor group, these size firms captured 49.4 percent of total industry 
sales while similar firms in the higher-level size standards group 
captured 21.1 percent.

       Table 2.--Percentage Distribution of Firms by Receipts Size
------------------------------------------------------------------------
                                   Percent of industry sales by firm
                             -------------------------------------------
      Industry category          < $1       < $5      < $10      < $50
                               million    million    million    million
------------------------------------------------------------------------
Air Traffic Control.........        6.6       13.3       24.4       62.2
Other Airport Operations....        3.9       17.5       21.4       33.5
Other Support Activities for        7.5       18.9       24.8       35.8
 Air Transportation.........
Nonmanufacturing Anchor            16.8       39.9       49.4       63.7
 Group......................
Higher-level Size Standard          3.8       13.3       21.1       40.4
 Group......................
------------------------------------------------------------------------

    Considering the overall distributions across size classes, an 
appropriate size standard for all three industries appears to be near 
or just above the higher-level size standards group, such as between 
$22 million to $24 million. The data for each industry is discussed 
below.
    For the Air Traffic Control Industry, the data for three of the 
four size classes support a size standard well above the anchor size 
standard and at the lower range of the higher-level size standards. The 
size class of less than $50 million size class supports only a size 
standard at the anchor level. Overall, the size distribution factor 
supports a size standard in the at or near the lower range of the 
higher-level size standard group levels of $21 million to $23 million.
    For the Other Airport Operations Industry, the data generally 
support a size standard that is well above the nonmanufacturing anchor 
group and within the higher-level size standard group. The three size 
classes, less than $1 million, $10 million, and $50 million, support a 
size standard around the higher-level size standard group. The less 
than $5 million size class supports a size standard well above the 
anchor size standard, but at or below the higher-level size standard. 
Overall, the size distribution factor supports a size standard between 
the lower range of the higher size standards group levels of $23 
million to $25 million.
    For the Other Support Activities for Air Transportation industry, 
the data for three percentage groups support a size standard that is 
well above the nonmanufacturing anchor group, but at or slightly below 
the higher-level size standard group. The data for the size class less 
than $50 million support a size standard well above the 
nonmanufacturing anchor group and within the higher-level size standard 
group. Overall, the size distribution factor supports a size standard 
at or just below the range of the higher-level size standard group 
levels of $21 million to $24 million.
    SBA Program Considerations: SBA also considers the potential impact 
of changing a size standard on its programs. Because SBA's review of 
the Air Traffic Control, the Other Airport Operations, and the Other 
Support Activities for Air Transportation Industries' size standards 
was prompted by concerns about the application of the size standard to 
Federal contracting, SBA examines the pattern of Federal contract 
awards to small businesses as one of the factors in evaluating whether 
the existing size standard should be revised.
    In the case of Federal contracts to firms in the Air Traffic 
Control, Other Airport Operations, and Other Support Activities for Air 
Transportation Industries, the share of Federal contracts awarded to 
small businesses provide a basis for revising the size standard. In 
fiscal years 2003 and 2004, small businesses in the Air Traffic Control 
industry received 11.5 percent of the total dollar value of Federal 
contracts, while small business in the Other Airport Operations 
industry received an average of 12 percent, and the Other Support 
Activities for Air Transportation industry received 4 percent. In 
addition, a cumulative average of 25 percent of the award actions went 
to small businesses in these three industries.
    By comparison, the percentage of total industry sales cumulatively 
generated at or below the existing $6.5 million size standard, is 15.5 
percent for the Air Traffic Control industry and 18.3 percent for the 
Other Airport Operations industry. The respective 11.5 percent and 12 
percent of Federal contract dollars to small businesses are relatively 
low for the Air Traffic Control and Other Airport Operations. For the 
Other Support Activities for Air Transportation industry, the 4 percent 
small business Federal contract dollars share is extremely lower than 
the 20.1 percent of total industry sales cumulative generated by firms 
at or below the current $6.5 million size standard. These comparisons 
between industry-wide small business market share and the proportion of 
Federal contracting dollars to small business indicate that small 
businesses in these industries may have encountered difficulties in 
obtaining Federal contracts, and that a size standard much higher than 
$6.5 million may be warranted.
    SBA also reviewed its financial assistance to small businesses in 
the air transportation support activities industries. In fiscal years 
2003, 2004, and 2005, SBA guaranteed no loans for the Air Traffic 
Control industry; an average of nine loans totaling $2.4 million in the 
Other Airport Operations industry; and an average of 37 loans totaling 
$5.1 million for the Other Support Activities for Air Transportation 
industry. Almost 90 percent of the loans for the Other Airport 
Operations industry and the Other Support Activities for Air 
Transportation industry were made to firms less than half the current 
size standard. It is unlikely that an increase to the size standard 
would have an appreciable impact on the financial programs, and 
therefore, this factor is not part of the assessment of this industry's 
size standard.
    SBA's Proposal: The analysis of each evaluation factor supports SBA 
proposing a $21 million size standard for each industry. SBA believes 
the presence of larger-sized firms in the industry, as evidenced by the 
factors of average size firm, the distribution of firms by size, and 
four-firm concentration ratio, is sufficiently strong to support a 
substantial change to the existing size standard. For the Air Traffic 
Control and the Other Airport Operations industries, most of the five 
evaluation factors support a size

[[Page 28608]]

standard at or near the lower range of the higher-level size standards. 
For both industries, one factor supports a size standard about double 
the $6.5 nonmanufacturer anchor size standard. Accordingly, SBA 
believes the data support a $21 million size standard that is near the 
lower range of the higher-level size standards. For the Other Support 
Activities for Air Transportation Industry, three of the five factors 
support a size standard significantly higher than the current $6.5 
million size standard, with one factor supporting a size standard at or 
near the range of the lower range of the higher-level size standards. 
In consideration that many firms operate in each of the three air 
transportation support activities industries, SBA has decided to also 
propose a $21 million size standard for this industry to have a common 
size standard for closely related industries.
    Dominant in Field of Operation: Section 3(a) of the Small Business 
Act defines a small concern as one that is (1) Independently owned and 
operated, (2) not dominant in its field of operations and (3) within 
detailed definitions or size standards established by the SBA 
Administrator. SBA considers as part of its evaluation of a size 
standard whether a business concern at or below a size standard would 
be considered dominant in its field of operation. This assessment 
generally considers the market share of firms at the proposed or final 
size standard, or other factors that may show whether a firm can 
exercise a major controlling influence on a national basis in which 
significant numbers of business concerns are engaged.
    SBA has determined that for the Air Traffic Control, the Other 
Airport Operations, and the Other Support Activities for Air 
Transportation industries no firm at or below the proposed size 
standard would be of a sufficient size to dominate its field of 
operation. The largest firm within the Air Traffic Control, the Other 
Airport Operations, and the Other Support Activities for Airport 
Transportation industries at the proposed size standard level generates 
less than 0.30, 0.25 and 0.20 percent, respectively, of total industry 
receipts. This level of market share effectively precludes any ability 
for a firm at or below the proposed size standard from exerting a 
controlling effect on this industry.
    Alternative Size Standards: SBA considered an alternative size 
standard based on average number of employees instead of average annual 
receipts. This approach was considered in a proposed rule of March 19, 
2004 (69 FR 13130) as part of proposal to restructure all of SBA's size 
standards. For the Air Traffic Control industry, a size standard in 
number of employees would not be appropriate. The average number of 
employees for this industry is 30, and for all firms with receipts 
below the proposed $21 million level, the average number of employees 
is 11. SBA is currently studying how to simplify its size standards. 
SBA proposed to establish a minimum employee size standard of 50, to 
reduce the number of size standards from 37 levels to 11, and to 
establish common size standards for related industries. If SBA had 
adopted the proposed minimum 50-employee size standard, potentially one 
or two of the largest four firms might qualify as a small business. If 
SBA established an employee size standard for the Air Traffic Control 
industry between 15 and 20 employees, it would be contrary to SBA's 
measures to simplify its size standards by increasing the number of 
size standard levels, and not establishing common size standards for 
related industries. For this reason, SBA has determined that a receipt-
based size standard of $21 million for the Air Traffic Control industry 
is more appropriate.
    In addition, concerns in the Other Airport Operations Industry 
perform their services with the use of subcontractors and part-time 
employees, i.e., janitorial, aircraft fueling, and food services. 
Because of the large proportion of part-time employees in this 
industry, SBA has decided to retain average annual receipts as the size 
standard measure. A receipts-based size standard will treat firms more 
equitably since firms will vary on the use of part-time employees and 
subcontractors. An employee-based size standard could unintentionally 
influence decisions of some firms to alter the use of part-time 
employees and subcontractors to remain eligible as small businesses.
    Firms in the Other Support Activities for Air Transportation 
Industry provide specialized services for the air transportation 
industry, such as aircraft testing, repair, maintenance, and 
inspection. SBA considered converting this size standard from receipts 
to employees as activities in this industry tend to have a more stable 
workforce. A comparable size standard for this industry would be in the 
range of 100 to 125 employees. However, SBA decided to keep the size 
standard as one based on receipts because the emphasis on its 
restructuring effort is simplification. Many firms in this industry are 
also active in the Other Airport Operations industry, which does not 
lend itself to an employee-based size standard. If SBA decided to 
establish an employee-based size standard for Other Support Activities 
for Air Transportation, firms that are active in both industries could 
find themselves small in the Other Support Activities for Air 
Transportation industry, yet large in the Other Airport Operations 
industry, or vice-a-versa. The analysis provided above indicates that 
both industries require a similar receipts-based size standard.
    SBA welcomes public comments on its proposed size standard for the 
Air Traffic Control, Other Airport Operations, and Other Support 
Activities for Aircraft Industries. Comments on alternatives, including 
the option of retaining the size standards at $6.5 million or 
establishing employee-based size standards as discussed above, should 
explain why the alternative would be preferable to the proposed size 
standards.

Compliance With Executive Orders 12866, 12988, and 13132, the Paperwork 
Reduction Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5 
U.S.C. 601-612)

    The Office of Management and Budget (OMB) has determined that this 
proposed rule is a ``significant'' regulatory action for purposes of 
Executive Order 12866. Accordingly, the next section contains SBA's 
Regulatory Impact Analysis. This is not a major rule, however, under 
the Congressional Review Act, 5 U.S.C. 800.
    For purposes of Executive Order 12988, SBA has determined that this 
rule is drafted, to the extent practicable, in accordance with the 
standards set forth in that Order.
    For purposes of Executive Order 13132, SBA has determined that this 
rule does not have any Federalism implications warranting the 
preparation of a federalism assessment.
    For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA has determined that this rule would not impose new reporting or 
record keeping requirements, other than those required of SBA.

Regulatory Impact Analysis

1. Is there a need for the regulatory action?

    SBA's mission is to aid and assist small businesses through a 
variety of financial, procurement, business development, and advocacy 
programs. To assist effectively the intended beneficiaries of these 
programs, SBA must establish distinct definitions of which businesses 
are deemed small businesses. The Small Business Act (15 U.S.C. 632(a)) 
delegates to SBA's

[[Page 28609]]

Administrator the responsibility for establishing small business 
definitions. The Act also requires that small business definitions vary 
to reflect industry differences. The supplementary information section 
of this proposed rule explains SBA's methodology for analyzing a size 
standard for a particular industry. Based on that analysis, SBA 
believes that an adjustment in the size standard of the Air Traffic 
Control, Other Airport Operations, and Other Support Activities for Air 
Transportation Industries is needed to better reflect the economic 
characteristics of small businesses in this industry.

2. What are the potential benefits and costs of this regulatory action?

    The most significant benefit to businesses obtaining small business 
status as a result of this rule is eligibility for Federal small 
business assistance programs, including SBA's financial assistance 
programs, economic injury disaster loans, and Federal procurement 
preference programs for small businesses, such as 8(a) firms, small 
disadvantaged businesses (SDB), small businesses located in 
Historically Underutilized Business Zones (HUBZone), women-owned small 
businesses, and veteran-owned and service disabled veteran-owned small 
businesses. HUBZone and SDB small businesses are also for Federal 
contracts awarded through full and open competition after application 
of the HUBZone or SDB price evaluation preference or adjustment. Other 
Federal agencies also may use SBA size standards for a variety of 
regulatory and program purposes. Through the assistance of these 
programs, small businesses become more knowledgeable, stable, and 
competitive businesses. Under this proposed rule, 150 additional firms 
generating an average of 8 percent of sales in the three industries 
will obtain small business status and become eligible for these 
programs.
    The benefits of a size standard increase to a more appropriate 
level would accrue to three groups: (1) Businesses that benefit by 
gaining small business status from the higher size standard that also 
use small business assistance programs; (2) growing small businesses 
that may exceed the current size standards in the near future and that 
will retain small business status from the higher size standard; and 
(3) Federal agencies that award contracts under procurement programs 
that require small business status.
    SBA estimates that firms gaining small business status could 
potentially obtain Federal contracts worth $129 million per year under 
the small business set-aside program, the 8(a) and HUBZone Programs, or 
unrestricted procurements. This represents 8 percent of the $1.6 
billion in average Federal contracts awarded under NAICS 488111, 
488119, 488190 during fiscal years 2003 and 2004. The added competition 
for many of these procurements also would likely result in a lower 
price to the Government for procurements reserved for small businesses, 
but SBA is not able to quantify this benefit.
    Under SBA's 7(a) Guaranteed Loan Program and Certified Development 
Company (504) Program, SBA estimates that one or two additional loans 
totaling $500,000 to $600,000 in new Federal loan guarantees could be 
made to these newly defined small businesses. This assumes that only 
one to two percent of the newly eligible small businesses will seek SBA 
financial assistance. Because of the size of the loan guarantees, 
however, most loans are made to small businesses well below the size 
standard. Thus, increasing the size standard will likely result in only 
a small increase in small business guaranteed loans to businesses in 
this industry, if any.
    The newly defined small businesses would also benefit from SBA's 
Economic Injury Disaster Loan (EIDL) Program. Since this program is 
contingent upon the occurrence and severity of a disaster, no 
meaningful estimate of benefits can be projected for future disasters.
    To the extent that up to 150 additional firms could become active 
in Federal small business programs, this may entail some additional 
administrative costs to the Federal Government associated with 
additional bidders for Federal small business procurement programs, 
additional firms seeking SBA guaranteed lending programs, additional 
firms eligible for enrollment in Central Contractor Registration's 
Dynamic Small Business Search database, and additional firms seeking 
certification as 8(a), SDB, or HUBZone firms. Among businesses in this 
group seeking SBA assistance, there could be some additional costs 
associated with compliance and verification of small business status 
and protests of small business status. These costs are likely to 
generate minimal incremental administrative costs because mechanisms 
are currently in place to handle these additional administrative 
requirements.
    The costs to the Federal Government may be higher on some Federal 
contracts. With greater number of businesses defined as small, Federal 
agencies may choose to set-aside more contracts for competition among 
small businesses rather than using full and open competition. The 
movement from unrestricted to set-aside contracting is likely to result 
in competition among fewer bidders. In addition, higher costs may 
result if additional full and open contracts are awarded to HUBZone and 
SDB businesses because of a price evaluation preference. The additional 
costs associated with fewer bidders, however, are likely to be minor 
since, as a matter of policy, procurements may be set aside for small 
businesses or reserved for the 8(a) or HUBZone Programs only if awards 
are expected to be made at fair and reasonable prices.
    The proposed size standard may have distributional effects among 
large and small businesses. Although the actual outcome of the gains 
and losses among small and large businesses cannot be estimated with 
certainty, several trends are likely to emerge. First, there will 
likely be a transfer of some Federal contracts to small businesses from 
large businesses. Large businesses may have fewer Federal contract 
opportunities as Federal agencies decide to set aside more Federal 
procurements for small businesses. Also, some Federal contracts may be 
awarded to HUBZone or SDB concerns instead of large businesses since 
those two categories of small businesses may be eligible for a price 
evaluation adjustment for contracts competed on a full and open basis. 
Similarly, currently defined small businesses may obtain fewer Federal 
contracts due to the increased competition from more businesses defined 
as small. This transfer may be offset by a greater number of Federal 
procurements set aside for all small businesses. The number of newly 
defined and expanding small businesses that are willing and able to 
sell to the Federal Government will limit the potential transfer of 
contracts away from large and currently defined small businesses. The 
potential distributional impacts of these transfers may not be 
estimated with any degree of precision because the data on the size of 
business receiving a Federal contract are limited to identifying small 
or other-than-small businesses, without regard to the exact size of the 
business.
    The revision to the current size standards for the Air Traffic 
Control, Other Airport Operations, and Other Support for Air 
Transportation Industries is consistent with SBA's statutory mandate to 
assist small business. This regulatory action promotes the 
Administration's objectives. One of SBA's goals in support of the 
Administration's

[[Page 28610]]

objectives is to help individual small businesses succeed through fair 
and equitable access to capital and credit, Government contracts, and 
management and technical assistance. Reviewing and modifying size 
standards, when appropriate, ensures that intended beneficiaries have 
access to small business programs designed to assist them.

Initial Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act (RFA), this rule, if 
finalized, may have a significant impact on a substantial number of 
small entities engaged in Air Traffic Control, Other Airport 
Operations, and Other Support Activities for Air Transportation. As 
described above, this rule may affect small entities seeking Federal 
contracts, SBA (7a) and 504 Guaranteed Loan Programs, SBA Economic 
Impact Disaster Loans, and other Federal small business programs.
    Immediately below, SBA sets forth an initial regulatory flexibility 
analysis (IRFA) of this proposed rule on the Air Traffic Control, Other 
Airport Operations, and Other Support Activities for Air Transportation 
industries addressing the following questions: (1) What is the need for 
and objective of the rule, (2) what is SBA's description and estimate 
of the number of small entities to which the rule will apply, (3) what 
is the projected reporting, recordkeeping, and other compliance 
requirements of the rule, (4) what are the relevant Federal rules which 
may duplicate, overlap or conflict with the rule, and (5) what 
alternatives will allow the Agency to accomplish its regulatory 
objectives while minimizing the impact on small entities?

(1) What is the need for and objective of the rule?

    The revision to the size standard for the Air Traffic Control, 
Other Airport Operations, and Other Support for Air Transportation 
Industries more appropriately defines the size of businesses in this 
industry that SBA believes should be eligible for Federal small 
business assistance programs. SBA reviewed the structure of these 
industries using five factors that were compared with averages for two 
groups of industries. A review of the latest available data supports a 
change to the existing size standard.

(2) What is SBA's description and estimate of the number of small 
entities to which the rule will apply?

    SBA estimates that 150 additional firms out of 3,607 firms in all 
three industries would be considered small because of this rule, if 
adopted. These firms would be eligible to seek available SBA assistance 
provided that they meet other program requirements. Firms becoming 
eligible for SBA assistance as a result of this rule, if finalized, 
cumulatively generate $1 billion in this industry out of a total of 
$12.7 billion in annual receipts. The small business coverage in this 
industry would increase by approximately eight percent of total 
receipts.

(3) What are the projected reporting, record keeping, and other 
compliance requirements of the rule and an estimate of the classes of 
small entities which will be subject to the requirements?

    A new size standard does not impose any additional reporting, 
record keeping or compliance requirements on small entities. Increasing 
size standards expands access to SBA programs that assist small 
businesses, but does not impose a regulatory burden as they neither 
regulate nor control business behavior.

(4) What are the relevant Federal rules which may duplicate, overlap or 
conflict with the rule?

    This proposed rule overlaps with other Federal rules that use SBA's 
size standards to define a small business. Under section 3(a)(2)(C) of 
the Small Business Act, 15 U.S.C. 632(a)(2)(c), Federal agencies must 
use SBA's size standards to define a small business, unless 
specifically authorized by statute. In 1995, SBA published in the 
Federal Register a list of statutory and regulatory size standards that 
identified the application of SBA's size standards as well as other 
size standards used by Federal agencies (60 FR 57988-57991, dated 
November 24, 1995). SBA is not aware of any Federal rule that would 
duplicate or conflict with establishing size standards.
    The size standard may also affect small businesses participating in 
programs of other agencies that use SBA size standards. As a practical 
matter, however, SBA cannot estimate the impact of a size standard 
change on each Federal program that uses its size standards. In cases 
where an SBA size standard is not appropriate, the Small Business Act 
and SBA's regulations allow Federal agencies to develop different size 
standards with the approval of SBA Administrator (13 CFR 121.902). For 
purposes of a regulatory flexibility analysis, agencies must consult 
with SBA's Office of Advocacy when developing different size standards 
for their programs (13 CFR 121.902(b)(4)).

(5) What alternatives will allow the Agency to accomplish its 
regulatory objectives while minimizing the impact on small entities?

    SBA considered an alternative size standards based on average 
number of employees instead of average annual receipts. This approach 
was considered in a proposed rule of March 19, 2004 (69 FR 13130) as 
part of restructuring of size standards. For the Air Traffic Control 
industry, a size standard in number of employees would not be 
appropriate. The average number of employees for this industry is 30, 
and for all firms with receipts below the proposed $21 million level, 
the average number of employees is 11. SBA is currently studying how to 
simplify its size standards. In its March 19, 2004 rule, SBA proposed 
to establish a minimum employee size standard of 50, to reduce the 
number of size standards from 37 levels to 11, and to establish common 
size standards for related industries. If SBA had adopted the proposed 
minimum 50-employee size standard, potentially one or two of the 
largest four firms might qualify as a small business. If SBA 
established an employee size standard for the Air Traffic Control 
industry between 15 and 20 employees, it would be contrary to SBA's 
measures to simplify its size standards by increasing the number of 
size standard levels, and not establishing common size standards for 
related industries. For this reason, SBA has determined that a receipt 
based size standard of $21 million for the Air Traffic Control industry 
is more appropriate.
    In addition, concerns in the Other Airport Operations industry 
perform their services with the use of subcontractors and part-time 
employees, i.e., janitorial, aircraft fueling, and food services. 
Because of the large proportion of part-time employees in this 
industry, SBA has decided to retain average annual receipts as the size 
standard measure. A receipts-based size standard will treat firms more 
equitably since firms will vary on the use of part-time employees and 
subcontractors. An employee size standard could unintentionally 
influence decisions of some firms to alter the use of part-time 
employees and subcontractors to remain as small businesses.
    Firms in the Other Support Activities for Air Transportation 
industry provide specialized services for the air transportation 
industry like aircraft testing, repair, maintenance, and inspection. 
SBA considered converting this size standard from receipts to employees 
as activities in this industry tend to have a more stable workforce. A

[[Page 28611]]

comparable size standard for this industry would be in the range of 100 
to 125 employees. However, SBA decided to keep the size standard 
receipts-based because of its emphasis on its restructuring effort is 
simplification. Many firms in this industry are also active in the 
Other Airport Operations industry, which does not lend itself to an 
employee-based size standard. If SBA decided to establish an employee-
based size standard for Other Support Activities for Air 
Transportation, firms that are active in both industries could find 
themselves small in the Other Support Activities for Air Transportation 
industry, yet large in the Other Airport Operations industry, or vice-
a-versa. The analysis provided above indicates that both industries 
require a similar receipts-based size standard.
    SBA welcomes comments on other alternatives that minimize the 
impact of this rule on small businesses and achieve the objectives of 
this rule. These comments should describe the alternative and explain 
why it is preferable to this proposed rule.

List of Subjects in 13 CFR Part 121

    Administrative practice and procedure, Government procurement, 
Government property, Grant programs--business, Individuals with 
disabilities, Loan programs--business, Reporting and recordkeeping 
requirements, Small businesses.

    For the reasons set forth in the preamble, SBA proposes to amend 
part 13 CFR Part 121 as follows.

PART 121--SMALL BUSINESS SIZE REGULATIONS

    1. The authority citation for part 121 continues to read as 
follows:

    Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 637(a), 644, and 
662(5); and Pub. L. 105-135, sec. 401 et seq., 111 Stat. 2592.

    2. In Sec.  121.201, in the table ``Small Business Size Standards 
by NAICS Industry,'' under the heading ``Subsector 488'Support 
Activities for Transportation,'' revise the entries for 488111, 488119, 
and 488190 to read as follows:


Sec.  121.201  What size standards has SBA identified by North American 
Industry Classification System codes?

             Small Business Size Standards by NAICS Industry
------------------------------------------------------------------------
                                          Size standards  Size standards
    NAICS codes      NAICS U.S. industry  in millions of   in number of
                            title             dollars        employees
------------------------------------------------------------------------
 
                              * * * * * * *
------------------------------------------------------------------------
          Subsector 488--Support Activities for Transportation
------------------------------------------------------------------------
488111.............  Air Traffic Control           $21.0  ..............
488119.............  Other Airport                  21.0  ..............
                      Operations.
488190.............  Other Support                  21.0  ..............
                      Activities for Air
                      Transportation.
------------------------------------------------------------------------
 
                              * * * * * * *
------------------------------------------------------------------------


    Dated: March 17, 2006.
Hector V. Barreto,
Administrator.
[FR Doc. 06-4619 Filed 5-16-06; 8:45 am]
BILLING CODE 8025-01-P