[Federal Register Volume 73, Number 135 (Monday, July 14, 2008)]
[Notices]
[Pages 40430-40445]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 08-1430]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary; Federal Aviation Administration

[Docket No. FAA-2008-0036]
RIN 2120-AF90


Policy Regarding Airport Rates and Charges

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

ACTION: Notice of amendment to policy statement.

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SUMMARY: This action amends the Department of Transportation 
(``Department'') ``Policy Regarding the Establishment of Airport Rates 
and Charges'' published in the Federal Register on June 21, 1996 
(``1996 Rates and Charges Policy''). This action adopts three 
amendments to the 1996 Rates and Charges Policy (two modifications and 
one clarification). These amendments are intended to provide greater 
flexibility to operators of congested airports to use landing fees to 
provide incentives to air carriers to use the airport at less congested 
times or to use alternate airports to meet regional air service needs. 
Any charges imposed on international operations must also comply with 
the international obligations of the United States.

DATES: This policy statement is effective July 14, 2008.

ADDRESSES: Docket: To read background documents or comments received, 
go to http://www.regulations.gov at any time or to Room W12-140 on the 
ground floor of the West Building, 1200 New Jersey Avenue, SE., 
Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, 
except Federal holidays.

FOR FURTHER INFORMATION CONTACT: Charles Erhard, Manager, Airport 
Compliance Division, AAS-400, Federal Aviation Administration, 800 
Independence Avenue, SW., Washington, DC 20591, telephone (202) 267-
3187; facsimile: (202) 267-5769; e-mail: [email protected].

SUPPLEMENTARY INFORMATION:

Availability of Documents

    You can get an electronic copy of this notice and all other 
documents in this docket using the Internet by:
    (1) Searching the Federal eRulemaking portal (http://www.regulations.gov/search);
    (2) Visiting the FAA's Regulations and Policies Web page at http://www.faa.gov/regulations_policies; 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 sending 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 docket number, notice number, or amendment number 
of this proceeding.

Authority for This Proceeding

    This notice is published under the authority described in Subtitle 
VII, Part B, Chapter 471, section 47129 of Title 49 United States Code. 
Under subsection (b) of this section, the Secretary of Transportation 
is required to publish policy statements establishing standards or 
guidelines the Secretary will use in determining the reasonableness of 
airport fees charged to airlines under section 47129.

Background

    On January 17, 2008, the Department of Transportation published a 
notice in the Federal Register proposing to amend the Department of 
Transportation (``Department'') ``Policy Regarding the Establishment of 
Airport Rates and Charges'' published in the Federal Register on June 
21, 1996, (``1996 Rates and Charges Policy'' or ``1996 Policy''). (73 
FR 3310, January 17, 2008). The comment period on the notice was 
extended to April 3, 2008. (73 FR 7626, February 8, 2008). The notice 
proposed three amendments to the 1996 Policy (technically two 
modifications and one clarification). These amendments were intended to 
provide greater flexibility to operators of congested airports to use 
landing fees to provide incentives to air carriers to use the airport 
at less congested times or to use alternate airports to meet regional 
air service needs. The notice noted that any charges imposed on 
international operations must also comply with the international 
obligations of the United States.
    Specifically, the notice first proposed to clarify the 1996 Policy 
by explicitly acknowledging that airport operators are authorized to 
establish a two-part landing fee structure consisting of both an 
operation charge and a weight-based charge, in lieu of the standard 
weight-based charge. Such a two-part fee would serve as an incentive 
for carriers to use larger aircraft and increase the number of 
passengers served with the same or fewer operations. Second, the notice 
proposed to expand the ability of the operator of a congested airport 
to include in the airfield fees of a congested airport a portion of the

[[Page 40431]]

airfield costs of other, underutilized airports owned and operated by 
the same proprietor. Third, the notice proposed to permit the operator 
of a congested airport to charge users of a congested airport a portion 
of the cost of airfield projects under construction. Under the existing 
policy, costs of new or reconstructed airfield facilities could be 
included in airfield charges only when the new or reconstructed 
facilities are completed and in use, unless carriers at the airport 
agree otherwise. This notice proposed two alternatives for charges for 
projects under construction. The first would permit the costs to be 
included in the rate base only during periods when the airport 
experiences congestion. At some airports, such as Chicago O'Hare or New 
York LaGuardia, this could occur throughout the normal operating day. 
The second would permit these costs to be included in the rate base of 
the congested airport at all times of the day. Because the latter two 
proposed amendments would apply only at congested airports, the notice 
proposed to add a definition of ``congested airport'' in the 
Applicability section of the 1996 Policy based upon 49 U.S.C. 47175(2).

Legal Requirements for Airport Rates and Charges

    All commercial service airports operating in the United States and 
most other airports that are open to the public have accepted grants 
for airport development under the Airport Improvement Program, 
authorized in Title 49 of the United States Code, Subtitle VII, Part B, 
Chapter 471. Under Sec.  47107, in exchange for receiving grant funds, 
airport operators must give a variety of assurances regarding the 
operation of their airports and the implementation of grant funded 
projects. Among other things, airport operators pledge to make the 
airport ``available for public use on reasonable conditions and without 
unjust discrimination.'' 49 U.S.C. 47107(a)(1). This obligation 
encompasses the obligation to establish reasonable and not unjustly 
discriminatory fees and charges for aeronautical use of the airfield. 
The Department's rules of practice and procedure for enforcement 
proceedings involving Federally assisted airports are set forth in 14 
CFR Part 16.
    Section 47129 authorizes the Department to review the 
reasonableness of airport fees charged to air carriers, upon a 
complaint or request for determination and a finding of a significant 
dispute, and directs the publication of policies or guidelines for 
determining reasonable fees and development of expedited hearing 
procedures to resolve airport fee disputes. The Department's procedures 
applicable to a proceeding concerning airport fees are contained in 
Subpart F, Title 14 CFR 302.601-302.609.

The Policy Regarding Airport Rates and Charges

    The Department published the 1996 Rates and Charges Policy in the 
Federal Register at 61 FR 31994 on June 21, 1996. The statement of 
policy was required by section 113 of the Federal Aviation 
Administration Authorization Act of 1994, Public Law 103-305 (August 
23, 1994), now codified at 49 U.S.C. 47129. The publication of the 1996 
Rates and Charges Policy followed publication of a notice of proposed 
policy (59 FR 29874, June 9, 1994). That proposal predated enactment of 
section 47129. After enactment of section 47129, the Department 
published a supplemental notice of proposed policy (59 FR 51836, 
October 12, 1994); an Interim Policy (60 FR 6906, February 3, 1995); 
and a further supplemental notice of proposed policy (60 FR 47012, 
September 8, 1995).
    The Air Transport Association of America (ATA), on behalf of its 
member airlines, and the City of Los Angeles, operator of Los Angeles 
International Airport, both challenged elements of the 1996 Rates and 
Charges Policy in the United States Court of Appeals for the District 
of Columbia. The court vacated portions of the 1996 Rates and Charges 
Policy in Air Transport Ass'n of America v. DOT, 119 F.3d 38, amended 
by 129 F.3d 625 (D.C. Cir. 1997).
    The 1996 Rates and Charges Policy specified that, unless otherwise 
agreed to by an airport user, fees for airfield use must be based on 
costs calculated using the historic cost accounting (HCA) methodology. 
However, under paragraphs 2.2, 2.4, and 2.5.1, for other airport 
facilities and services the airport proprietor was free to use any 
reasonable methodology to determine fees, if justified and applied on a 
consistent basis. 1996 Rates and Charges Policy, para. 2.6. Petitioners 
in the court case challenged the disparate treatment of airfield fees 
and other fees. The court determined that this distinction had not been 
adequately justified. Air Transport, 119 F.3d at 44. At the 
Department's request, the Court vacated only the specific provisions of 
the 1996 Rates and Charges Policy that petitioners challenged as 
implementing that distinction. Air Transport, 129 F.3d at 625.
    Since the court's ruling, the Department has addressed significant 
airport-airline fee disputes through case-by-case adjudication. The 
Department's decisions are informed by the statutory limitations 
imposed on airport fees. One limitation derives from requirements of 
the Airport Improvement Program (AIP) grant assurances, 49 U.S.C. 
47107. In particular, a federally assisted airport sponsor must give 
the Secretary of Transportation and the Federal Aviation Administration 
(FAA) certain assurances, including the assurance that the airport will 
be available for public use on fair and reasonable terms and without 
unjust discrimination. The other limitation arises from the 
proprietor's exception to the Anti-Head Tax Act, 49 U.S.C. 40116, which 
allows the airport proprietor to collect only reasonable rental 
charges, landing fees, and other service charges from aircraft 
operators for the use of airport facilities.
    Our past cases have established some guidelines for our analysis of 
fees challenged by airlines. Our cases have examined fees and fee 
methodologies that we considered reasonable as well as those we 
considered not to be reasonable. See Miami International Airport Rates 
Proceeding, Order 97-3-26 (March 19, 1997), aff'd sub nom., Air Canada 
v. DOT, 148 F.3d 1142 (D.C. Cir. 1998); Alaska Airlines, Inc., et al. 
v. Los Angeles World Airports, Order 2007-6-8 (June 15, 2007) (LAX 
III), on appeal to the United States Court of Appeals for the District 
of Columbia Circuit).
    Additionally, we have established some guidance on unreasonable 
airline fees. Second Los Angeles Int'l Airport Rates Proceeding, Order 
95-9-24 (Sept. 22, 1995, (LAX II), aff'd sub nom, City of Los Angeles 
v. DOT, 165 F.3d 972 (D.C. Cir. 1999); Brendan Airways, LLC v. Port 
Authority of New York and New Jersey, Order 2005-6-11 (June 14, 2005), 
aff'd in part, Port. Auth. of New York and New Jersey v. DOT, 479 F.3d 
21 (D.C. Cir. 2007).
    The Secretary has also determined whether or not certain disputed 
fees were unjustly discriminatory. Brendan Airways, op cit., Order 
2005-6-11; LAX III.

Rationale for the Proposal

    The January 17 notice offered a two-part justification for the 
proposed policy changes: First, the increasing congestion and operating 
delays at major airports in the U.S., and second, the potential that 
peak period pricing has to address that congestion. Excess demand has 
already resulted in congestion at certain airports to the point that 
the FAA has taken action to limit access. These airports include 
LaGuardia, JFK International, O'Hare International, and Newark Liberty 
International. A recent study,

[[Page 40432]]

Capacity Needs in the National Airspace System 2007-2025: An Analysis 
of Airports and Metropolitan Area Demand and Operational Capacity in 
the Future, conducted by the Federal Aviation Administration as part of 
the Future Airport Capacity Task (FACT) 2, indicates metropolitan areas 
and regions along the East and West Coasts are experiencing large 
amounts of growth in population and economic activity that cause 
chronic congestion. Based on studies and analyses associated with FACT 
2, conditions are projected to worsen in the future in these coastal 
regions, primarily concentrated at Operational Evolution Partnership 
(OEP) airports. Fourteen of the 35 OEP airports and eight metropolitan 
areas are forecasted to be capacity-constrained in 2025. Of the 
fourteen airports identified as capacity-constrained in the study, 
several are further constrained by conditions, either physical (New 
York LaGuardia) or environmental (Long Beach-Daugherty Field), that 
prevent additional runway capacity from being built.
    The January 17 notice noted that one way of addressing congestion 
of an airport's airside facilities is by the pricing of those 
facilities. By raising the cost of operating a flight during congested 
periods, an airport owner/operator can increase the efficient 
utilization of the airport in a number of ways. First, by charging 
higher landing fees during periods of peak congestion, the airport 
proprietor gives aircraft operators the incentive to reschedule their 
flights to less congested periods or to use secondary airports. The 
degree to which aircraft operators reschedule will in large part depend 
on their network structure and access to secondary airports. Second, if 
airports structure their airfield charges to reflect scarcity by 
combining per-operation charges with weight-based charges, they will 
provide an incentive for air carriers to use congested airfield 
facilities more efficiently by increasing the size of aircraft 
operating during periods of congestion. Third, even where expansion is 
not feasible, the industry and users benefit if adjustment of prices 
during congested periods increases the efficiency with which congested 
airfield facilities are used.
    The January 17 notice made clear that the proposed actions did not 
represent true congestion pricing because they did not authorize 
airport proprietors to set fees to balance demand with capacity without 
regard to allowable costs of airfield facilities and services. However, 
enabling proprietors at congested airports to assign additional, but 
still appropriate, costs to the airfield could encourage more efficient 
use of these airports. Airport sponsors would still need to assure that 
the airport is available to the public on reasonable terms and without 
unjust discrimination and that fees charged for international 
operations comply with the international obligations of the United 
States.

Comments on the Proposals, FAA Docket 2008-0036

    The Department received more than 70 substantive comments on the 
proposals, from U.S. and foreign air carriers, foreign governments and 
airport operators, U.S. airport operators, general aviation aircraft 
operators, local government agencies, trade and nonprofit associations, 
private citizens, an aircraft manufacturer, and a university.
    The comments covered a broad range of subjects, but tended to fall 
within five general issue areas:
    1. Legal authority to adopt the proposed policies.
    2. Adequacy of the guidance contained in the notice.
    3. Effectiveness of the proposals to achieve the stated goals.
    4. Whether the proposed policies are unjustly discriminatory toward 
particular categories of operators and particular markets.
    5. Whether the notice properly acknowledged the discretionary 
authority of airport operators to set rates.
    This summary of comments reflects the major issues raised and does 
not restate each comment received. The Department considered all 
comments received even if not specifically identified and responded to 
here.

1. Legal Authority

    Several airlines argued that the proposed policy is preempted by 
the Airline Deregulation Act's preemption provision, which prohibits 
States or localities from regulating airline rates, routes, or 
services. They contended that airports are thereby preempted from 
pricing airfield access in order to modify airline conduct and that the 
Department accordingly lacks the authority to permit an airport to 
price landing areas to affect airline behavior. They disputed the 
premise that the ``proprietor's exception'' to the preemption provision 
allowed an airport to take congestion into account in formulating its 
charges. They also argued that the Anti-Head Tax Act constrains an 
airport's ability to implement market-based congestion pricing or slot 
auctions.
    Comment: The proposals are in essence congestion pricing, and 
neither the Department nor airport operators are authorized to use 
congestion pricing in establishing airfield charges. Many of the 
carrier comments equated the proposals to market-based congestion 
pricing. One association submitted a legal opinion concluding that 
neither the Department nor airports have the authority to impose such 
congestion pricing.
    Response: The notice made clear that the purpose of the proposed 
policies was to provide an airport operator with greater flexibility to 
allocate new categories of cost to peak hour landing fees, thereby 
providing an additional means to address peak hour congestion. The 
financing of airfield projects under construction and inclusion of 
airfield costs of secondary airports would use new and non-traditional 
cost allocations to achieve some of the effects of congestion pricing. 
The proposals allow an airport proprietor to assign certain costs to 
airfield charges, but not to charge fees that exceed those costs. Thus, 
the proposals represent pricing based upon costs of providing 
facilities and services rather than use of market-clearing rates to set 
prices. Although the intent of applying those costs to peak hours at a 
congested airport is to encourage changes in airline scheduling or use 
of larger aircraft, the fees utilized are cost-based, and therefore are 
not congestion pricing.
    Comment: Even if cost-based, the proposals depart from established 
ratemaking in two general ways: charging carriers for facilities they 
are not using, because the facilities are at another airport or are not 
yet built; and charging fees higher than direct costs for the express 
purpose of achieving the airport operator's goals relating to airline 
scheduling and fleet mix. Some commenters argued that the assignment of 
future costs or the costs of another airport to carriers at a congested 
airport goes beyond the established principles of cost-based 
ratemaking, and the Department cannot, therefore, consider the 
proposals to reflect cost recovery.
    Response: The proposed policies depart from past practice only in 
expanding the ability of an airport proprietor to rate-base certain 
costs in the landing fee and to expressly permit congested airports to 
include a greater portion of those costs in landing fees during 
congested periods. The result is not additional revenue to the airport, 
because fees remain limited to actual, aggregate costs. Clearly, the 
Department has the authority to amend its policy on airport-airline fee 
reasonableness. The Supreme Court has recognized that the

[[Page 40433]]

Secretary of Transportation is responsible for administering the 
aviation laws and in County of Kent, made clear that the Department 
could adopt policies that would change the rules under which the court 
was deciding that case. Northwest Airlines v. County of Kent, 510 U.S. 
355, 366-367 (1994):
    The Secretary of Transportation is charged with administering the 
federal aviation laws, including the AHTA. His Department is equipped, 
as courts are not, to survey the field nationwide, and to regulate 
based on a full view of the relevant facts and circumstances. If we had 
the benefit of the Secretary's reasoned decision concerning the AHTA's 
permission for the charges in question, we would accord that decision 
substantial deference. See Chevron U.S.A. Inc. v. Natural Resources 
Defense Council, Inc., 467 U.S. 837, 842-845, 104 S. Ct. 2778, 2781-
2783, 81 L. Ed.2d 694 (1984).
    The Supreme Court has also called the Department of Transportation 
the ``superintending agency'' for purposes of applying the Airline 
Deregulation Act's preemption provision over state and municipal 
regulation of airline rates, routes and services. American Airlines, 
Inc. v. Wolens, 513 U.S. 219, 229, fn.6 (1995).
    Lower courts have recognized the superintending role of the 
Secretary of Transportation in administering the Anti-Head Tax Act, 
particularly with respect to fees imposed by airports on airlines. See, 
Port Authority of New York and New Jersey v. U.S. Department of 
Transportation, 479 F.3d 21, 27 (D.C. Cir., 2007); Southwest Air 
Ambulance, Inc. v. City of Las Cruces 268 F.3d 1162, 1170 (10th Cir. 
2001); City of Los Angeles v. U.S. Dept. of Transp., 165 F.3d 972, 978 
(D.C. Cir. 1999); Air Canada v. U.S. Dept. of Transp., 148 F.3d 1142, 
1150-1151; (D.C. Cir. 1998); and New England Legal Foundation v. 
Massachusetts Port Authority, 883 F.2d 157, 172 (1st Cir. 1989).
    Commenters also argued that the purpose of the proposed charges--
which they identify as approximating the effect of congestion pricing 
at congested airports--was beyond the proprietary authority of airport 
operators. This is based on judicial opinions-- e.g., Massport--holding 
that local governments may charge fees to defray their airport costs 
but not to regulate air traffic.
    The Anti-Head Tax Act gives airport proprietors clear and express 
authority to charge airline users landing fees and other charges for 
use of their airport. 49 U.S.C. 40116(e)(2). County of Kent, 510 U.S. 
at 365; Wardair Canada, Inc. v. Florida Department of Revenue, 477 U.S. 
1, 15-16 (1986). The proposals would change the way costs are allocated 
but would not depart from a system in which the airport operator 
charged for actual costs.
    Under our policy, an airport proprietor may establish peak period 
landing fees, for the purpose of reducing congestion, provided the fees 
are properly structured and revenue-neutral. (Note: While the terms 
``peak period'' and ``congested hours'' are used interchangeably on an 
informal basis in this preamble and in responding to comments, the 
final policy defines and uses only the term ``congested hours.'') The 
Department has permitted such fees to be charged when they do not 
exceed the aggregate costs of airfield facilities. The Massport case 
upheld the Department Decision finding that ``while it may be 
appropriate to raise fees in order to invoke market responses during 
periods when the airport is congested, to do this during times when 
there is no shortage of runway capacity penalizes smaller aircraft 
users when they are not imposing congestion related costs on other 
users.'' Investigation into Massport's Landing Fees, Opinion and Order, 
FAA Docket 13-88-2 (December 22, 1988). The Massport case stands for 
the proposition that a properly structured peak period pricing system 
could be found reasonable and not unjustly discriminatory. Reasonable 
peak period fees would not be preempted under 49 U.S.C. 41713 
notwithstanding some impact on air carrier rates, routes or services. 
Opinion and Order at 11; New England Legal Foundation at 165.
    The Airline Deregulation Act does not prevent an airport proprietor 
from charging users for use of the airport facilities and services, 
including peak-period charges. The Deregulation Act's preemption 
provision contains a savings clause permitting an airport proprietor to 
exercise its proprietary powers and rights. An airport may use its 
proprietary powers in a manner that is reasonable, is 
nondiscriminatory, is not an undue burden on interstate commerce, and 
is designed not to conflict with the Airline Deregulation Act and its 
policies. Arapahoe County Public Airport Authority v. FAA, 242 F.3d 
1213, 1221-1222 (10th Cir. 2001).
    The policy defines congested airports and contains other safeguards 
to assure that these fees fulfill the Department's priorities for 
alleviating congestion in the national air transportation system. Any 
fees adopted by an airport pursuant to the Department's Policy would 
have to be consistent with the goals of that Policy.
    Several recent rules and policies issued by the Department show 
that it has consistently interpreted Federal law to authorize properly 
structured peak period pricing programs. First, in promulgating 
regulations to implement the 1990 Airport Noise and Capacity Act (ANCA) 
(49 U.S.C. 47521, et seq.), the Department determined that a peak-
period pricing program, where the objective is to align the number of 
aircraft operations with airport capacity, does not constitute an 
airport noise or access restriction subject to FAA review and approval. 
14 CFR 161.5, definition of ``noise or access restriction.''
    Second, the current Policy on Airport Rates and Charges provides 
that a properly structured peak pricing program that allocates limited 
resources using price during periods of congestion will not be 
considered to be unjustly discriminatory. An airport proprietor may, 
consistent with the policies expressed in the policy statement, 
establish fees that enhance the efficient utilization of the airport. 
61 FR 31994, 32021, Sec.  3 (1996).
    The Airline Deregulation Act's preemption provision does not bar 
airports from taking reasonable, nondiscriminatory measures for a 
purpose within their proprietary authority merely because those 
measures would influence airline behavior. Reasonable, not unjustly 
discriminatory measures taken by an airport operator to align capacity 
and demand consistent with the Department's policy and in order to 
alleviate congestion in the national air transportation system are in 
accordance with Federal policy and are not prohibited because those 
measures have the purpose and effect of influencing airlines to change 
aircraft scheduling practices. See Massport, 883 F.2d at 165, 173-174.
    One commenter cited San Diego Unified Port District v. Gianturco 
(651 F.2d 1306, 9th Cir. (1981)); cert. den. 455 U.S. 1000 (1982) for 
the proposition that an airport's proprietary functions are limited to 
measures designed to insulate an airport proprietor from liability. We 
disagree.
    Gianturco stands for the proposition that a non-airport proprietor 
(in that case, the State of California) may not direct an airport 
proprietor (i.e., the San Diego Unified Port District) to impose a 
curfew on aircraft flights. The decision acknowledged that because an 
airport proprietor bears the monetary liability for excessive aircraft 
noise, it has the proprietary powers to adopt reasonable noise 
regulations. Gianturco did not hold that an airport proprietor's powers 
were limited to the adoption of noise-

[[Page 40434]]

based measures only; similarly, it did not hold that an airport 
proprietor was limited to adopting measures solely designed to insulate 
itself from liability.
    Airport proprietors of course have powers in addition to noise 
controls, including setting fees for the use of the airfield. The Anti-
Head Tax Act provides that authority. 49 U.S.C. 40116(e)(2). See, 
County of Kent, 510 U.S. 355.
    Commenters also claimed that airport-airline charges must relate to 
the costs imposed and benefits received from the charged carrier, 
citing Evansville-Vanderburgh Airport Auth. Dis. v. Delta Airlines, 405 
U.S. 707 (1972) and County of Kent. This test of reasonableness was 
based on the Commerce Clause, and the Supreme Court expressly 
acknowledged that it was within the Department's powers to adopt 
another test of reasonableness, under the Anti-Head Tax Act. The 
Evansville-Vanderburgh court pointed out that the charges did not 
conflict with any federal policies on uniform regulation of air 
transportation, and noted:

    No federal statute or specific congressional action or 
declaration evidences a congressional purpose to deny or pre-empt 
state and local power to levy charges designed to help defray the 
costs of airport construction and maintenance. * * * At least until 
Congress chooses to enact a nation-wide rule, the power [to have 
interstate commerce share a fair share of airport costs] will not be 
denied to the States. 405 U.S. at 721.

    The United States Court of Appeals for the District of Columbia 
Circuit explained, in the Air Canada case, that the Department was not 
obligated to apply a cost-benefit formula for purposes of deciding the 
reasonableness of Miami International Airport's fee allocation 
methodology. Referring to the County of Kent decision, the DC Circuit 
stated:

    [T]he Court made clear that it was not establishing a standard 
for reasonableness under the Anti-Head Tax Act, and that the 
Secretary could establish another standard, whether more or less 
stringent than the standard the Court adopted in Northwest Airlines, 
so long as it was a permissible construction of the statute. We need 
not delve into whether Northwest Airlines requires a cost-benefit 
analysis or any other particular study, nor whether the Department's 
reasonableness standards are consistent with those applied by the 
Supreme Court in Northwest Airlines, because the Department was not 
bound to the standards in that case. [fn. omitted] 148 F.3d 1142 at 
1151-52.

    Comment: The proposals are inconsistent with International Civil 
Aviation Organization (ICAO) standards for airport pricing and violate 
standard provisions in bilateral agreements. Every foreign airline that 
commented on the notice, 34 embassies, the Washington delegation of the 
European Commission, U.S. carriers and others argued that the proposals 
were not consistent with ICAO pricing guidelines or provisions in U.S. 
bilateral agreements (although several foreign carriers expressed a 
preference for per-operation fees over weight-based fees). Some U.S. 
carriers assumed the charges could not apply to foreign carriers due to 
bilateral agreements, and that the charges would, therefore, 
discriminate against U.S. carriers. One association filed comments 
refuting the assertion that ICAO and bilateral provisions prohibit the 
proposed charges.
    Response: For the reasons discussed in part above under Legal 
Authority, the Department believes the proposed charges can be applied 
to U.S. and foreign air carriers alike, consistent with ICAO guidance 
and with U.S. bilateral agreement obligations. First, those documents 
contain provisions for charges like those proposed, as described below. 
Second, the United States Government maintains a formal and 
comprehensive system for regulation of airport charges, including 
administrative and legal forums in which both foreign and U.S. parties 
may challenge the reasonableness of any airport charge. See 14 CFR part 
16 and 49 U.S.C. 47129. The United States Government is fully committed 
to compliance with its international obligations regarding airport 
charges, and the final policy, as adopted by this action, includes in 
its basic statement of principles a clear reminder of the requirement 
that U.S. airport charges comply with those obligations.
    Two-part landing fee. The two-part landing fee will be based on the 
same long-unchallenged rate base as a weight-based fee, so it is 
clearly cost-based. Some foreign carriers argued the fee would 
disproportionately affect foreign carriers by reducing small-aircraft 
feed traffic in peak hours, but that effect would apply to both U.S. 
and foreign carriers, and to both international and domestic long-haul 
flights. Accordingly, we do not find that a two-part landing fee would 
have a disproportionate effect on foreign carriers.
    Moreover, the proposal is consistent with ICAO guidance, which 
expressly states, ``Landing charges should be based on the weight 
formula. * * * However, allowance should be made for the use of a fixed 
charge per aircraft or a combination of a fixed charge with a weight-
related element, in certain circumstances, such as at congested 
airports and during peak periods.'' ICAO's Policies on Charges for 
Airports and Air Navigation Services, Doc 9082/7 (7th Ed. 2004), ]; 26 
(i). It also is consistent with ICAO guidance on airport charging 
systems, which provides that charges ``should be determined on the 
basis of sound accounting principles and may reflect, as required, 
other economic principles, provided that these are in conformity with 
Article 15 of the Convention on International Civil Aviation and other 
principles in the present Policies.'' Id., ] 23(iii).
    Charges for facilities under construction. ICAO guidance expressly 
allows for pre-funding of airport projects particularly those that are 
long-term and of a large-scale. ICAO's Policies on Charges for Airports 
and Air Navigation Services, Doc 9082/7 (7th Ed. 2004), ] 24 states:

    * * * notwithstanding the principles of cost-relatedness for 
charges and of the protection of users from being charged for 
facilities that do not exist or are not provided * * *, prefunding 
of projects may be accepted in specific circumstances where this is 
the most appropriate means of financing long-term, large-scale 
investment, provided that strict safeguards are in place, including 
the following:
    (i) Effective and transparent economic regulation of user 
charges and the related provision of services, including performance 
auditing and ``benchmarking'' (comparison of productivity criteria 
against other similar enterprises);
    (ii) Comprehensive and transparent accounting, with assurances 
that all aviation user charges are, and will remain, earmarked for 
civil aviation services or projects;
    (iii) Advance, transparent and substantive consultation by 
providers and, to the greatest extent possible, agreement with users 
regarding significant projects;
    (iv) Application for a limited period of time with users 
benefiting from lower charges and from smoother transition in 
changes to charges than would otherwise have been the case once new 
facilities or infrastructure in place.

    The Department believes that charging for the costs of airfield 
projects under construction as those costs are incurred, exclusively at 
congested airports for the primary purpose of relieving current 
congestion, can be a ``most appropriate means of financing long term 
large scale projects'' because it can address current congestion 
without increasing total charges to users over time. In fact, financing 
airfield projects under construction through peak hour charges will 
ultimately result in lower charges to carriers, by reducing interest 
costs that would otherwise be capitalized and added to project debt 
charged to airlines through landing fees after the project is 
completed.

[[Page 40435]]

    We note that the proposal adopted by this action to allow recovery 
of construction costs before a project is in use is not ``pre-funding'' 
or ``pre-financing,'' as those terms are used in ICAO guidance and 
elsewhere. The adopted policy does not allow the accumulation of funds 
before a project begins, to be used later. Rather, the policy requires 
that costs be incurred for construction before the charges can be 
assessed, and limits the charges to a reasonable annual amortized 
amount for the costs actually incurred.
    Moreover, the U.S. system of regulation of airport fees, through 
the grant assurances and 49 U.S.C. 40116, provides the safeguards 
recommended by ICAO. U.S. obligations under bilateral air services 
agreements and FAA's AIP program provide the means by which user fees 
can be regulated and transparent accounting can be assured. As noted in 
the proposed policy, ``[t]he Department strongly encourages all 
airports to comply with the obligations * * * to engage in meaningful 
consultation with carriers * * * to justify their fees and to exchange 
appropriate financial information to enable carriers to fully evaluate 
* * * proposed fees.'' The Department also strongly encourages 
substantive consultations between airports and users. Finally, the 
provisions in proposed section 2.5.3(a) are consistent with ICAO 
safeguard (iv), above.
    As to the requirement of U.S. air services agreements, the majority 
of U.S. air services agreements specifically recognize that user 
charges may reflect but not exceed the full cost to the competent 
charging authorities of providing the appropriate airport services. 
(Others simply require that charges be just, reasonable and non-
discriminatory.) These provisions do not preclude funding facilities 
that are still under construction if the charging authority is already 
incurring costs. We note also that the policy requires that all 
planning and environmental approvals have been obtained, that financing 
has been obtained, and that construction has actually commenced, all of 
which go to assure that the airfield facilities charged for will 
actually be provided.
    Some foreign airlines complained that the provision allowing 
charges for facilities under construction would permit an airport to 
build facilities that would not ease congestion, such as terminal 
facilities. Airfield charges are limited to airfield facilities, 
however, and this applies to facilities under construction as well as 
those in use.
    Charges for a secondary airport. Bilateral air services agreements 
recognize that user charges may reflect but not exceed the full cost to 
the competent charging authorities of providing the appropriate airport 
services ``at the airport or within the airport system.'' This language 
clearly indicates that these agreements contemplate charges at one 
airport for costs at another, as long as the charges are justified and 
in compliance with the other standards of the agreement, including 
equitable apportionment.

2. Adequacy of Guidance

    Several airline commenters stated that the proposals were too vague 
to provide useful guidance on implementation, and would simply lead to 
litigation. Airport commenters that generally supported the proposals 
asked for additional guidance about how the costs of projects under 
construction would actually be allowed in current charges, and what 
airports would be eligible to use the proposed fees.
    Comment: Revise the definition of congested airport. Several 
commenters found the definitions of congested airport and congested 
hours incomplete or unsatisfactory. A carrier association commented 
that the definition included many airports that did not have a 
congestion problem justifying extraordinary pricing increases, and some 
airports with no congestion at all, such as St. Louis and Pittsburgh. 
The commenter also questioned the policy of defining airports as 
congested based on their contribution of one percent or more of the 
national delay total, on the basis that many factors could contribute 
to delay other than airfield infrastructure capacity. In contrast, some 
commenters representing airports argued for an expansion of the 
definition, to include airports with congestion issues as defined by 
the airport operator, and airports with local congestion but no role in 
national system delays at all.
    Response: The Department understands why the definition proposed in 
the January 17 notice was not considered sufficiently precise to 
identify an appropriate list of airports eligible for the proposed 
charges. The Department is clarifying here that it interprets 49 U.S.C. 
47175(2) to refer to the most recent 2004 Airport Capacity Benchmark 
Report, which has replaced the 2001 report. The 2004 report includes 35 
airports while the 2001 report examined 31. We expect to update section 
47175(2) as part of the agency's reauthorization legislation. In 
response to these comments, particularly given the status of the 
reauthorization legislation, the Department has revised the definition 
of congested airports. The final policy adopts a definition that 
contains two criteria, one relating to existing congestion and the 
other to future congestion. An airport qualifies as currently congested 
if it accounts for at least one percent of system delays nationally or 
is listed in table 1 of the FAA's Airport Capacity Benchmark Report 
2004. Whether these criteria are met should be determined using the 
most recent year for which delay data are available and the most recent 
Airport Capacity Benchmark Report available. An airport is considered 
congested in the future if it is forecasted to meet a defined threshold 
level of congestion in the FACT 2 study or the most recent update of 
that study. The two criteria produce lists of specific airports, 
current versions of which have been placed in the public docket. The 
group of airports produced by the definition is finite, identifiable, 
and a relatively small portion of the several hundred commercial 
airports in the U.S. However, the list includes not only airports that 
are now congested, but airports that have a real expectation of 
becoming congested in the foreseeable future and would have an interest 
in planning to prevent a congested condition before it occurs.
    We note that two of the fourteen additional airports that qualify 
as congested based upon the 2004 report do not currently have congested 
hours. On balance, it is reasonable to adopt the same definition here 
that Congress used to define congested airports for purposes of 
environmental streamlining in the Vision 100--Century of Aviation 
Reauthorization Act. First, the policy amendments, like the 
environmental streamlining provisions in Vision 100, are intended to 
help reduce airport congestion and delays. Use of a narrower definition 
would reduce the utility of this policy in achieving these goals. 
Second, any viable definition of a congested airport has to reflect the 
dynamic nature of the aviation industry. This means any definition 
adopted by the Department should, like 49 U.S.C. 47175(2), consider not 
only which airports account for the most current delays in any given 
year, but also which airports are the largest in terms of size and 
activity level and have historically played a significant role in the 
national air transportation system. The FAA took these latter factors 
into account in identifying the 35 airports in the 2004 report. There 
is no other comparable list. Third, the FAA currently uses this list of 
airports, known as the operational evolution partnership (OEP) 
airports, to monitor progress in adding capacity as part of its 
strategic planning. Finally,

[[Page 40436]]

the overall list remains viable in terms of identifying the largest 
airports that handle the vast majority of operations. The OEP airports 
include all of the large hub airports, which have 1% or more of the 
total annual passenger enplanements in the country, and 5 medium hub 
airports, which have at least .25% but less than 1% of passenger 
enplanements. All but two of the airports that qualify as congested 
airports only because they are OEP, Pittsburgh and San Diego, ranked 
among the 50 busiest in the country in 2006, according to FAA OPSNET 
data (http://www.aspm.faa.gov/opsnet/sys/main.asp). St. Louis and 
Pittsburgh simply illustrate the point that there is a twofold test for 
using the new fees. The new fees may not be imposed at an airport that 
does not have congested hours, even if it is on the list of ``congested 
airports'' developed by the FAA for planning purposes.
    In response to comments, the Department is also adding a definition 
for congested hours. A congested hour is an hour during which demand 
approaches or exceeds average runway capacity resulting in volume-
related delays. This will typically occur during the most desirable 
peak hours of operation at a congested airport, although some like 
LaGuardia Airport experience congestion throughout the operating day.
    We continue to believe the threshold of one percent of national 
delays is a reliable indicator of an airport's ability to accommodate 
demand. While factors other than the airfield may contribute to 
performance--an example offered was typical low visibility in morning 
hours at San Francisco International Airport--those factors can have a 
direct effect on efficiency and be beyond the ability of the airport 
proprietor or the FAA to change. Accordingly, it is appropriate to use 
a performance measure that takes into account all factors that 
contribute to airfield performance, and the percentage of national 
delays is a reliable indicator of airfield performance.
    The Department is not adopting the recommendation to delegate to 
airport operators the responsibility to determine whether there is 
sufficient congestion to justify the proposed charges. Because the 
policies will increase fees for some users at peak hours, the 
Department believes they should be applied only where objectively 
justified as effective in reducing or preventing congestion that would 
have a significant effect on delays in the national system. The FAA is 
in the best position to make determinations on this effect, and 
believes the definition of congested airport for this purpose should 
remain a responsibility of the Department.
    The Department also declines to extend the proposed pricing options 
to general aviation airports and other commercial airports with little 
or no national impact. This expansion of the pricing policies would 
have no effect on the primary issues the Department is trying to 
address: congestion and delays experienced at peak periods at the most 
heavily used airports, and the ripple effect of those delays throughout 
the national system.
    Comment: The notice did not make clear or place sufficient limits 
on the kinds of costs at a secondary airport in the local system that 
could be included in the rate base at a congested airport.
    Response: The Department agrees that the proposed policy will be 
more useful if it contains more specific guidance about what costs 
could be included in the proposed peak hour charges. Paragraph 2.4 of 
the 1996 Rates and Charges Policy listed specific costs that could be 
charged to the airfield, but that paragraph was vacated by the Air 
Transport Association decision. Clearly only the airfield costs at a 
secondary airport could be included in landing fees at the congested 
airport airfield, as a matter of reasonableness in a cost-based system 
of charges. Within that limitation, the airfield costs that may be 
recovered in the landing fee at the congested airport would be the same 
types of costs that are recoverable from operators at the primary 
airport. Accordingly, as clarification, the final policy adopted notes 
only that costs of the second airport that may be included in the rate 
base of the first airport are limited to customary airfield cost center 
charges for the first airport. If the airfield costs rated-based at the 
first (congested) airport are reasonable, they are reasonable for the 
airfield at the secondary airport as well. If carriers had agreed in a 
lease and use agreement to include other, non-airfield costs in a 
landing fee, those costs at the secondary airport could not be included 
in the fee at the primary airport (unless the carriers agree), because 
they are not costs of the airfield itself.
    Comment: The proposed policy lacks guidance on how principal and 
interest costs of projects under construction could be rate-based in 
current charges, and how much of the project cost could be included.
    Response: First, we would expect airports to conform as closely as 
possible to current commercial practice in recovering project costs 
after a project is completed and in use. Typically a project under 
construction would be financed by interim financing until the project 
is completed, at which time the total costs would be capitalized and 
financed through a long-term bond issue. When the project is completed, 
carriers would be charged the annual debt service over the amortization 
period of the bonds. For charges imposed on carriers while the project 
is under construction, the final policy states that the amount of 
project costs included in charges during the construction period cannot 
exceed an amount corresponding to debt service calculated in accordance 
with a commercially reasonable amortization period, which would 
consider the expected period of the permanent financing and not simply 
the time required for construction. The policy continues to make clear 
that project costs paid for during the construction period will be 
deducted from total costs financed later. We believe this guidance is 
sufficient to prevent excessive annual charges for project costs during 
construction.
    Comment: It is not clear whether the three proposed charges can be 
used in combination.
    Response: The preamble to the notice noted that the three proposals 
are not intended to be mutually exclusive. In other words, if the 
circumstances justify doing so, an airport proprietor might use a 
combination of two, or even all three, proposals in setting landing 
fees during periods of congestion.

3. Effectiveness

    Many air carriers and carrier associations commented that at least 
some of the proposals would not have any effect on congestion, but 
would simply increase costs. Some airports and airport associations, 
even though supportive of the additional flexibility in addressing peak 
hour congestion, expressed concern about the effectiveness of the 
proposals in influencing carrier scheduling in peak hours.
    Comment: Charging for facilities under construction and costs of a 
secondary airport would still not produce landing fees high enough to 
induce carriers to move flights out of peak hours. The basic comment on 
effectiveness of two of the proposals--forward financing and support of 
secondary airports--is that the increased costs of peak period 
operation would still not be enough to induce carriers to schedule 
fewer flights in those hours, or to move flights to a secondary 
airport. As long as the fees must remain revenue-neutral, even with 
added costs in the peak hours, they cannot be set at an effective 
market-

[[Page 40437]]

clearing rate. Reasons offered in support of this conclusion included:
     There are too many negative consequences for carriers of 
not maintaining flights at peak hours, including coordination with 
schedules throughout the system, and marketing considerations of how 
flights appear in reservation systems;
     Landing fees are only a portion of carrier costs for a 
flight;
     Carriers have investment in facilities at the airport that 
must be productively used;
     The costs of higher landing fees at one airport would be 
absorbed by carriers on a system-wide basis, and would not directly 
affect the calculation of benefits of the targeted flights at that 
airport;
     Increased landing fees for carriers have no disincentive 
effect on passengers, who are the actual drivers of demand for service 
in peak hours;
     Even if fees are passed on directly to passengers, those 
passengers are still likely to absorb the additional cost for the 
convenience of traveling at desired times.
    Response: Other commenters argued that the increased fees did not 
have to have an effect on all operators or flights to be effective. 
Rather, a decision by carriers to cancel or reschedule just a few 
marginally profitable operations would be sufficient to achieve some 
beneficial effect on congestion in peak hours.
    We agree. The notice did not claim that the proposed policies would 
have the exact effect of real congestion pricing, because they would 
not result in setting rates at the perfect market-clearing price. 
Without any differentiation between peak and off-peak fees, which is 
the almost universal case at present, there is no incentive for 
airlines to reschedule even the most marginally profitable operation to 
avoid peak hours. If an increase in fees adversely affected the cost-
effectiveness of even a few of these operations, there would be a 
positive effect on congestion and a reduction in delays during peak 
hours.
    Comment: The proposal to allow a 2-part landing fee does not 
require that the airport be congested, which would permit a landing fee 
that discriminates against smaller aircraft when there is no 
justification related to congestion.
    Response: The existing policy does not expressly limit the forms in 
which airport fees can be imposed, as long as they are reasonable, not 
unjustly discriminatory, and limited to recovery of appropriate airport 
costs. Conventional weight-based fees meet these tests. The policy 
amendments make clear that a 2-part fee can be justified in a situation 
where demand exceeds capacity in peak hours, and smaller aircraft 
serving relatively fewer passengers contribute to the peak hour 
congestion. In this case a 2-part fee could be justified by its 
beneficial effect on peak hour congestion without significantly 
affecting the number of passengers able to travel at peak hours. The 
amendments do not limit the use of a 2-part fee to congested hours, but 
it is not clear what other circumstances might justify such a fee. In 
any event, the fee should be justified based upon meaningful 
consultation with carriers, including exchange of appropriate financial 
information. The fee, if challenged, would require evidence that it is 
reasonable, not unjustly discriminatory, and based upon legitimate 
objectives.
    Comment: If the proposed charges are adopted as final policy, the 
Department should adopt Option 1, limiting charges for secondary 
airports to peak hours, to avoid unfairly penalizing carriers already 
operating outside of peak hours. Carriers that already operate outside 
of peak hours noted that imposing the costs of secondary airports and 
projects under construction in all hours, rather than just congested 
hours, would increase costs for operators that have no operations in 
peak hours. Thus the proposed policy would simply increase costs for 
these operators with no incentive effect on peak hour congestion.
    Response: We agree. This comment argues for limiting the additional 
proposed charges to flights in congested hours, Option 1. Otherwise, 
cargo operators and other operators that are already avoiding congested 
time periods would be penalized without any related incentive effect. 
Charging the additional costs in all hours would also result in the 
off-peak operators subsidizing operations during peak hours, actually 
reducing the intended disincentive for operation during those peak 
hours. Limiting charges for secondary airports, as well as facilities 
under construction, to peak hours maximizes the potential 
differentiation between peak and off-peak charges within a revenue-
neutral system, and best serves the purpose for which these charges are 
authorized.
    Comment: The Department did not conduct any analysis of the effects 
of the proposal showing that it would have the intended effect on 
airport congestion.
    Response: This comment is technically correct but presumes that the 
Department needed quantitative analysis before it could conclude that 
the proposals would reduce congestion. The premise of the proposal that 
added costs would result in fewer operations is based on general 
pricing theory, and on the reliable conclusion that at some level of 
cost and unprofitability, a carrier will discontinue or reschedule an 
operation. The Department did not attempt a study of the proposals, 
because a conclusion on the effectiveness at an airport would depend 
entirely on the circumstances at each airport and the details of the 
charges imposed. A simulation of the effect of pricing at an airport 
was conducted by the FAA Center of Excellence for Operations Research 
(NEXTOR) in 2004. This research was done in cooperation with a number 
of stakeholders, including airline participants. While the simulation 
was necessarily a simplification of an actual airport situation, the 
results did indicate that peak period pricing would affect carrier use 
of peak hours.
    The Department agrees with commenters that the proposed policies 
should not be used to increase costs to operators at a particular 
airport unless there is reason to believe they would have an actual 
positive effect on congestion. That effect could be either to relieve 
existing congestion and reduce delays to an acceptable level, or to 
prevent that level of congestion if it would otherwise occur. The final 
policy language adopted incorporates two changes to reinforce that 
policy.
    Both charges for facilities under construction and charges for a 
secondary airport are authorized only if they would have the effect of 
reducing or preventing a level of congestion serious enough for the 
airport to be identified on an FAA list of airports that either have or 
are forecasted to have among the highest level of operating delays at 
U.S. airports. The fact alone that an airport is congested within the 
definition of the policy is not in itself sufficient to justify 
imposing the fees; the airport proprietor must have reason to believe 
that the added fees in peak periods would have an actual effect in 
reducing or preventing that congestion. The airport proprietor may 
implement the added fees as it would any other fee change. We expect 
the airport proprietor to engage in meaningful consultation with 
airport users before implementing new or increased fees, particularly 
by using a new fee methodology. As we discussed in the Notice of 
Proposed Amendment, the airport proprietor should provide adequate 
information to enable the airlines to evaluate the proprietor's 
justification for the new charges and to assess their reasonableness. 
Each side should thoroughly consider the views of the

[[Page 40438]]

other. As we indicated in the 1996 Rates and Charges Policy, at 
paragraph 1.1.1, and in Appendix 1 to that Policy, we encourage the 
airport operator to provide certain historic financial information for 
the airport, economic, financial, and/or legal justification for change 
in fee methodology or level of fees, traffic information, and planning 
and forecasting information. In determining the reasonableness of any 
new fee instituted under this policy, we will consider the 
effectiveness of the fee in addressing congestion. Even in the absence 
of a complaint, the FAA may request a report on the effectiveness of a 
fee imposed under these amendments, under the FAA's authority in 49 
U.S.C. 47107(a)(15) and the AIP grant assurances.
    The policy amendments adopted here include new language emphasizing 
the importance of providing this information to carriers in proposing 
higher peak period fees, including justification for the fees. While 
the airport proprietor's objective justification of the peak period fee 
is not technically required by regulation, it may serve to rebut a 
prima facie case of unreasonableness if the fee is challenged by a 
carrier in a proceeding before the Department under 49 U.S.C. 47129, or 
in an FAA grant assurance investigation under 14 CFR part 16.
    We note that one commenter observed that the Department had in fact 
found that revenue-neutral peak period pricing would not work, in an 
analysis of peak period pricing in connection with the environmental 
impact statement for a proposed runway extension project at 
Philadelphia International Airport. However, that analysis determined 
not that such pricing would not work at all, but rather that it would 
not reduce delays so as to meet the purpose and need of the proposed 
runway project. Specifically, the analysis showed that peak period 
pricing would reduce general aviation and turboprop operations on the 
shorter runways but would have no impact on congestion on the primary 
air carrier runways and therefore would not reduce delays at the 
airport. That example is not pertinent to the policies adopted here. As 
discussed below in more detail, runway development projects are the 
preferred response to demand. Pricing should only be used when new 
runways cannot be made available in time to prevent significant delays 
that would adversely affect the national air transportation system. 
Moreover, that analysis assumed charges only for traditional current 
airfield costs at the congested airport itself, and not the additional 
costs of projects under construction and secondary airports under 
consideration here. So, the Philadelphia analysis does not have any 
relevance for the policies adopted here, and certainly does not 
indicate they would not have an effect on congestion at PHL or any 
other airport.
    An airline employee involved in scheduling noted the complexities 
of airline scheduling and suggested that a carrier's response would not 
necessarily be what the airport intends. The Department recognizes that 
airline scheduling is indeed complex, and that carriers take a number 
of factors into account in deciding where and when to use a certain 
aircraft. However, we continue to believe that the cost of operating at 
a particular airport at a particular time will become a factor at some 
price point. If the proposed policies allow an airport operator to 
reach that price point for even a small number of marginally efficient 
operations in peak hours, the purpose of the policies will have been 
served.
    A carrier association noted that because landing fees work as an 
incentive only on landings, departures in peak hours would be 
unaffected and actually subsidized by operators with more arrivals in a 
congested period. The Department believes that there will typically be 
enough of a balance between arrivals and departures that an incentive 
that works only on arrivals would still work in most cases. Presumably 
this issue would be addressed in an airport operator's consideration of 
the fees before they were adopted. We note that the Massport peak 
period pricing rule applies congestion fees to both arrivals and 
departures, which is permitted under the Department Rates and Charges 
Policy as long as total fees do not exceed aggregate airfield costs.
    Commenters who concluded that the proposals would not reduce 
congestion had different views about what that meant. Many carriers 
argued that because the proposed policy changes would not achieve their 
stated purpose and would simply increase costs to industry and 
travelers, the Department should not adopt the changes. Some airports 
and associations reached the opposite conclusion--that because a 
revenue-neutral pricing system could not raise fees enough to affect 
scheduling, the Department should abandon the requirement for revenue 
neutrality and allow airports to set fees high enough to be effective.
    The Department is required to provide guidance on reasonable fees 
based on our survey of the nationwide aviation field, and we have found 
that airfield fees nationwide typically are based on capital costs plus 
recurring costs associated with maintenance, upgrading, repaving, and 
installation of safety and security systems. The cost-based system of 
user fees also conforms to U.S. international obligations. As mentioned 
above, the Department believes that the newly allowed charges that may 
be incorporated in peak fees can have an effect on enough operations to 
affect congestion, at least at some airports, and should be available 
to the operator of a congested airport where that effect can be 
reasonably predicted and ultimately demonstrated.
    Comment: The two-part landing fee would simply impose additional 
costs without resulting in schedule changes for smaller aircraft as 
intended. The effectiveness of the two-part landing fee is a somewhat 
different issue from the two facilities charges. Most commenters seemed 
to accept that a 2-part landing fee would have the effect of 
discouraging use of smaller aircraft in peak hours, as intended, 
although they did not agree on the fairness or benefits of that effect 
(discussed under 4. Unjust discrimination below). However, carriers 
providing international service argued that it is not realistic to 
expect feeder flights that use smaller aircraft to move out of peak 
hours, because of the inconvenience to international and long-haul 
passengers. So, they argued, it is not clear that the increased fees 
per seat for smaller aircraft would have the intended effect, at least 
for some small aircraft operators at international airports.
    Response: The Department cannot anticipate the reaction of each 
carrier to a change in landing fees at peak periods, because of the 
many different factors each carrier would need to consider in 
evaluating the costs and benefits of a schedule change. The Department 
continues to believe that higher peak period fees will affect 
scheduling for some flights of smaller aircraft, even if not all, and 
the effect on some can be sufficient to have a positive effect on 
congestion.
    Comment: If airfield costs at a secondary airport are charged to 
carriers at a congested airport, the resulting below-cost fees at the 
secondary airport might attract new service at the secondary airport, 
rather than promoting relocation of flights from the congested airport 
as intended. This new service would be in competition with carriers at 
the primary airport, as well as being subsidized by them.
    Response: This result is theoretically possible but is not a reason 
not to permit the charges as proposed, if those charges would be 
effective in relieving

[[Page 40439]]

congestion at the main airport in the system, to the benefit of the 
carriers operating there.
    Comment: The ability of airport proprietors to raise landing fees 
to control congestion, as proposed, acts as a disincentive for airport 
proprietors to invest in new capacity, which should be the primary 
solution for congestion.
    Response: First, the airport proprietor will not actually receive 
more funds over time and across the airport system under the policies 
adopted, although current fees at the congested airport may be greater 
than before. The Department does agree that building new runways and 
otherwise generating new capacity is the preferred response to demand, 
and that pricing should be used only where airport development projects 
cannot be built and made available in time to prevent congestion. The 
policies adopted should not undercut an airport operator's incentives 
to add runways and expand capacity, because they will not allow the 
airport operator to increase system revenue over time. The adopted 
policy is designed to augment tools available to local governments who 
operate airports to resolve capacity issues. 73 FR at 3312.
    Comment: The January 17 notice stated that generation of additional 
revenue for capacity enhancement was a stated objective, or at least a 
benefit, of the proposed policies. Airports are fully able to recover 
costs and fund new projects now, and do not need additional revenue to 
support capacity expansion projects.
    Response: The notice observed that an airport proprietor would have 
additional revenue for development, as a result of the ability to 
charge for facilities under construction. The notice did not claim that 
result as a purpose of the proposals, but did suggest that it was a 
corollary benefit. We agree with the comment that generation of revenue 
is not the purpose of the proposals. The final policy amendments 
adopted are intended to relieve congestion at peak periods at congested 
airports, not generate additional revenue for airports. The new 
charges, if adopted, would increase costs for some carriers for peak 
hour operations, but would not increase aggregate carrier costs for 
airfield facilities and services in a local airport system over time.

4. Unjust Discrimination

    Many of the comments that criticized the proposals cited the unfair 
and disproportionate burden on some operators, concluding that the 
proposed landing fees, if adopted by an airport, would be unjustly 
discriminatory toward one or more categories of operators. As some 
commenters noted, the proposed fees are in part actually intended to be 
discriminatory, so their legality depends on whether or not the 
discrimination is sufficiently justified to be ``justly 
discriminatory.'' A corollary issue is whether an otherwise justified 
discriminatory fee has unintended adverse effects on operators that do 
not contribute to the congestion problem being addressed.
    Typical comments claiming discrimination were:
    Comment: The proposed fee increases would not induce any movement 
out of the congested hours, so they would unfairly raise carrier costs 
for no reason.
    Response: The fees authorized under this policy may be justified in 
terms of having the potential to reduce delays in congested hours, 
including by encouraging use of larger aircraft, as well as being 
supported by actual costs. As noted above, however, the policy changes 
are adopted based on the Department's belief that the charges can have 
some beneficial effect, because some carriers will decide not to pay 
the higher charges to operate in peak hours. This conclusion is 
reinforced by our strongly urging airport operators to justify and 
explain to carriers the methodology for any fee increase before 
imposing it at a particular airport.
    Comment: The proposed fee increases would force some operators to 
move out of the peak hours, even though their customers want to travel 
then.
    Response: This comment is partially correct although we add that 
operators scheduling several flights during peak periods with smaller 
aircraft may decide to consolidate some flights with larger aircraft 
and thereby not inconvenience passengers. The Department understands 
that moving flights out of peak hours means moving some passenger trips 
out of peak hours. The flights and passengers that are able to continue 
to use peak hours will experience less delay, and whether or not their 
fares are increased will be determined by the competition, the gauge of 
aircraft used, and other factors.
    Comment: Some operators can move flights and others cannot, and the 
higher pricing in peak hours unfairly impacts categories of operation 
that cannot move flights out of peak hours or to secondary airports.
    Response: From a market standpoint, this is essentially another way 
of saying that operation in peak hours has a higher value for some 
operators than for others. Charging a higher price in peak hours 
results in the allocation of peak hour flights to the carriers that 
value operation in those hours the most. This is the market working, 
not an indiscriminate side-effect of higher charges. It is true that 
there are some operations that may not be able to reschedule or operate 
at an alternative secondary airport However, those operations receive 
the same benefit as all other operations from a reduction in peak hour 
congestion at the congested airport.
    Comment: If costs for facilities under construction and secondary 
airport airfields are included in the proposed charges applied to all 
operations throughout the day, some categories of operation will be 
penalized by higher fees even though they have no role in the current 
congestion or the intended solution.
    Response: We agree. Accordingly, the final policy permits charges 
for facilities under construction and the costs of a secondary airport 
only in peak hours at the congested airport, i.e., hours in which that 
airport experiences delays that qualify it as a congested airport 
(Option 1 for the proposed charge for facilities under construction).
    Comment: Under a 2-part landing fee, some carriers and categories 
of operation will have no ability to upgauge, and will simply have to 
absorb higher fees or cease operation in the market.
    Response: This may be true for some operators. The effect is 
mitigated with respect to markets subsidized under the Essential Air 
Service (EAS) Program, because the final policy allows an airport 
operator to exempt those markets from the three new policies (although 
such operations would still be subject to conventional landing 
charges). However, for other operations, carriers will need to assess 
the feasibility of each flight with a particular aircraft type, taking 
into consideration the effect of the per-operation component of the 
landing fee at the airport.
    Commenters also offered specific examples of how the proposed 
charges would result in a discriminatory effect for some operators. 
Some examples cited in the comments are:
    Comment: Raising costs to encourage use of larger aircraft unfairly 
targets operators of regional jets and the markets they serve. One 
association and carriers operating regional jets argued that segments 
of the national air service market depend on that size aircraft, and 
that efforts to eliminate small jet operations are inconsistent with 
Sec.  40101(a)(16), which establishes a policy of ensuring that 
residents of small and rural communities have full access to the 
national air transportation system. Several small U.S. airports and 
communities complained that the pricing incentive to upgauge from

[[Page 40440]]

regional jets to larger aircraft, if effective, would jeopardize their 
connections to hub airports, because the market and sometimes the 
airport would not accommodate larger jets. Some airport representatives 
commented that the Department should develop a list of criteria for 
small communities to be eligible for exemption from higher landing 
fees, and allow airport operators to incorporate those exemptions in 
their fees to protect small community access. Some commenters argued 
that carriers and passengers want to have regional jet service, and 
that the Department, therefore, should ``let the market work'' by not 
allowing airports to create a disincentive to that service.
    Response: The notice did not directly address the potential impact 
on small community service. We agree that higher peak period charges, 
or a higher per-operation landing fee, could be a disincentive to 
operation of smaller aircraft types in peak hours--that is one purpose 
of the proposed policy. While it is not the Department's intention to 
adopt a policy that would adversely affect service in any particular 
market, we understand the possibility that higher peak period landing 
fees could result in a reduction or even loss of service in marginally 
profitable markets. The final policy adopted permits an airport 
operator to exempt flights from the added peak period charges, if the 
flights are being subsidized under the EAS Program. The ability of an 
airport operator to exempt EAS-subsidized flights from peak period 
pricing has been recognized by the Department previously. Not all of 
the markets served by regional jets and smaller aircraft will be 
eligible for this exemption, however, and airport proprietors may not 
extend the exemption to non-EAS markets, because that action would be 
considered local regulation of air carrier rates, routes and services. 
Accordingly, it is possible that service in some markets could be 
adversely affected as described in the comments.
    As a result, actually ``letting the market work'' may well not 
provide the broadest or most uniform distribution of service to all 
markets from the congested airport. It will, however, come closer to 
providing the most economically efficient use of the congested airport 
for the greatest number of travelers. Arguably, open access for all to 
the scarce resource of a congested hub airport at peak hours, when 
demand for access exceeds airport capacity, is itself a distortion of 
the market. Conversely, a requirement to pay more for that resource 
during periods of congestion is actually closer to letting the market 
work.
    Comment: Foreign carriers will be disproportionately affected by 
the proposed charges, because they cannot avoid them or absorb costs 
across a larger domestic system. Foreign carriers and governments 
commented that these carriers could not use off-peak hours because of 
the restrictions on operation in European and Asian airport markets, 
and could not operate at secondary airports because those airports 
would not be U.S. ports of entry. Accordingly, these carriers would 
bear the full effect of the increased landing fees, with no ability to 
avoid the costs or to spread the costs across other flights as U.S. 
competitors could do.
    Response: We agree that there may be limits on foreign carriers' 
ability to avoid the fees, although they are not unique in that regard. 
International flights by U.S. carriers will be affected in exactly the 
same way. To the extent that higher charges at peak periods reduce 
congestion, carriers operating international service will benefit from 
the resulting reduction in operating delays and greater scheduling 
reliability. The policy allowing airport operators to charge higher 
fees in peak congested hours recognizes that many operators will choose 
to pay the higher fees to retain access to peak hours, for a variety of 
business reasons; the need for international flights to operate in 
those hours is one such reason. Those carriers get something in return 
for the higher fees: a reduction in operating delays.
    U.S. carriers claimed that the increased fees would unfairly fall 
on U.S. carriers, because foreign carriers would necessarily be 
exempted from the fees in order to comply with ICAO standards and air 
service agreements. As discussed in part in this notice under Legal 
Authority, we do not believe ICAO guidance or air service agreements 
require exemption of any operators from the proposed charges, so there 
would be no difference in the fees charged to U.S. and foreign 
carriers.
    Comment: The proposed policies would adversely affect transborder 
Canadian service disproportionately, because many flights between 
Canada and major U.S. airports use regional jets. This is similar to 
the complaints by U.S. carriers that use regional jets and cities those 
carriers serve, but with the additional consideration of provisions in 
the bilateral agreement with Canada. Canadian carriers, airports, and a 
carrier association argued that the U.S.-Canada bilateral agreement 
would prohibit the application of some or all of the three proposed 
policies to transborder flights.
    Response: The U.S.-Canada bilateral agreement is similar to other 
U.S. air service agreements. For the reasons discussed above under 
Legal Authority, the Department does not believe the terms of those 
agreements prohibit the proposed charges, and reaches the same 
conclusion with respect to the U.S.-Canada bilateral agreement. There 
is no language in the agreement that specifically requires weight-based 
landing fees or prohibits other methodologies for landing fees. The 
agreement contains the standard requirement that fees be equitably 
apportioned among categories, but that in itself does not prohibit a 
per-operation component in the landing fee with justification based on 
the circumstances existing at the airport. With respect to charges for 
facilities under construction, the agreement provides only that charges 
may not exceed the costs of providing appropriate airport services. We 
believe the policy allowing an operator of a congested airport to 
impose the costs of airfield facilities already under construction is 
not inconsistent with this language. Finally, we note that the 
agreement permits charges for services ``at the airport or within the 
airport system,'' and thus does not prohibit appropriate charges for a 
secondary airport in a system where the primary airport is congested 
due to excess demand.
    We recognize that the proposed policies could have some effect on 
carrier decisions regarding transborder service, as with service in 
U.S. markets at congested airports. However, the policies would apply 
to Canadian markets and Canadian carriers in exactly the same way as 
they would to U.S. markets and carriers, and would not be prohibited by 
antidiscrimination or other provisions in the U.S.-Canada bilateral 
agreement. One commenter expressed concern about the effect on access 
by Canadian carriers to Reagan Washington National and LaGuardia 
Airports, which is expressly guaranteed by the agreement. Both airports 
are included on the list of congested airports. However, as Reagan 
Washington National does not currently have any congested hours, these 
policies would not be used there at this time. . Any peak hour charges 
adopted by the Port Authority of New York and New Jersey at LaGuardia 
would need to take into consideration the terms of our bilateral 
aviation agreement with Canada.
    Comment: Carriers that operate a single aircraft type have no 
opportunity to up-gauge, and would simply pay higher fees for the same 
operation, or cancel some operations.

[[Page 40441]]

    Response: The policy allowing airport operators to charge higher 
fees in peak periods is not directed toward any particular operator, 
but will have an effect on any operator using aircraft that are not 
economically feasible with those fees in effect. The fact that an 
operator's entire fleet will be affected to some degree is not a 
persuasive reason to guarantee that operator lower-cost access to peak 
hours at a congested airport by exempting it from the general effect of 
the pricing regime. Some operators will find it beneficial to pay the 
higher peak fees to continue peak hour operations, along with a 
reduction in operating delays in those hours, but others may not. The 
Department does not consider that possibility a reason to deny airport 
operators the use of the proposed policies to enhance the effect of 
peak period pricing at their airports, when justified by peak hour 
congestion.
    Comment: If the costs of future projects and secondary airports are 
added to charges throughout the day at the primary airport, rather than 
just during peak hours, then the burden falls unfairly on operators 
that do not contribute to the problem. Cargo operators operate largely 
in night hours when there is no issue of congestion.
    Response: As discussed under Effectiveness above, the final policy 
avoids this result by limiting the application of the additional costs 
to operations in peak hours.
    Comment: The fees would make operations in peak hours far more 
expensive for general aviation and on-demand air taxi operators, even 
though those operators make no significant contribution to the current 
congestion.
    Response: The policy adopted, like the 1996 Rates and Charges 
Policy as a whole, does not include any general exception for general 
aviation. However, airfield charges must be reasonable and not unjustly 
discriminatory. Presumably an analysis of a proposed peak period fee by 
the airport proprietor would reach some conclusion about whether 
general aviation flights are contributing to peak hour congestion at 
the airport or not, and support a corresponding pricing policy for 
general aviation flights. Proposed charges on general aviation could 
reflect, for example, whether general aviation flights at the airport 
compete with air carrier aircraft for use of the same runways. For this 
reason it is more appropriate to consider general aviation charges 
through actual, case-by-case analyses of their activity and impacts on 
congestion at each airport, rather than define a separate policy for 
general aviation in this policy statement.

5. Comments That the Proposals Should Define an Airport Proprietor's 
Authority More Broadly

    Operators of large airports and associations representing airports 
generally commented favorably on the intent of the proposed policy to 
clarify and expand the ability of airport operators to impose higher 
fees in peak hours at a congested airport. However, some commenters 
requested that a final policy be revised to avoid actually limiting an 
airport operator's existing proprietary authority. Some commenters 
further requested that the final policy contain language expressly 
expanding the airport operator's flexibility to impose fees beyond what 
the Department proposed.
    Comment: The policy should clarify that an airport operator may use 
a ``limitless'' variety of methods to set landing fees, including a 
purely per-operation fee. Specifically allowing a 2-part fee suggests 
airports cannot impose other kinds of fees besides weight-based and 2-
part weight-based and per-operation fees. Also, the policy should not 
rule out innovative fees such as negative landing fees at off-peak 
hours.
    Response: The policy does not define the universe of kinds of 
landing fee an airport operator may impose, but only clarifies that a 
2-part landing fee may be used at peak hours to relieve congestion, 
without necessarily being considered to be unjustly discriminatory. 
Other kinds of landing fees are possible, but any such fee would need 
to be both reasonable and not unjustly discriminatory. ``Negative 
landing fees'' would necessarily involve cash subsidies to carriers 
operating in off-peak hours, generated by fees on other operations in 
peak hours. Such subsidies, even if considered nondiscriminatory, could 
be inconsistent with requirements for use of airport revenue and would 
be likely to raise issues under U.S. international obligations. 
Negative landing fees were not proposed in the notice, and are not 
included in the final policy.
    Comment: Clarify that airport operators are not preempted from 
using landing fees to create economic incentives for carriers to alter 
schedules at peak times, up-gauge aircraft types, or shift service to 
less congested airports. A landing fee can affect carrier business and 
marketing decisions not only indirectly, but also with the stated 
purpose of having a direct effect on carrier decisions.
    Response: As discussed under Legal Authority above, an airport 
operator pursuing a legitimate objective in the exercise of its 
proprietary authority consistent with its other responsibilities under 
Federal law has some ability to influence carrier decisions. So, an 
airport proprietor can charge a higher landing fee in peak hours to 
influence carriers to use less congested hours, because reducing excess 
demand that results in a high level of operating delays on the airfield 
at peak hours is a legitimate objective of the Department and the 
airport proprietor. However, that authority is not unlimited, given the 
prohibition on airport regulation of airline rates, routes, and 
services in 49 U.S.C. 41713(b). A landing fee designed to implement a 
preference for certain aircraft types, but not justified by any 
condition or purpose related to the functioning of the airfield itself 
would be preempted under Sec.  41713(b).
    Comment: The Department should abandon the limitation on airfield 
fees to historic cost valuation and revenue-neutral airfield fees, and 
allow airports to use market pricing.
    Response: The policies proposed were intended to permit airport 
proprietors some flexibility to use pricing to manage conditions of 
serious peak hour congestion, without deviating from the policy of 
cost-recovery, revenue-neutral charges. See 1996 Policy, ] 2.2. 
Moreover, the requested authority would be unnecessary to implement the 
policies proposed in the notice.
    Comment: In allowing charges for facilities under construction, the 
Department should Adopt Option 2 for financing future construction, to 
permit the higher fees to be imposed throughout the day. Also, the 
policy should extend future financing to include new airports, not just 
new facilities.
    Response: The final policy adopts Option 1, which provides that the 
added charges will be considered reasonable only in hours of peak 
congestion. The purpose of the policy is not cost recovery or revenue 
generation; rather the purpose is to allow for increased 
differentiation between peak and non-peak period pricing at the 
airport. Adding the charges of future facilities in off-peak hours 
works against this goal, and against the incentive for encouraging off-
peak operation. It also penalizes operators already operating outside 
congested hours, by imposing unnecessary costs on those operators with 
no possible incentive effect on scheduling. As airports typically 
adjust their fees regularly and can capitalize the project costs 
remaining after construction, limiting the charges to hours of peak 
congestion is not expected to be difficult or increase administrative 
burdens on airports.

[[Page 40442]]

    With respect to allowing charges for the costs of future airports 
under construction, we do not see the need for a statement of general 
policy on this issue. Cases in which the policy might be applied would 
rarely occur, and any decision on the reasonableness of the charges 
might be highly dependent on the facts of a particular case. The final 
policy adopts the provision on charges for facilities under 
construction as proposed--limited to facilities at the airport where 
the charges are imposed.
    Comment: In allowing charges for the costs of secondary airports in 
the region, the Department should extend the list of secondary airports 
eligible for cross-subsidy to regional airports not owned by the same 
sponsor as the primary, congested airport. The final policy should 
allow airport operators to enter into agreements, approved by the 
Department, for support of one airport with fees from another.
    Response: The FAA has traditionally not allowed airports with 
different owners to enter into agreements that affect access to the 
airports, primarily because one airport sponsor cannot delegate its 
responsibility for reasonable access under its grant assurances to 
another airport operator, or guarantee access at an airport it does not 
control. This new request is similar in that an airport operator would 
be charging its carriers for the access benefits at another airport, 
and the costs of operation of that airport, when it had no control over 
the access to or costs at that second airport. The final policy adopts 
the provision as proposed, limiting charges to the costs of airports 
owned or operated by the same airport proprietor that operates the 
congested airport.
    Comment: The Department should clarify that the proposed fees could 
be implemented outside the airport's existing lease and use agreements.
    Response: The Department assumes that airport proprietors would 
take into account any existing agreements with carriers before imposing 
any new charges, and could only impose those charges as the agreements 
provided or when they expired. Accordingly, the final policy amendment 
does not include the requested language.
    Comment: The notice stated that an airport proprietor ``may 
consider the presence of congestion at the [congested] airport when 
determining the portion of the airfield costs of the other airport to 
be paid by the users of the first airport during periods of 
congestion.'' This can be understood to mean that the airport can 
impose the opportunity costs of congestion in its landing fees.
    Response: This statement in the notice was intended merely to refer 
to a determination of the portion of the second airport's costs that 
could be included in fees at the congested airport. Nothing in the 
proposed amendments would authorize an airport proprietor to charge 
airfield fees that include any amount in excess of the airport 
proprietor's actual system costs. Other commenters expressed confusion 
about the intended meaning of this same language, and it is not 
included in the final amendment.

The Policy Amendments Adopted

    After review of the public comments, the Office of the Secretary of 
Transportation and the FAA have determined that the proposed amendments 
to the 1996 Rates and Charges Policy should be adopted, with revisions 
to address concerns and suggestions raised in the comments. The 
amendments do not alter one of the fundamental principles of the 1996 
Rates and Charges Policy: That reasonable airfield fees must be based 
on the capital and operating costs of the facilities for which the fees 
are assessed. None of the amendments will permit an airport to generate 
revenues in excess of the allowable costs of providing airfield 
facilities and services at the congested airport and its related 
airport system, as defined in accordance with the 1996 Rates and 
Charges Policy.
    The effect of each of these modifications is to allow the airport 
operator to increase the cost of landing at a congested airport during 
periods of congestion, even if congestion lasts through much of the 
day. By raising the costs of using the congested facilities at peak 
times, the airport operator would provide an incentive for current or 
potential aircraft operators to (1) adjust schedules to operate at less 
congested times (if they exist); (2) use less congested secondary or 
reliever airports to meet regional air service needs; or (3) use the 
congested airport more efficiently by up-gauging aircraft. The three 
amendments are not intended to be mutually exclusive. In other words, 
if the circumstances justify doing so, an airport proprietor might use 
a combination of two, or even all three, charges in setting landing 
fees during periods of congestion. Any charges imposed on international 
operations, whether using this proposed flexibility or not, would also 
have to comply with the international obligations of the United States, 
including requirements that the charges be just, reasonable, and 
equitably apportioned among categories of users.
    The Department continues to consider airport development and 
expansion of airport capacity to be the most appropriate and the 
preferred long-term action to address airport congestion and delay. 
However, at airports that meet the definition of congested airports 
when development projects are planned but will not be available in time 
to prevent increasing delays, and at those congested airports where 
capacity expansion is simply not feasible, the amendments adopted in 
this action will provide the airport proprietor additional tools to 
manage available capacity.

Principles Applicable to Airport Rates and Charges

    The amendments adopted include a new paragraph 6 in the statement 
of basic principles applicable to airport rates and charges. The new 
paragraph affirms the requirement that all airport charges imposed on 
international air transportation in the United States comply with the 
international obligations of the United States. This is not a change in 
policy, because this requirement has always applied. However, in view 
of the many comments expressing concern that the proposed charges would 
not comply with international agreements and other authority, the 
Department is revising the amendments to include provisions affirming 
the strong commitment of the United States to meet its international 
obligations in the oversight of airport charges in the U.S. The 
amendments adopted, therefore, include an express statement of the 
requirement for fees at U.S. airport to meet all U.S. international 
obligations regarding airport charges, in the same terms used in U.S. 
bilateral air service agreements. These obligations, of course, apply 
to the entire Rates and Charges Policy and not just the amendments 
adopted in this action.

Special Provisions Applicable to Congested Airports

    The amendment adds a new section 6, Congested Airports. Paragraph 6 
defines a congested airport for the purposes of the Rates and Charges 
Policy according to two criteria, one relating to existing congestion 
and the other to future congestion. An airport qualifies as currently 
congested if it accounts for at least one percent of system delays 
nationally or is listed in table 1 of the FAA's Airport Capacity 
Benchmark Report 2004. Whether these criteria are met should be 
determined using the most recent year for which delay data are 
available and the most recent Airport Capacity Benchmark Report 
available. An airport is considered

[[Page 40443]]

congested in the future if it is forecast to meet a defined threshold 
level of congestion in the FACT 2 study or the most recent update of 
that study. This revised definition responds, in part, to comments that 
the proposed definition included some airports that were not congested. 
Note that while the definition defines an eligible category of airport 
for use of fees to control congestion, there must be a congestion 
problem and those fees must still be reasonable. The new fees may not 
at this time be imposed at airports like Reagan Washington National, 
St. Louis, and Pittsburgh that do not currently have congested hours. 
An airport could not impose fees today based on a forecast that it will 
become congested years in the future. It could, however, put in place 
measures to address future congestion that would become effective when 
it met the definition of congested or was about to do so. Section 6 
also defines ``congested hour'' as an hour during which demand exceeds 
average runway capacity resulting in volume-related delays or is 
anticipated to do so.
    New paragraph 6.1 emphasizes the importance of providing operators 
an explanation or justification for any use of the peak period fees 
authorized in this policy change and of consultations with carriers as 
already provided in the Rates and Charges Policy. The paragraph 
expressly references Appendix 1 to the Policy, containing a list of the 
information the Department would expect the airport proprietor to 
provide to carriers and other operators.
    New paragraph 6.2 clarifies that an airport proprietor may adopt 
measures to address congestion even before conditions would justify 
peak period pricing, as long as that pricing does not take effect until 
the conditions described in that paragraph are met. Such a measure 
would include a specified condition, such as number and severity of 
chronic operating delays, that triggered the implementation of the 
pricing. Advance consideration of the need for peak period pricing not 
only allows full time for consultation with users, but also allows 
users to adjust schedules well in advance to avoid congestion that 
would trigger the peak period pricing.
    New paragraph 6.3 provides that an airport operator that imposes 
peak period charges for facilities under construction, or for the costs 
of a secondary airport in the system, can exempt from those charges any 
flights operated under an Essential Air Service (EAS) Program subsidy, 
in accordance with 49 U.S.C. 41731-41735. The Department has previously 
acknowledged that an airport proprietor may exempt EAS subsidized 
flights from general fee increases that would jeopardize that service. 
That determination is based on the Supremacy Clause of the U.S. 
Constitution and the interpretation that the proprietary exception to 
Federal preemption only permits an airport proprietor to take actions 
consistent with the implementation of a Federal program, and not to 
make its own decision about preferences for certain markets. As 
discussed in the response to comments above, the Department sees no 
authority for an exemption beyond the EAS Program eligible airports.

Two-Part Landing Fee

    Paragraph 2.1 is amended by adding a new paragraph 2.1.4 as 
proposed, to clarify that an airport proprietor may impose a landing 
fee that incorporates both weight-based and per-operation elements. 
There are conditions on the use of a two-part fee: It must reasonably 
allocate costs to users on a rational and economically justified basis, 
and it may not generate fees in excess of allowable airfield costs.
    New subparagraph 2.1.4(a) notes that a positive effect on 
congestion reduction, such as enhancing the number of passengers 
accommodated during congested hours, may justify a fee incorporating a 
substantial per-operation component, such as the two-part landing fee. 
The policy does not limit the use of two-part landing fees to congested 
airports, although the Department does not currently see any 
alternative justification for such fees.
    New subparagraph 2.1.4(b) provides for the exemption of EAS-
subsidized markets from the application of a two-part landing fee, and 
provides guidance on how such flights would otherwise be charged for 
their share of airfield costs. Exemption from the two-part fee would 
not be a waiver of all fees, but rather an exemption from the fee 
increase due to the per-operation component of the two-part fee. The 
assumption is that under an exemption, an EAS operator would continue 
to pay the weight-based charge in effect before adoption of the two-
part fee (or that would have been in effect if all carriers were paying 
a weight-based charge). The paragraph also makes clear that where an 
exemption results in lower charges for EAS operators, the resulting 
loss in revenue cannot be made up by an increase in the landing fees 
charged to other operators.

Charges for Facilities Under Construction

    The policy as amended would replace paragraph 2.5.3, which was 
vacated by the court of appeals, with a new paragraph addressing 
charges for facilities under construction, as proposed in the notice. 
For the reasons explained in the notice, the replacement language is 
consistent with the court's opinion that vacated the original paragraph 
2.5.3. The final policy adopts Option 1 in the notice, limiting the 
added charges for facilities under construction to hours when peak hour 
pricing would be justified. The paragraph as adopted includes the three 
conditions in the proposal that serve to limit the charges to 
facilities that are approved and under construction. This effectively 
limits additional landing fees to projects for which the airport 
operator is already incurring construction costs, and which will be in 
use in the relatively near future. In response to comments, paragraph 
2.5.3 as adopted also includes a new fourth condition not in the 
notice: That the added costs for current operators would have the 
effect of reducing or preventing congestion and operating delays at the 
airport. While the notice limited this charge to congested airports, it 
did not contain an express condition that the charge actually have a 
positive effect on congestion, although that condition was implied. 
This new language adds an express statement of that condition. For a 
new charge, the effect could be predicted using information available. 
For a charge that had been in effect for some time, there would be 
actual performance data available for review of the effectiveness of 
the charge.
    New paragraph 2.5.3(a) is adopted as proposed, simply requiring 
that any construction costs reimbursed during the construction period 
not be included in the final project cost when completed.
    The final policy deletes the proposed paragraph 2.5.3(b), which 
suggested that an airport proprietor consult the ICAO Airport Economics 
Manual. The Department strongly urges that charges be constructed in 
accordance with this Manual; however, the new paragraph 6 of the 
Principles, stating clearly the broad obligation to comply with all 
U.S. international obligations, makes the reference to one ICAO manual 
too limiting.
    The policy adopted includes a new paragraph 2.5.3(b) clarifying 
that a charge for a facility under construction cannot exceed the 
actual costs as incurred by the airport proprietor. It indicates that 
the costs can be recovered as they are incurred, but the airport 
proprietor could not accumulate funds in advance of requirements. 
Second, charges are limited to the debt service over a conventional 
amortization period which takes into account the expected

[[Page 40444]]

term of the permanent financing. Some air carriers commented that the 
policy did not prevent an airport proprietor from charging all costs of 
construction as incurred, even though the finished project would 
normally be financed and paid off through debt service over a period of 
years. While the policy does not prescribe in detail any particular 
methodology, it does limit the added charge in any year to a 
commercially reasonable amount for debt service on the financing for 
the particular project amount involved.
    The final policy as adopted includes a conforming amendment to 
paragraph 2.4.4 not included in the notice. Paragraph 2.4.4, relating 
to recovery of costs for debt service, contains a parenthetical ``(for 
facilities in use),'' which states the general policy limiting charges 
to facilities that are completed and in use by the operators being 
charged. To assure internal consistency of the amendments, the final 
policy amends the parenthetical to read, ``(for facilities in use or in 
accordance with paragraph 2.5.3),'' to provide for the limited 
exception for facilities under construction at congested airports.

Charges for the Costs of a Secondary Airport

    As stated in the notice, paragraph 2.5.4 of the 1996 Rates and 
Charges Policy permits the operator of an airport to include in the 
rate base of that airport costs of another airport currently in use if 
three conditions are met: (1) The two airports have the same 
proprietor; (2) the second airport is currently in use; and (3) the 
costs of the second airport to be included in the first airport's rate-
base are reasonably related to the aviation benefits that the second 
airport provides or is expected to provide to the aeronautical users of 
the first airport. Subparagraph (a) further provides that the third 
condition will be presumed to be satisfied if the second airport is 
designated as a reliever airport to the first in the FAA's National 
Plan of Integrated Airport Systems (NPIAS).
    The notice proposed to amend subparagraph 2.5.4(a) to add another 
category of airports to the presumption--those that the FAA has 
designated as secondary airports serving cities, metropolitan areas, or 
regions served by congested airports. The three conditions in paragraph 
2.5.4 continue to apply to this new presumption. The final policy 
includes the proposed amendments with one change: To satisfy the 
presumption that the secondary commercial airport benefits users of the 
congested airport, the policy as adopted provides that the added costs 
in peak hour charges at the congested airport must also have the effect 
of reducing or preventing further congestion and operating delays at 
that airport. The notice assumed that the proposed charges would have 
the effect of relieving congestion at the congested airport, but did 
not actually make that effect a requirement for the use of the charges 
by the operator of a congested airport. As with the charges for 
facilities under construction, for a new charge the effect could be 
predicted using information available. For a charge that had been in 
effect for some time, there would be actual performance data available 
for review of the effectiveness of the charge.
    FAA has identified the secondary airports that would meet the first 
two criteria for the presumption in paragraph 2.5.4(a)(2) (i.e., the 
first airport is congested, and the secondary airport serves the same 
community or region), and monitors development projects at these 
airports in the FAA strategic plan or ``Flight Plan.'' The current list 
of secondary airports has been placed in the public docket. The FAA has 
also posted the current list of designated secondary airports on its 
Web site, and will keep it up to date.
    The notice also proposed to add a new subparagraph 2.5.4(e) 
stating, first, that the proprietor of a congested airport may consider 
the presence of congestion when determining the share of the airfield 
costs of the secondary airport to be included in the rate base of the 
congested airport during periods of congestion, and second, that in no 
event would the airport operator be allowed to generate more revenue 
from airfield charges imposed at the two airports than the costs of 
operating the two airfields. Commenters were confused by the first part 
of that sentence, and some commenters entirely misunderstood its 
intended meaning. In lieu of the language as proposed, the final policy 
adopted contains a more direct statement in paragraph 2.5.4(a)(2) that 
charges for a secondary commercial airport may be used only when they 
have an actual effect in relieving or preventing congestion.
    The final policy includes a new paragraph 2.5.4(e), which includes 
a slight revision of the second part of proposed paragraph (e) to 
expressly limit total charges to the allowable costs of the congested 
and secondary airport combined. New paragraph (e) adds new language 
clarifying that the allowable charges for a secondary airport are 
limited to customary airfield cost center charges. Some commenters 
expressed concern at the lack of guidance on costs of the secondary 
airport that could be charged to operators at the congested airport. 
The Department has not attempted to prescribe detailed guidance, in 
consideration of the variation in local rate methodologies at airports. 
In lieu of detailed guidance, the policy limits charges to airfield 
costs, and to those airfield costs which would be customary for the 
methodology in effect in that airport system. We believe that guidance 
will be sufficient to evaluate the reasonableness of a proposed peak 
hour charge that includes costs at a secondary airport.
    Finally, the final policy adopted includes a conforming amendment 
to paragraph 2.2 of the Rates and Charges Policy. Existing paragraph 
2.2 states the general rule that airfield charges cannot exceed the 
costs to the airport proprietor of providing airfield services and 
assets currently in use unless users agree otherwise. The final policy 
makes the carrier approval paragraph 2.2(a), and adds a paragraph 
2.2(b) with an alternate exception: if the charge is imposed in 
accordance with paragraph 2.5.3, for facilities under construction, or 
paragraph 2.5.4(a), for the costs of a secondary airport. With these 
limited exceptions, the general rule limiting charges to facilities 
currently in use continues to apply.

Amendment of the Rates and Charges Policy

    In consideration of the foregoing, the Department of Transportation 
amends the Policy Regarding Airport Rates and Charges, published at 61 
FR 31994 (June 21, 1996) as follows:

Policy Regarding Airport Rates and Charges

Principles Applicable to Airport Rates and Charges

    1. In Principles Applicable to Airport Rates and Charges, add a new 
paragraph 6 to read as follows:
    6. Fees imposed on international operations must also comply with 
the international obligations of the United States, which include the 
requirements that the fees be just, reasonable, not unjustly 
discriminatory, equitably apportioned among categories of users, no 
less favorable to foreign airlines than to U.S. airlines, and not in 
excess of the full cost to the competent charging authorities of 
providing the facilities and services efficiently and economically at 
the airport or within the airport system.

Fair and Reasonable Fees

    2. Amend subsection 2.1 by adding a new paragraph 2.1.4 as follows:
    2.1.4 An airport proprietor may impose a two-part landing fee 
consisting

[[Page 40445]]

of a combination of a per-operation charge and a weight-based charge 
provided that (1) the two-part fee reasonably allocates costs to users 
on a rational and economically justified basis; and (2) the total 
revenues from the two-part landing fee do not exceed the allowable 
costs of the airfield.
    (a) The proportionately higher costs per passenger for aircraft 
with fewer seats that will result from the per-operation component of a 
two-part fee may be justified by the effect of the fee on congestion 
and operating delays and the total number of passengers accommodated 
during congested hours.
    (b) An airport proprietor may exempt flights subsidized under the 
Essential Air Service Program from the general application of a 2-part 
landing fee, and instead charge those flights a landing fee that would 
have been charged if a conventional weight-based fee was in effect. To 
the extent an exemption reduces total airfield fees recovered, the 
difference may not be recovered by increasing charges to other 
operators currently operating at the airport.
    3. Revise paragraph 2.2 to read:
    Revenues from fees imposed for use of the airfield (``airfield 
revenues'') may not exceed the costs to the airport proprietor of 
providing airfield services and airfield assets currently in 
aeronautical use unless:
    (a) Otherwise agreed to by the affected aeronautical users; or
    (b) The fee includes charges in accordance with paragraph 2.5.3 or 
paragraph 2.5.4(a), and there is a corresponding reduction in fees for 
users that would otherwise have paid those charges.
    4. Amend paragraph 2.4.4 by revising the parenthetical phrase to 
read:
    `` * * * (for facilities in use or in accordance with paragraph 
2.5.3) * * * ''
    5. Add a new paragraph 2.5.3 to read as:
    2.5.3. The proprietor of a congested airport may include in the 
rate-base used to determine airfield charges during congested hours a 
portion of the costs of an airfield project under construction so long 
as (1) all planning and environmental approvals have been obtained for 
the project; (2) the proprietor has obtained financing for the project; 
(3) construction has commenced on the project; and (4) the added costs 
for current operators would have the effect of reducing or preventing 
congestion and operating delays at that airport.
    (a) The airport proprietor must deduct from the total costs of the 
projects any principal and interest collected during the period of 
construction in determining the amount of project costs to be 
capitalized and amortized once the project is commissioned and put in 
service.
    (b) The amount of project costs included in current charges may not 
exceed an amount corresponding to costs actually incurred during the 
construction period, calculated in accordance with a commercially 
reasonable amortization period based on the expected term for the 
permanent financing of the project.
    6. Amend paragraph 2.5.4(a) to read as follows:
    (a) Element no. 3 above will be presumed to be satisfied if:
    (1) The other airport is designated as a reliever airport for the 
first airport in the FAA's National Plan of Integrated Airport Systems 
(``NPIAS''); or
    (2) The first airport is a congested airport; the other airport has 
been designated by the FAA as a secondary airport serving the 
community, metropolitan area or region served by the first airport; and 
adding airfield costs of the second airport to the rate base of the 
first airport during congested hours would have the effect of reducing 
or preventing congestion and operating delays at that airport in those 
hours.
    7. Add a new subparagraph 2.5.4(e) to read as follows:
    (e) Costs of the second airport that may be included in the rate 
base of the first airport are limited to customary airfield cost center 
charges. The total airfield revenue recovered from the users of both 
airports cannot exceed the total allowable costs of the two airports 
combined.
    8. Add a new Section 6, Congested Airports to read as follows:

Congested Airports

6. Congested Airports
    (a) The Department considers a currently congested airport to be--
    (1) An airport at which the number of operating delays is one per 
cent or more of the total operating delays at the 55 airports with the 
highest number of operating delays; or
    (2) An airport identified as congested by the Federal Aviation 
Administration listed in table 1 of the FAA's Airport Capacity 
Benchmark Report 2004, or the most recent version of the Airport 
Capacity Benchmark Report.
    (b) The Department considers an airport to be a future congested 
airport if an airport is forecasted to meet a defined threshold level 
of congestion reported in the Future Airport Capacity Task 2 study 
entitled Capacity Needs in the National Airspace System 2007-2025: An 
analysis of Airports and Metropolitan Area Demand and Operational 
Capacity in the Future (FACT 2 Report), or any update to that report 
that the FAA may publish from time-to-time.
    (c) A congested hour is an hour during which demand exceeds average 
runway capacity resulting in volume-related delays, or is anticipated 
to do so.
    6.1. Because charges provided in paragraphs 2.1.4, 2.5.3 and 2.5.4 
to address congestion can result in higher fees for some or all 
operators, it is especially important for airport operators proposing 
such charges to provide carriers in advance the information listed in 
Appendix 1, with special emphasis on data, analysis and forecasts used 
to justify the charges.
    6.2. The proprietor of a future congested airport may adopt 
measures to address congestion in accordance with paragraphs 2.1.4, 
2.5.3 and 2.5.4 of this policy, if the measures will not take effect or 
have any effect on airfield charges until a time when the airport meets 
the definition of a congested airport in paragraph 6 (a) or is 
anticipated to do so. This kind of measure would typically identify the 
specific condition, e.g., operating delays that regularly exceed a 
certain level at the airport that would trigger the implementation of 
the special charges to address congestion.
    6.3 An airport proprietor may exempt flights subsidized under the 
Essential Air Service Program from charges imposed under paragraphs 
2.5.3 and 2.5.4 of this policy.

    Issued in Washington, DC on July 8, 2008.
Mary E. Peters,
Secretary of Transportation.
Robert A. Sturgell,
Acting Administrator, Federal Aviation Administration.
[FR Doc. 08-1430 Filed 7-10-08; 8:45 am]
BILLING CODE 4910-13-P