[Federal Register: July 14, 2008 (Volume 73, Number 135)]
[Notices]
[Page 40430-40445]
[DOCID:fr14jy08-152]

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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:<PHONE_NUMBER>; e-mail<EMAIL_ADDRESS>
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<PHONE_NUMBER>. 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

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,

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

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-

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.

    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,

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-

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

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

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

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.

    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.

    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

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

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

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