[Federal Register: April 17, 2008 (Volume 73, Number 75)]
[Proposed Rules]
[Page 20846-20868]
[DOCID:fr17ap08-19]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 93

[Docket No. FAA-2006-25709; Notice No. 08-04]
RIN 2120-AI70

Congestion Management Rule for LaGuardia Airport

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Supplemental notice of proposed rulemaking (SNPRM).

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SUMMARY: On August 29, 2006, the Federal Aviation Administration
published a notice of proposed rulemaking to address congestion at New
York's LaGuardia Airport (LaGuardia), which included a proposal to
administratively incentivize carriers to use larger planes. The FAA
prefers to use measures that allow carriers to respond to market forces
to drive the most efficient airline behavior and is amending its
original proposal. To minimize disruption, the FAA proposes to
grandfather the majority of operations at the airport and develop a
robust secondary market by annually auctioning off a limited number of
slots. The FAA is proposing two different, mutually exclusive options.
Under the first option, the FAA would auction off and retire a portion
of the slots and would use the proceeds to mitigate congestion and
delay in the New York City area. Under the second option, the FAA would
conduct an auction as it would under the first option, but the proceeds
would go to the carrier holding the slot rather than the FAA and no
portion of existing slots would be retired. This proposal also contains
provisions for use-or-lose, unscheduled operations, and withdrawal for
operational need. The FAA proposes to sunset the rule in ten years.

DATES: Send your comments on or before June 16, 2008.

ADDRESSES: You may send comments identified by Docket Number FAA-2006-
25709 using any of the following methods:
     Federal eRulemaking Portal: Go to http://
www.regulations.gov and follow the online instructions for sending your
comments electronically.
     Mail: Send comments to Docket Operations, M-30; U.S.
Department of Transportation, 1200 New Jersey Avenue, SE., Room W12-
140, West Building Ground Floor, Washington, DC 20590-0001.
     Hand Delivery or Courier: Bring comments to Docket
Operations in Room W12-140 of the West Building Ground Floor at 1200
New Jersey Avenue, SE., Washington, DC, between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal holidays.
     Fax: Fax comments to Docket Operations at<PHONE_NUMBER>.
For more information on the rulemaking process, see the SUPPLEMENTARY
INFORMATION section of this document.
    Privacy: We will post all comments we receive, without change, to
http://www.regulations.gov, including any personal information you
provide. Using the search function of our docket Web site, anyone can
find and read the electronic form of all comments received into any of
our dockets, including the name of the individual sending the comment
(or signing the comment for an association, business, labor union,
etc.). You may review Department of Transportation's complete Privacy
Act Statement in the Federal Register published on April 11, 2000 (65
FR 19477-78) or you may visit http://DocketsInfo.dot.gov.
    Docket: To read background documents or comments received, go to
http://www.regulations.gov at any time and follow the online
instructions for accessing the docket. Or, go to the Docket Operations
in Room W12-140 of the West Building Ground Floor at 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: For technical questions regarding this
rulemaking, contact: Molly W. Smith, Office of Aviation Policy and
Plans, APO-001, Federal Aviation Administration, 800 Independence
Avenue, SW., Washington, DC 20591; telephone<PHONE_NUMBER>; e-mail
<EMAIL_ADDRESS>For legal questions concerning this rulemaking,
contact: Rebecca MacPherson, FAA Office of the Chief Counsel, 800
Independence Ave., SW., Washington, DC 20591; telephone<PHONE_NUMBER>;
e-mail<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Later in this preamble under the Additional
Information section, we discuss how you can comment on this proposal
and how we will handle your comments. Included in this discussion is
related information about the docket, privacy, and the handling of
proprietary or confidential business information. We also discuss how
you can get a copy of this proposal and related rulemaking documents.

Authority for This Rulemaking

    The FAA has broad authority under 49 U.S.C. 40103 to regulate the
use of the navigable airspace of the United States. This section
authorizes the FAA to develop plans and policy for the use of navigable
airspace and to assign the use that the FAA deems necessary for its
safe and efficient utilization. It further directs the FAA to prescribe
air traffic rules and regulations governing the efficient utilization
of the navigable airspace.

Table of Contents

I. Background
    A. History of Congestion Management Initiatives at LaGuardia
    B. Summary of the SNPRM
II. Discussion of the NPRM
    A. Withdrawal of Upgauging Proposal
    B. Perimeter Rule
    C. Finite Operating Lives
III. Proposal To Allocate Limited Capacity at LaGuardia Efficiently
    A. Need for a Cap on Operations
    B. Sunset Provision
    C. Need for More Efficient Allocation
    D. Authority To Allocate Slots at LaGuardia
    1. Authority To Determine the Best Use of the Airspace
    2. Authority To Enter Into Leases and Cooperative Agreements
    3. The FAA's Proposed Actions Do Not Constitute a Taking in
Violation of the Fifth Amendment
    E. Allocation of Slots
    1. Categories of Slots
    2. Initial Allocation of Capacity
    3. Market-Based Reallocation of Capacity
    4. New and Returned Capacity
    F. Auction Procedures
    G. Secondary Trading
IV. Unscheduled Operations
V. Other Issues
    A. 30-Minute Allocations
    B. Limit on Arrivals and Departures
    C. Use-or-Lose
VI. Regulatory Notices and Analyses
VII. Draft Regulatory Text

I. Background

A. History of Congestion Management Initiatives at LaGuardia

    The FAA managed congestion at LaGuardia under the High Density Rule
(HDR) from 1969 through 2006. 14 CFR part 93 subparts K and S. The FAA
first established allocation procedures for slots under the HDR in
1985. 50 FR 52195, December 20, 1985. These procedures included use-or-
lose provisions and, while explicitly stating

that the slots were not the carriers' property, allowed carriers to
buy, sell or lease the slots on the secondary market. On April 5, 2000,
Congress enacted the Wendell H. Ford Aviation and Investment Reform Act
of the 21st Century (AIR-21 or the Act). The Act phased out the HDR at
LaGuardia effective January 1, 2007. In addition to phasing out the
HDR, AIR-21 directed the Secretary of Transportation to grant
exemptions from the HDR's flight restrictions for flights operated by
new entrant carriers or flights serving Small-Hub and Non-Hub airports
as long as the aircraft had less than 71 seats. The Act also preserved
the FAA's authority to impose flight restrictions by stating that
``[n]othing in this section * * * shall be construed * * * as affecting
the Federal Aviation Administration's authority for safety and the
movement of air traffic.'' 49 U.S.C. 41715(b).
    The slot exemptions mandated by Congress under AIR-21 resulted in
gridlock at the airport as the number of exempted operations soared
throughout 2000. Using its authority in 49 U.S.C. 40103, the FAA capped
AIR-21 slot exemptions and hourly operations at LaGuardia. On December
4, 2000, the agency conducted a lottery that allocated the limited
number of exemptions. While hourly operations were limited at the
airport, the new cap at LaGuardia was significantly higher than it had
been under the HDR prior to enactment of AIR-21.
    Slots allocated under the HDR were scheduled to expire on January
1, 2007. Based on its experience in 2000, the FAA determined that
simply lifting the HDR at LaGuardia would have a significantly adverse
impact on the airspace around New York City and potentially on the
National Airspace System (NAS) as a whole. Accordingly, on August 29,
2006, the FAA published a notice of proposed rulemaking (NPRM)
proposing continuation of the cap on hourly operations at the airport
as well as a new method of allocating capacity (71 FR 51360).
Specifically, the FAA proposed to cap scheduled operations at 75 per
hour; cap unscheduled operations at six per hour; impose an average
minimum aircraft size requirement for much of the fleet serving the
airport; and implement a limit on the duration of operating lives,
known as Operating Authorizations, that would assure ten percent of the
capacity at the airport would be available annually for reallocation
based on an undetermined market mechanism. The average minimum aircraft
size proposal was known as the aircraft upgauging proposal. This
proposal was designed to maximize airport throughput consistent with
the airport's physical constraints. The comment period closed December
29, 2006.
    The FAA recognized that it would be unable to complete its
rulemaking by January 1, 2007, when the HDR was scheduled to expire. On
December 27, 2006 the agency published an FAA Order Operating
Limitations at New York LaGuardia Airport (LaGuardia Order) (71FR
77854).\1\ The LaGuardia Order retained the existing cap at the airport
of 75 scheduled operations and imposed a reservation system for
unscheduled operations that permitted six unscheduled operations per
hour. The LaGuardia Order did not retain the conditions imposed by
Congress on the AIR-21 exemptions; rather, flights conducted pursuant
to the exemptions were rolled into the hourly cap without restriction.
    The industry response to the new allocation method proposed in the
NPRM was universally negative, although very few commenters argued that
a cap on operations at the airport was unnecessary. The FAA received
comments from 61 different commenters, with some commenters making
multiple submissions. The largest group of commenters consisted of
Federal, state and local government representatives and community
groups who were concerned the FAA's proposal, if adopted, would result
in specific communities losing direct service to and from LaGuardia.
Fifteen carriers and four of their associations commented on the
proposal, as did two airport associations, three other associations,
the airport's proprietor the Port Authority of New York and New Jersey
(Port Authority), the Canadian Embassy and nine individuals speaking in
their private capacity.
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    \1\ The LaGuardia Order was amended on November 8, 2007 (72 FR
63224).
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    In general, the carriers and their associations criticized any
attempt by the FAA to regulate beyond the simple imposition of a cap on
operations, arguing the proposal was too complicated, would not meet
the agency's stated objectives, and would prove disruptive to the
airport as a whole. Other commenters questioned the FAA's attempt to
impose a market-based solution to fair allocation--not because they
deemed the measures unduly oppressive, but because they believed
market-based measures could not be implemented in a manner that
adequately protected the interests of all affected parties. The
American Association of Airport Executives (AAAE) expressed this
sentiment most succinctly when it stated that while market-based
solutions are generally preferable (since they are more predictable
than administrative solutions), they are not preferable when their
outcomes are likely to conflict with public policy goals or when
artificial constraints are imposed.
    While operations at LaGuardia remained capped throughout 2007, caps
were lifted on afternoon operations at John F. Kennedy International
Airport (JFK) on January 1, 2007, when the HDR expired at that airport.
Operations at JFK had already begun to increase during the morning
hours, but the increase in operations in the afternoon hours soon led
to system overload. Nationally, the summer of 2007 was the second worst
on record for flight delays. On September 27, 2007, the Secretary of
Transportation announced the formation of the New York Aviation
Rulemaking Committee (ARC) to help the Department of Transportation
(Department) and the FAA explore available options for congestion
management and how changes to current policy at all three major
commercial New York City airports would affect the airlines and the
airports.
    By design, the ARC provided ample opportunity for extensive input
by all stakeholders, having members from every major air carrier in the
United States as well as foreign carriers and the Port Authority.
Through the ARC process, these stakeholders played a key role in
exploring ideas to address congestion and ensuring that any actions
contemplated by the Department and the FAA would be fully informed. The
ARC worked throughout the fall and submitted a report to the Secretary,
dated December 13, 2007, discussing its findings. A copy of the ARC
Report may be found at http://www.dot.gov/affairs/FinalARCReport.pdf.

B. Summary of the SNPRM

    Today's proposal considers not only the concerns raised by
commenters in response to the NPRM, but also takes into account the
extensive discussions and issues raised by the members of the ARC. In
response to the concerns and issues raised, the FAA has decided to
withdraw both its upgauging proposal and its proposal to have Operating
Authorizations that would have expired on a rolling ten-year cycle. In
deference to the universal use of the term ``slots,'' the FAA has also
decided to return to the use of that term rather than calling the
operational authority to conduct scheduled operations at LaGuardia

Operating Authorizations.\2\ Accordingly, for purposes of this
rulemaking, a slot is defined as the operational authority assigned by
the FAA to a carrier to conduct one scheduled arrival or departure
operation at LaGuardia on a particular day of the week during a
specific 30-minute period.
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    \2\ When discussing comments to the NPRM, the FAA will use the
term ``Operating Authorization'' since that was the term used in the
NPRM. In discussing today's proposal, the agency will use the term
``slots''.
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    Rather than pursue its earlier proposal for allocating capacity,
the FAA today proposes to lease the majority of operations at the
airport to the historic operators for non-monetary consideration under
its cooperative agreement authority. The agency also proposes to
develop a robust market by annually auctioning off leases for a limited
number of slots during the first five years of the rule. The FAA plans
to evaluate the effects of the slot program proposed today on the
distribution of slots and entry into LaGuardia on an ongoing basis. The
agency intends to take this experience into account in all congestion
management activities.
    The FAA is proposing two different, mutually exclusive options.
Under the first option, the FAA would auction off or retire a portion
of the slots and would use the proceeds to mitigate congestion and
delay in the New York City area. Under the second option, the FAA would
conduct an auction as it would under the first option, but no slots
would be retired and the proceeds would go to the carrier holding the
slot after the FAA recoups the cost of the auction, rather than the
FAA. In order to facilitate understanding of how each option would work
within the entire regulatory scheme, the complete regulatory text for
each option is set out in the ``Draft Regulatory Text'' section of this
document.
    Today's proposal also contains provisions for use-or-lose,
unscheduled operations, and withdrawal for operational need. The FAA
proposes to sunset the rule in ten years.
    The following table briefly summarizes today's proposal and
identifies differences between the two options.

          Options 1 and 2 of Proposed Regulation for LaGuardia
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            Feature                    Option 1             Option 2
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Base Schedule.................  Week 2 January 2007...  Same.
Slot..........................  Defined as right to     Same.
                                 land or depart (not
                                 both) in a 30-minute
                                 time window.
Number of Slots...............  75/hour + 3             75/hour + 3
                                 unscheduled less 2%     unscheduled.
                                 retired and not
                                 redistributed.
Slot Definitions..............  Common Slots: The       Common Slots:
                                 Baseline (up to 20      The Baseline
                                 slots per carrier)      (up to 20 slots
                                 plus 90% of slots       per carrier)
                                 above 20 have 10 year   plus 80% of
                                 leases; Limited         slots above 20
                                 Slots: 8% above the     would have 10
                                 Baseline would have     year leases;
                                 shorter leases and be   Limited Slots
                                 auctioned over five     20% would have
                                 years (1.6% each)       shorter leases
                                 (after which they       and then be
                                 convert to              reallocated via
                                 Unrestricted Slots);    auction over
                                 and 2% would have       five years (4%/
                                 shorter leases & then   yr).
                                 be retired over 5
                                 years (0.4%/yr).
Slot Time of Day..............  6 a.m. through 9:59     Same.
                                 p.m., Monday through
                                 Friday and Sunday
                                 from 12 noon through
                                 9:59 p.m.; no more
                                 than 75 in any one
                                 hour or 38 in any
                                 half-hour.
Mechanics.....................  ``Fair'' initial        Same.
                                 distribution with
                                 half of slots with
                                 less than 10 years
                                 life selected by
                                 carriers; the other
                                 half selected by FAA
                                 according to
                                 specified rules.
Auction.......................  For slots returned to   Same.
                                 FAA because life has
                                 expired, an ascending
                                 clock auction among
                                 air carriers.
Auction Proceeds..............  Auction funds to FAA    Auction funds
                                 to defray costs of      (net of auction
                                 auction, then to NY     costs) to
                                 capacity/projects.      incumbent
                                                         holder;
                                                         incumbent
                                                         cannot bid on
                                                         own slots.
Use/Lose......................  Only on grandfathered   Same.
                                 slots as
                                 consideration for
                                 slots.
Term..........................  Program is through      Same.
                                 March 2019; slot
                                 lives are whatever
                                 proportion of 10
                                 years remain upon
                                 reallocation.
Bidders.......................  Airlines..............  Same.
Holders.......................  Holders of record (not  Same.
                                 marketing carrier).
New or returned capacity......  Auctioned.............  Same.
Secondary market..............  Transparent not blind:  Same.
                                 carrier notifies FAA
                                 of intent to sell;
                                 FAA makes slot
                                 availability known;
                                 bilateral
                                 negotiations; final
                                 terms disclosed to
                                 OST for monitoring.
Logistical swaps of slots.....  Permitted.............  Same.
------------------------------------------------------------------------

II. Discussion of the NPRM

A.Withdrawal of Upgauging Proposal

     In the NPRM, the FAA proposed a requirement that incentivized
carriers to upgauge the size of their aircraft based on an average
number of seats. The FAA maintained that increasing the overall number
of passengers using the airport would constitute a more efficient use
of the NAS. In particular, the proposal was based on the FAA's belief
that some of the inefficiencies at LaGuardia are related to the use of
smaller aircraft in arguably saturated markets.
    Under the NPRM's proposal, if a carrier failed to meet the
airport's average aircraft size requirement, it would lose its least
productive Operating Authorizations. Each carrier would have been
allowed to maintain a baseline of operations of 10 daily operations
without consideration of aircraft size, so as to minimize disruption.
Recognizing the importance of service to LaGuardia to and from
relatively small communities, the proposal also included special
treatment for small communities, which would have permitted carriers
serving those communities to continue service on smaller aircraft
without the risk of losing an Operating Authorization. The

FAA has decided against moving forward with a proposal requiring
upgauging at this time.
    Several carriers and their associations alleged the FAA's upgauging
proposal would be overly disruptive. Among the concerns cited were that
the withdrawal of any one Operating Authorization would effectively
mean the loss of a second one as well; the proposed one year effective
date to upgauge was unduly restrictive and did not give carriers
sufficient opportunity to change their fleet mix; and the proposal
failed to acknowledge existing lease agreements with the Port
Authority. United Airlines (United) and the Republic Group questioned
how increasing aircraft size would actually lead to greater throughput,
since carriers are presumably already using aircraft suitable for the
markets they serve. Along with American Airlines (American), these
commenters stated that the upgauging proposal was predicated on the
premise that ground facilities are inadequately utilized, and that the
inadequate utilization is a function of small and medium aircraft being
overused. Not only did the FAA provide no data to support its position,
they asserted, but in fact the relatively low load factors at LaGuardia
indicate that the proper size aircraft are being used.
    In addition, the Port Authority and The City of New York noted that
gates at LaGuardia are not interchangeable and that many gates (and
taxiways) at the airport cannot accommodate larger aircraft. Thus, the
proposal would not work because of a fundamental mismatch between the
proposal and the management of landside infrastructure. US Airways
suggested that if the FAA was committed to upgauging, it could require
an increase in the number of available seats, but in a gradual, phased-
in manner that is economically sustainable.
    Some carriers also opined that the proposal was overly disruptive
in that the proposed baseline of operations that would be exempt from
the upgauging requirements was too small. While carriers with a smaller
presence at the airport like JetBlue Airways (JetBlue) favored an
increase in the number of protected operations (e.g., 20 daily
operations), US Airways favored a carrier being able to protect at
least 11 percent of its fleet, with smaller carriers being able to
protect 10 operations.
    Notwithstanding the contemplated carve-out for small community
service, United, and to some extent the Regional Airline Association
(RAA), argued that requiring upgauging may force a carrier to
discontinue service from smaller communities because the market in that
community may only support a smaller aircraft. US Airways noted that
these operations can be profitable and are unlikely to be discontinued
completely; the carrier also asserted that the proposal would likely
have the most adverse impact on medium-sized airports that benefit from
multiple daily frequencies on smaller aircraft. Concern over the
potential loss of small community service was echoed by the Federal,
state and local representatives who wrote to the FAA expressing concern
that service to specific communities could be lost.
    Finally, United argued that the upgauging proposal was not
rationally related to Congressional authorization in 49 U.S.C.
40103(b), because increasing passenger throughput has nothing to do
with assigning the use of the airspace or prescribing air traffic
regulations. Rather, according to United, the proposal would have
mandated which equipment a carrier may use to access the runway at
LaGuardia, and was accordingly beyond the FAA's authority. The Port
Authority was likewise concerned that the proposal impermissibly
infringed on its rights as the airport proprietor.
    Based on careful review of the public comments, the FAA has
determined that there are simpler, less prescriptive ways to permit
airlines to respond more directly to market forces. Given carriers'
long-term leasing and purchasing arrangements, the timeframes for
implementing the proposal may have been too short; and if adopted, the
proposal potentially could have inadvertently disrupted operations at
the airport. The FAA recognizes the long-term contractual relationships
that exist at LaGuardia. At the same time, the agency prefers that the
limited asset that makes up an Operating Authorization be allocated
using market principles rather than regulatory or administrative
principles. Today's proposal meets that objective without unduly
burdening either the airport or the carriers.
    At this point in time, the FAA does not believe there is a need to
dictate a minimum aircraft size to achieve the overall objective that
service to and from LaGuardia be reasonably available to the maximum
number of people who wish to use it without undue delay. Accordingly,
the FAA is withdrawing its proposal for upgauging.
    Nevertheless, the agency believes that the concept behind its
upgauging proposal remains valid: capacity cannot be considered merely
in terms of the number of aircraft being handled by the FAA's Air
Traffic Control system (ATC). The FAA believes United's interpretation
of the FAA's statutory authority to manage the efficient use of the
airspace as being limited to the movement of aircraft generically is
overly narrow. The characterization of operations in terms of aircraft
makes sense to the air traffic controllers, whose job it is to control
all aircraft flying under instrument flight rules (IFR) within their
sector. United's characterization does not make sense as a matter of
policy or statutory interpretation because it ignores the reality that
aircraft operations are designed to move people and cargo.
    The FAA does not believe the relatively low load factors at
LaGuardia support the premise that the market dictates the use of
smaller aircraft to many of the markets with service to the airport. It
is true that some smaller communities may not be able to support daily
operations on larger aircraft. The FAA asserts, however, that certain
market patterns, where multiple daily flights on small aircraft are not
related to the size of the communities served, indicate an inefficient
use of the slot, or behavior that stifles competition. The relatively
low load factors in these routes indicate that many of these flights
could be combined, resulting in a more efficient use of the system.
    The FAA also acknowledges that the use of small aircraft to densely
populated communities on a frequent basis is not purely a function of
the market. As noted by the Port Authority, excessive use of smaller
aircraft is to some degree a combination of customer preference for
frequent access, but it is also a function of political concerns and a
long-standing regulatory regime that created incentives favoring the
use of small aircraft. The expiration of the HDR and AIR-21 exemptions
should naturally encourage more efficient use of aircraft because there
is no longer a perverse incentive to use smaller aircraft, regardless
of the market being served. As to consumer preference for more regular
flights, the decision to offer numerous daily flights in any particular
market will inevitably be driven by market considerations. The FAA
believes that the options being proposed today should reduce delay and
permit airlines to respond more freely to market forces, favoring
efficiency and aircraft upgauging without the government dictating any
particular method of increasing overall passenger throughput and
without sacrificing service to small communities.

B. Perimeter Rule

    As an alternative to the upgauging proposal, US Airways suggested
the

FAA preempt the Port Authority's Perimeter Rule.\3\ It argued the
Perimeter Rule drives the use of smaller aircraft because carriers
cannot engage in the long-range operations that support the use of
larger aircraft. Alaska Airlines also supported lifting the Perimeter
Rule.
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    \3\ The Perimeter Rule prohibits non-stop flights of more than
1,500 miles into and out of LaGuardia, except for flights in and out
of Denver. The Perimeter Rule was first established in the late
1950s under an informal arrangement between the Port Authority and
the airlines. It was formalized in 1984 and unsuccessfully
challenged in Western Airlines v. Port Authority of New York and New
Jersey, 658 F. Supp. 952 (SDNY 1986), aff'd 817 F2d. 222 (2nd Cir.,
1987), cert. denied, 485 U.S. 1006 (1988).
---------------------------------------------------------------------------

    US Airways maintained there is no justification for retention of
the Perimeter Rule. Not only is LaGuardia no longer primarily an
airport for business travelers, but JFK no longer needs development,
and the introduction of Stage-3 aircraft has sufficiently reduced the
airport's overall noise footprint from when the Port Authority
established the Perimeter Rule. Thus, according to US Airways, the
rationale that the Port Authority provided to the court in Western Air
Lines v. Port Authority of New York and New Jersey is no longer
applicable.
    The FAA has decided against addressing the Perimeter Rule in this
rulemaking because of the need to explore more fully several
operational and policy issues that may be impacted by changes in the
Rule, including potential impacts on airport capacity and air services.
The FAA intends to monitor the impact of today's proposal, if adopted,
as well as the implications of changes to or elimination of the Rule.
Should the agency deem that Federal action on the rule is in the public
interest, it may choose to preempt.

C. Finite Operating Lives

    The FAA proposed to initially allocate all Operating Authorizations
previously allocated under the HDR, and then pull back ten percent of
them every year to force an active market for this scarce resource. The
Operating Authorizations would have had an initial operating life
ranging from three to thirteen years and, once reallocated, would have
had a ten-year operating life. While providing a general discussion of
how the Operating Authorizations would be withdrawn, the FAA did not
provide a discussion of how they would be reallocated, other than to
say that the agency was seeking legislation that would provide
additional flexibility in allowing the FAA to reallocate via a market-
based mechanism such as an auction or congestion pricing. The FAA has
decided that a ten percent annual turnover at LaGuardia could be overly
disruptive as a first step in applying market principles and has
decided to propose a scaled back reallocation mechanism. This scaled
back proposal is discussed in detail later in this document.
    In general, most commenters characterized the proposal to introduce
expiring Operating Authorizations at LaGuardia as unnecessary,
unworkable, and unlawful under the Administrative Procedure Act and the
Takings Clause of the Fifth Amendment of the US Constitution. Others
claimed that the proposal did not go far enough.
    American asked why the FAA thought it needed such an intrusive and
complicated regulatory scheme to promote access to new entrants. It
noted that the agency promoted access to new entrants at Chicago's
O'Hare International Airport (O'Hare) by adopting a blind Buy/Sell
secondary market. Midwest Airlines, Delta Air Lines (Delta) and the RAA
argued that the underlying premise that limited operating lives were
required to open up the airport to new entrants was based on a false
assumption that the airport would otherwise be shut down to new
entrants or carriers with a limited presence at the airport. They
argued that slots were successfully purchased under the Buy/Sell rule,
and that the secondary market only failed when exemptions to the HDR
were given away for free under AIR-21.
    Consistent with their comments on the upgauging proposal, most
carriers and their associations argued that randomly terminating and
reallocating ten percent of Operating Authorizations each year would
wreak havoc with the carriers' schedules. They asserted the impact on
industry would be so severe and unreasonable as to render the proposal
unworkable, creating perpetual instability that could disrupt airport
services and traveler expectations. In particular, The City of New
York, Delta and US Airways claimed the full operational impact of the
rule could make it virtually impossible to operate short-haul shuttles.
American, Delta, and AAAE argued the impact could be especially bad on
small communities as transfer of Operating Authorizations from carrier
to carrier would make consistent service to these communities
difficult. As with the upgauging proposal, the Port Authority said it
would be difficult to handle gate assignments and leases with an annual
turnover of up to ten percent. American claimed the churning of
Operating Authorizations would fragment real estate across the airport
over time. The carrier argued this fragmentation would be extremely
burdensome for the Port Authority and disruptive to airlines and
consumers.
    Some carriers noted that the operating lives would actually serve
as a damper on the free market, rather than the catalyst that the FAA
envisioned. American said the proposal failed to recognize that
investment in routes and infrastructure is largely dependent on the
ability to continue serving that route. US Airways and Midwest Airlines
echoed this sentiment, positing expiring lives would actually act as a
disincentive to invest in the airport, because there will be no
assurance that investment expectations can be met. The Air Transport
Association of America (ATA) queried what impact expiration dates and
other restrictions would have on the value of slots in the secondary
market.
    While many commenters claimed they could not meaningfully comment
on the proposal since the FAA did not explain how it intended to
reallocate withdrawn capacity,\4\ others argued that the proposal would
be unlawful even if the reallocation mechanism had been explained.
United and Midwest Airlines claimed the proposal did not implicate
safety or movement of air traffic and was accordingly beyond the FAA's
authority. Assuming the FAA retained its authority to impose caps after
AIR-21, the ATA and the Airports Council International--North America
(ACI-NA) argued it did not necessarily follow that this authority
encompasses ``management of the nationwide system of air commerce,'' as
the FAA asserted in the NPRM. They claimed such an assertion connotes
the business of air transportation, which exceeds the agency's
authority to regulate the safety and movement of air traffic. United
asserted that the FAA appeared to rely on the Department's authority in
49 U.S.C. 40101(a), but noted that reliance on that authority was
equally misguided since it is limited to the Department's exercise of
economic regulation.
---------------------------------------------------------------------------

    \4\ The FAA stated that it did not provide the reallocation
mechanism because it did not have the authority to reallocate other
than through an administrative mechanism. The FAA's original
analysis was overly simplistic. The FAA correctly stated that it did
not have the authority to implement a congestion pricing scheme.
However, we also said that we did not have the authority to conduct
auctions; this statement was incorrect. As discussed more fully
later in the document, the FAA has ample authority to lease or
otherwise dispose of its property without running afoul of the
restriction on user fees, the restriction that the FAA initially
believed was problematic.
---------------------------------------------------------------------------

    While carriers generally claimed the proposed reallocation of
Operating

Authorizations as a confiscation of their respective property rights,
some argued the FAA's proposal was in violation of the Takings Clause
of the U.S. Constitution because carriers would be deprived of all
beneficial use of the property,\5\ and the FAA could not meet the
standards set forth in Penn Central Transportation Co v. City of New
York.\6\ In particular, United and US Airways argued that handicapping
competitors through a forced transfer of operating rights does not
advance a legitimate government interest, particularly when there is no
showing that a forced transfer will actually enhance competition or
consumer welfare.
---------------------------------------------------------------------------

    \5\ Cf., Lingle v. Chevron USA, Inc., 544 U.S. 528 (2005).
    \6\ 438 U.S. 104 (1978).
---------------------------------------------------------------------------

    In contrast, the Air Carrier Association of America (ACAA) argued
that legacy carriers were given large numbers of slots through AIR-21,
and did not need the market protection contained within the proposal.
It noted that under the LaGuardia Order and the HDR, operating rights
were never permanently allocated; nor were carriers offered assurances
that they could do whatever they wanted with them. In fact, carriers
have always been on notice that the Operating Authorizations and their
predecessor slots could be recalled. Accordingly, ACAA urged the FAA to
withdraw immediately ten percent of all Operating Authorizations held
by carriers holding more than 75 Operating Authorizations and
redistribute them to limited incumbents operating larger aircraft. It
maintained whatever reallocation mechanism was used should kick in
before the proposed three years since that extended timeframe
unnecessarily restricts the market. AirTran Airways (AirTran) and
WestJet supported the concept of the FAA increasing the number of
Operating Authorizations provided to small carriers and immediate
implementation of the rule.
    The FAA disagrees with American's claim that a staggered withdrawal
and reallocation of Operating Authorizations is not needed to protect
new entrants. This approach is one of several rational means of
ensuring that carriers with modest service, or no access at all, have
an opportunity to gain or increase access at one of the most sought-
after airports in the country. While a blind secondary market would
also facilitate new entrant access, and the FAA uses this method to
assist new entrants at O'Hare, the agency also made specific provisions
in that rulemaking to make new and returned capacity preferentially
available to new entrants and carriers with a limited presence at the
airport. The FAA does not believe a blind secondary market alone is
sufficient to provide opportunities for new or increased access.
    The FAA agrees that its original proposal could have caused
disruption at the airport. The premise underlying the proposal to
require a full ten percent turnover at the airport each year was not to
force disruption, but rather to ensure the efficient use of a scarce
resource and to provide access to new entrants and existing operators
in a manner other than creating preferences or exemptions. It is
exactly these preferences and exemptions that many commenters claim
marginalized the secondary market under the HDR. As the FAA has stated
several times over the past few years, its primary goal in addressing
congestion is to increase capacity wherever possible. Limiting the
number of operations at an airport is a last option because it
restricts access to the airport. The FAA also believes the market
should play an active role in the allocation of the limited resource
whenever it becomes necessary to limit operations for more than a short
period of time.
    The options being proposed today meet the same policy objective
that drove the proposal in the NPRM to have operating lives expire,
albeit in a less aggressive manner. The FAA believes this new approach
will help foster a vibrant secondary market while maintaining stability
at the airport. The legal concerns raised by commenters will be
addressed later in this document.

III. Proposal To Allocate Limited Capacity at LaGuardia Efficiently

A. Need for a Cap on Operations

    The FAA believes that at least for the next several years,
LaGuardia will likely be oversubscribed in terms of its physical
ability to handle aircraft. Simply put, expansion of the airport by
adding runways is not a viable option given its location. Accordingly,
a cap on operations at the airport is necessary to provide for the
efficient use of the NAS. In the NPRM, the FAA proposed to cap weekday
and Sunday afternoon operations at 81 per hour (75 for scheduled
operations and six for general aviation). The airport is already capped
under the LaGuardia Order at 81 (75 for scheduled operations and six
for general aviation). Today's proposal, if adopted, will replace that
order. The FAA does not intend to raise the cap unless new capacity
becomes available and has proposed reducing the number of operations
available for general aviation to three per hour.
    The Port Authority claimed that 75 scheduled operations per hour
was too high, since delays were increasing, and argued that the cap
should start at 6 a.m. and cover Saturday mornings because these time
periods have operations that exceed runway capacity.
    In response to the NPRM, the ATA claimed that the FAA had not
presented any new data indicating that a cap is necessary, instead
relying on delays during the summer of 2000. The ATA argued that the
FAA merely assumed that demand exceeds capacity at LaGuardia, without
discussing how the proposal would impact that demand.
    The impact of either the NPRM or today's proposal on demand at
LaGuardia is difficult to judge because the LaGuardia Order has kept
operations from growing since the expiration of the HDR. Accordingly,
the comparison in terms of delay reduction should not be between the
LaGuardia Order and any final rule, but rather between an unconstrained
airport and a final rule. The last time the airport was close to
unconstrained was in 2000, which is why the FAA relied on its
experience in 2000 in the NPRM.
    The FAA believes the summer of 2007 served as a stark reminder that
the demand for access to New York City is exceptional. New York City is
served by three major airports; theoretically there should be more than
enough capacity. However, while LaGuardia remained a constrained
airport last summer, JFK and Newark were not constrained and carriers
were allowed to add flights at will. As a result, the New York City
area airports experienced nearly unprecedented delays last summer, and
the level of flight delays were regularly reported in the local and
national press. The delay numbers at JFK were so high that the FAA
initiated a Scheduling Reduction Meeting in October 2007 and announced
a cap at the airport in January of this year. Concerned that those
carriers that could not obtain desired access at JFK would quickly
oversubscribe Newark, the FAA proposed a cap there in March. Looking
forward, all three major airports in the New York City area will be
capped.
    The FAA is unwilling to lift the cap at LaGuardia simply because
the last time there was significant growth at the airport was in 2000.
Notwithstanding ATA's assertion that perhaps there is no need for a
cap, its members appear to support reasonable limits on the number of
operations at the airport. When the FAA imposed the cap on LaGuardia
after the expiration of the HDR at the

end of 2006, no carrier argued that a cap was inappropriate.
    We agree with the Port Authority that operations at the airport
should be limited as early as 6 a.m., and the LaGuardia Order limits
operations beginning at that hour. Carriers have moved their morning
schedules out sufficiently early that the FAA is encountering excess
demand by 6 a.m. The agency has tentatively decided against capping
operations on all day Saturday and Sunday morning because the level of
congestion during these time periods is significantly less than during
the workweek and on Sunday afternoons. The Port Authority has not
provided data indicating that a cap is needed on Saturday mornings; it
has merely asserted that there are runway constraints. Should the Port
Authority continue to believe the cap should be expanded, the FAA
welcomes an analysis of the capacity problems on Saturday mornings.

B. Sunset Provision

    The FAA's proposed rule, if adopted, will expire in ten years. To
the extent new capacity became available, the FAA could increase the
size of the cap and auction off that new capacity for the life of the
rule. One of the criticisms of the HDR was that it was a temporary rule
that has lasted almost 40 years. As such, it became difficult to
manage, particularly as it was amended to address changes in business
models. We believe the public interest is better served by directly
providing the rule will sunset in ten years. This approach will allow
for future determinations by the FAA as to whether a cap is still
needed and, if so, whether changes are needed to more efficiently
allocate and constrain the scarce resource. At present it is impossible
to determine what changes in business models may occur over the next
ten years. In addition, full implementation of the New York/New Jersey/
Philadelphia Metropolitan Area Airspace Redesign project and NextGen
technologies are expected to mitigate and improve air traffic
efficiency within the next ten years, and we should not prejudge the
market response.

C. Need for More Efficient Allocation

    As noted by American in its comments to the NPRM, Congress has
directed the Department to place ``maximum reliance on competitive
market forces and on actual and potential competition'' (49 U.S.C.
40101(a)(6)). This maximum reliance means the FAA is obliged not to
simply walk away from an airport once it has imposed caps, but rather
to take steps to ensure that there are, in fact, competitive market
forces and actual and potential competition. Competition at an airport
benefits the flying public by providing price competition and expanded
service. The ability of carriers to initiate or expand service at the
airport is hindered, in large part, by the imposition of the cap.
Accordingly, the FAA believes it must strike a balance between (1)
promoting competition and permitting access to new entrants and (2)
recognizing historical investments in the airport and the need to
provide continuity. It is not the role of the Government either to
dictate particular business models or to constrain a market and provide
no means for others to enter that limited market.
    Not only is the FAA required to assure the efficient use of the
NAS, but it must do so in a manner that does not penalize all potential
operators at the airport by effectively shutting them out of the
market. Accordingly, the FAA believes that it is well within the
agency's authority in 49 U.S.C. 40103 to provide some mechanism for
reallocation. Today's proposal attempts to strike the appropriate
balance by actively developing a robust secondary market that properly
values the limited asset that the FAA created.

D. Authority To Allocate Slots at LaGuardia

    The FAA intends to allocate some portion of the available slots at
LaGuardia via an auction process. The FAA would initially allocate the
vast majority of slots to incumbents at the airport by entering into a
cooperative agreement that would lease the slots for a period of ten
years. The remaining slots would revert to the FAA over a five year
period for retirement or reallocation via an FAA-sponsored auction. As
a result of the auction, the acquiring carrier would enter into a lease
agreement with the FAA that would last the remainder of the rule.
Leases awarded under the cooperative agreements or awarded pursuant to
an auction would be subject to lease terms, and the failure to abide by
those lease terms would constitute a default of the lease. Carriers
would be allowed to sublease their slots subject to the same terms and
conditions imposed by the FAA in the original lease, although new terms
and conditions unrelated to the carrier's obligations to the FAA could
be added.
    Under Option 1, the FAA would retain all auction proceeds and
dedicate their use to congestion management in the New York City area.
Under Option 2, the carrier that had held the slot would be allowed to
keep the proceeds after the FAA had recouped its costs associated with
running the auction.
    In the NPRM, the FAA stated that it did not have the authority to
reallocate Operating Authorizations via a market-based mechanism. The
FAA was concerned that it did not have this authority because of annual
appropriations restrictions dating back to 1998 that prohibit the
agency from expending funds to ``finalize or implement any regulation
that would promulgate new aviation user fees not specifically
authorized by law after the date of enactment of this Act.'' \7\ The
FAA continues to believe that it cannot rely on a market-based
allocation method under a purely regulatory approach, which is why it
explicitly sought legislation on this matter.
---------------------------------------------------------------------------

    \7\ In 2006 this provision could be found in Public Law 109-115.
For 2008, the same provision may be found in Public Law 110-161.
---------------------------------------------------------------------------

    However, the FAA's authority is not limited to regulatory action.
The agency has independent authority to dispose of property,\8\ and
regulatory action is not required prior to the lease of property. The
FAA implemented its general authority to dispose of property in its
Acquisition Management System, which went into effect on April 1, 1996.
---------------------------------------------------------------------------

    \8\ The FAA has had express authority to lease property to
others since 1996, Pub. L. 104-264, and general authority to dispose
of an interest in property for adequate compensation for long before
that in 49 U.S.C. 40110(a)(2).
---------------------------------------------------------------------------

    Because of the congressional mandate in 49 U.S.C. 40101(a)(6) to
rely to the maximum extent possible on competitive market forces, the
FAA has determined that it is appropriate to take a bifurcated
approach. Today the agency is requesting comment on an approach whereby
the FAA would establish a cap on operations and address which slots
would revert to the FAA for reallocation through a regulation, but
would use its transaction authority to allow for reallocation of slots
via a market-based mechanism.
    As discussed below, this approach has the added benefit of
clarifying the unsettled issue of the extent to which a slot holding
should be imbued with property rights.
1. Authority To Determine the Best Use of the Airspace
    The United States Government claimed exclusive sovereignty over
United States airspace in 49 U.S.C. 40103. Citizens of the United
States have a public right of transit through navigable airspace, but
the FAA is authorized to assign the use of the airspace necessary to
ensure the safety of aircraft and the efficient use of airspace. To the
extent these needs can

be met without specifying which citizen may transit or reserve a
particular segment of airspace at a particular time, there was no need
for the FAA to place constraints such as slots on the use of the
airspace--this remains the case for the vast majority of the NAS.
    As described above, however, at LaGuardia and a few other airports,
in order to ensure the efficient use of airspace, the FAA has had to
impose constraints by assigning to carriers operational authority to
conduct a scheduled IFR arrival or departure operation on a particular
day of the week during a specified 30-minute period. These reservations
of airspace were called slots under the HDR. After the FAA issued the
Buy/Sell rule, these slots were treated not only as property of the
United States Government, but also as if the carriers had a property
interest, albeit an interest that was heavily encumbered by the
restrictions imposed by the FAA. The nature of this proprietary
interest, however, has always been somewhat unclear. To encourage the
most efficient use of constrained airspace the FAA is clarifying the
property interest that the FAA is willing to transfer to airlines for a
limited period of time. However, the FAA has determined that in order
to assure the efficient use of airspace, it cannot simply permit those
to whom it grants authority to use the airspace to treat that authority
as their own. Such an approach would not only ignore the inherently
valuable nature of the airspace usage assignment, but allows a select
few to profit from a governmental interest to the detriment of their
competitors and the public as a whole. Ultimately, it is the FAA that
has sovereignty over and controls the airspace.
2. Authority To Enter Into Leases and Cooperative Agreements
    The FAA has authority to lease real and personal property,
including intangible property, to others. 49 U.S.C. 106(l)(6) and
106(n). When disposing of an interest in property, however, the FAA
must receive adequate compensation. 49 U.S.C. 40110(a)(2). The FAA
also, however, has broad authority to enter into cooperative agreements
on such terms and conditions as the agency may consider appropriate. 49
U.S.C. 106(l)(6). Under the Federal Grants and Cooperative Agreements
Act, a cooperative agreement is to be used when the principal purpose
of the agreement is to transfer a thing of value to a recipient, either
public or private, to carry out a public purpose of support or
stimulation authorized by law, instead of acquiring (by purchase, lease
or barter) property or services for the direct use or benefit of the
agency, and there is substantial Federal involvement in the activity.
The FAA believes this is the appropriate vehicle to use to transfer
most of the slots as described in the following options, for a ten year
period, to the carriers that currently have Operating Authorizations at
LaGuardia. Doing so will recognize these carriers' historical
investment in LaGuardia, and the public interest that has been served
by that investment. In addition, doing so will prevent the disruption
to the national air transportation system described in the comments to
the NPRM that might otherwise occur, allowing the public to benefit
from continued certainty of readily available air transportation to and
from this airport. There will, however, be substantial ongoing Federal
involvement with these slots, as the FAA will retain ATC
responsibilities for assuring that the use of these segments of
airspace for their specified times is done safely and with maximum
possible efficiency. It is therefore appropriate to use cooperative
agreements to transfer these property interests.\9\
---------------------------------------------------------------------------

    \9\ Under the cooperative agreements the FAA will be
transferring a leasehold interest in the slots, but it will not
entirely dispose of its property. Receiving monetary compensation
from these transfers is antithetical to the definition of a
cooperative agreement. Nonetheless, to the degree that adequate
compensation might be considered required under 49 U.S.C.
40110(a)(2), the compensation will be the carriers' agreement to be
bound by the terms in the cooperative agreement as well as FAA's
recognition of the public value received by the carriers' historical
investment at LaGuardia.
---------------------------------------------------------------------------

3. The FAA's Proposed Actions Do Not Constitute a Taking in Violation
of the Fifth Amendment
    United's and US Airways' assertion that the imposition of a cap on
operations at LaGuardia and any reallocation mechanism that does not
give incumbent carriers an unrestricted right to the slots created by
the cap constitutes a taking in violation of the Fifth Amendment is
simply incorrect. Carriers possess no absolute property interest in
slots unless the FAA gives it to them. The FAA has consistently refused
to do that under both the HDR and the LaGuardia Order. Indeed, upon the
expiration of the HDR, any putative interest in those slots expired on
December 31, 2006, and the LaGuardia Order specifically states that
carriers have no right to Operating Authorizations after the expiration
of the order. If the FAA proceeds with today's proposal, carriers will
have some property rights in the resulting slots, but those rights will
be limited by the terms of any final rule and any lease terms that the
FAA specifies. Ultimately, it is the FAA that controls the airspace and
controls the rights of carriers to use it.
    United's reliance on Lingle and Penn Central in arguing that the
annual reversion of Operating Authorizations for reallocation by the
FAA would constitute a taking was misplaced, and remains inapplicable
to today's proposal.\10\ Neither case stands for the proposition that
the federal government cannot implement a regulatory scheme like the
one proposed here. In Penn Central the Supreme Court set forth a
general test for determining whether a government regulatory action
resulted in a taking of property without just compensation. While
noting that such determinations are necessarily fact-specific, the
Court set forth three basic criteria to evaluate: (1) The economic
impact of the regulatory action on the claimant, (2) the level of
interference with reasonable investment-backed expectations, and (3)
the character of the governmental action.\11\ These standards do not
suggest a Takings Clause claim in this instance.
---------------------------------------------------------------------------

    \10\ The FAA is puzzled by United's reliance on Lingle. The
holding in Lingle was unrelated to any determination by the Court
that there was a ``permanent physical invasion of her property.''
544 U.S. 528, citing Lucas v. South Carolina Coastal Council, 505
U.S. 1003, 1019 (1992). United has not alleged that the imposition
of a slot regime results in its inability to use its property.
Rather, it asserts that its flight schedule is an intangible asset,
the use of which is critical for utilizing its tangible assets,
i.e., its terminal facilities, gates, servicing facilities, and
aircraft (United comments at p. 29). The correct analysis is
conducted under Penn Central and Connelly v. Pension Benefit
Guarantee Corp., 475 U.S. 211 (1986).
    \11\ Connelly at 224-225.
---------------------------------------------------------------------------

    Given the fact that LaGuardia has operated under some type of cap
for the past 40 years, no carrier could realistically have investment
expectations either that the airport will be unconstrained before
sufficient capacity is realized or that it would be granted absolute
rights in its historical operating schedule. Indeed, the HDR imposed
much more stringent constraints on how carriers could conduct
operations at the airport than the FAA is proposing here.
    Likewise, there is no evidence that the proposed rule, if adopted,
will have an unduly harmful impact on any air carrier. At most, less
than 20 percent of any carrier's current operations at LaGuardia will
be affected. As stated by the Court in Penn Central, `` `[t]aking'
jurisprudence does not divide a single parcel into discrete segments
and attempt to determine whether rights in a particular segment have
been entirely

abrogated.'' \12\ When viewed as a whole, the impact of today's
proposal on even the most negatively affected carrier is not sufficient
to trigger a plausible takings claim. The vast majority of operations
will continue under slots grandfathered to the carriers at no charge.
Each carrier will be assured that up to 20 of their operations will be
protected from any reversion if it meets the minimum usage
requirements, and only ten to twenty percent of its operations above
twenty will be subject to reversion to the FAA for retirement or
reallocation. In addition, carriers will be allowed to sublease their
slots subject to the terms and conditions set forth in the lease
agreement, thus potentially avoiding the loss of a slot for inadequate
usage.
---------------------------------------------------------------------------

    \12\ Penn Central at 130.
---------------------------------------------------------------------------

    Nor does the proposed action have the character of a taking as
interpreted in well-settled jurisprudence. This rulemaking proposes to
minimally adjust the benefits and burdens of the economic life of
carriers at LaGuardia in order to promote the common good. The
rulemaking proposes to limit flights at LaGuardia in order to relieve
congestion that impacts the NAS as a whole and LaGuardia in particular.
As such, it will benefit the airline industry, businesses relying on
aviation to timely meet their delivery schedules, and the travelling
public. The proposed rule anticipates only a modest reduction, under
one of two proposed options, in the number of flights currently allowed
at LaGuardia under the LaGuardia Order, which has been in place,
unchallenged, since January 1, 2007. Unlike the governmental action in
Eastern Enterprises v. Apfel, 524 U.S. 498 (1998), the proposed
rulemaking does not single out an air carrier based on conduct far in
the past and unrelated to any future commitments or injury it caused.

E. Allocation of Slots

    The FAA is proposing two different options for allocating slots.
Under both options the vast majority of slots would be grandfathered to
existing carriers at the airport, with a relatively small minority
either retired or auctioned off in the free market. The FAA believes
either approach would help stimulate a secondary market and would lead
to a proper assessment of the slots' true value. The agency also
believes that either approach would have a minimal impact on operations
at the airport and would avoid much of the potential disruption
associated with its proposals in the NPRM.
1. Categories of Slots
    Under today's proposal, the FAA would lease carriers property
interests in slots to carriers for a period of up to ten years, the
date the rule would sunset. There would be three categories of slots:
common slots, unrestricted slots, and limited slots.
    Common Slots are those slots grandfathered to carriers currently at
the airport. They would be awarded to the carriers under a cooperative
agreement for the duration of the rule. The cooperative agreement would
provide carriers with a ten-year leasehold interest. Once the rule
sunsets, all interests would revert to the FAA. Unlike slots allocated
under the HDR and Operating Authorizations allocated under the
LaGuardia Order, carriers would be granted clear property rights to
Common Slots, which could be collateralized or subleased to another
carrier for consideration. These property rights, however, would not be
absolute. Common Slots would be subject to reversion to the FAA under
the rule's minimum usage provision, and could be temporarily withdrawn
for operational reasons.
    Those slots not categorized as Common Slots would be categorized
initially as Limited Slots and then as Unrestricted Slots once they are
reallocated.
    Unrestricted Slots are slots that a carrier would acquire as a
leasehold under the auction process discussed later in this document.
Since a carrier leasing an Unrestricted Slot would be required to do so
because of government action, these slots would not be withdrawn by the
FAA either under the use-or-lose provisions or for operational reasons.
As with Common Slots, Unrestricted Slots would expire when the rule
sunsets.
    Limited Slots are slots that are identified for retirement or
auction and are leased to the carriers under a cooperative agreement
for a period of 1-4 years \13\ so that they can be retired or
reallocated via auction after that period of time. Limited Slots would
convert to Unrestricted Slots after they are auctioned off. As with
Common Slots, Limited Slots could be withdrawn under the proposed use-
or-lose provision, or for operational reasons.
---------------------------------------------------------------------------

    \13\ Twenty percent of the Limited Slots would not be leased to
carriers as Limited Slots. This is because the FAA intends to either
retire them or auction them as Unrestricted Slots shortly after the
final rule, if adopted, takes effect.
---------------------------------------------------------------------------

2. Initial Allocation of Capacity
    Upon the rule's effective date, each carrier at LaGuardia would
automatically be awarded up to 20 common slots, which would constitute
the carrier's base of operations. The FAA believes this is a rational
approach to assuring that no carrier is impacted at a level that could
seriously disrupt its existing operations. Air Canada would be awarded
an additional 22 common slots because of the United States' treaty
obligations with Canada. Under Option 1, 90 percent of the remaining
slots would also be grandfathered as Common Slots to the carrier
holding the corresponding Operating Authorization under the LaGuardia
Order. Under Option 2, 80 percent of the remaining slots would be
grandfathered as Common Slots. The determination of which carrier is
entitled to any particular slot will be based on which carrier was
allocated the corresponding Operating Authorization for that slot
during the first full week of January 2007.\14\ The FAA is proposing to
grandfather the majority of slots at the airport in order to minimize
disruption and to recognize the carriers' historical investments in
both the airport and the community. The FAA seeks comment on the
percentage of slots that should be available for reallocation under
either option.
---------------------------------------------------------------------------

    \14\ US Airways had argued in its comments to the NPRM that
looking at a single week did not adequately account for seasonal
usage. The FAA has looked at usage patterns at the airport
throughout the year, and has not found a significant difference in
which carriers are operating at the airport throughout the year. To
the extent there is seasonal usage, the FAA believes carriers should
be able to lease slots on the secondary market or engage in one-for-
one trades.
---------------------------------------------------------------------------

    As noted above, the remaining slots will be categorized as Limited
Slots. Limited Slots may either be retired by the FAA or reallocated
via auction. Under the proposal, the number of slots that a particular
carrier would have classified as Limited Slots would be based
proportionally on the carrier's presence at the airport, taking into
consideration each carrier's base of operations. The FAA would inform
all carriers that will be awarded Limited Slots how many Limited Slots
they will be entitled to no later than the rule's effective date.
    Under Option 1, the FAA would randomly select operations in excess
of 75 in those hours where there are more than 75 scheduled
operations.\15\ These operations will be designated as Limited Slots
and will be retired, so that there are no hours where there are more
than 75 scheduled operations. The FAA has tentatively decided to select
these slots because the agency believes delay is

best mitigated under this proposal by assuring there are no hours with
scheduled operations above 75. An affected carrier would then have ten
days to classify 50 percent of the remaining slots that will be
scheduled to revert to the FAA for auction or retirement. During the
following ten days, the FAA would then determine through a randomized
process the remainder of slots that will be categorized as Limited
Slots. Thus, if a carrier had 200 Operating Authorizations under the
LaGuardia Order, it would be notified on the effective date of the rule
that 18 of its slots (ten percent of 180) were subject to designation
as Limited Slots. The carrier would have 10 days to notify the FAA
which nine slots it designated as Limited Slots, and the FAA would
designate the remaining nine.
---------------------------------------------------------------------------

    \15\ During the first full week of January, 2007, there were
more than 75 hourly operations during the 0900 and 1700 hours.
---------------------------------------------------------------------------

    In determining which slots should be designated as limited slots,
the FAA would initially exclude from consideration slots held during
all hours where carriers have collectively determined two or more slots
should be a Limited Slot. This approach will assure slots will be
available for auction throughout the day. The FAA would also determine
in what year (1-4) each Limited Slot will revert to the FAA for
reallocation or retirement. In this way, all carriers would know within
20 days of the rule's effective date what slots will become available
for purchase and when. The FAA does not currently intend to target any
slots for retirement under Option 2. Otherwise, the process to select
limited slots would be the same as under Option 1.
    The FAA is concerned that today's proposal is primarily focused on
the efficient allocation of slots and does not significantly reduce
delay from levels established under the HDR after AIR-21 and the
LaGuardia Order. It recognizes that even under Option 1, the level of
delay mitigation would be minimal, with only 18 slots retired after
five years. The agency anticipates that at the end of the scheduled
retirements, the average minutes of delay would be reduced by
approximately one minute as the result of scheduled retirements. The
FAA believes that it may be appropriate to better address delay
mitigation by reducing the overall number of hourly operations at the
airport. In contrast to the 78 total hourly operations proposed today,
the HDR permitted a maximum total number of operations at LaGuardia of
68 per hour.\16\ The numerous exemptions issued pursuant to AIR-21
effectively increased that hourly rate to approximately 81 operations
per hour, with roughly 75 of those operations dedicated to scheduled
operations.
---------------------------------------------------------------------------

    \16\ Of these operations, 48 were allocated to air carriers, 14
were allocated to commuter service, and six were allocated to
unscheduled operations.
---------------------------------------------------------------------------

    Accordingly, the agency specifically requests comment as to whether
it should reduce the maximum number of scheduled operations from 75 to
a lower number. In addition, the agency seeks comment on whether it
should maintain a maximum number of scheduled operations at 75 per hour
but increase the number of slots that would be retired. The FAA also
requests comment on whether it should retire some percentage of slots
under Option 2 and, if so, by how much. Finally, there are a few hours
where there are slightly fewer than 75 scheduled operations. The FAA
seeks comment on whether these slots should be retired or reallocated
via an auction.
    The FAA also recognizes that the percentage of slots that the
agency proposes to reallocate represents a relatively small percentage
of the total number of slots at the airport, particularly since up to
20 of each carrier's slot will not be subject to reversion.
Accordingly, the FAA requests comment on whether the percentages
proposed under either option are sufficient to ensure the opportunity
for new entry and an efficient allocation of slots among all carriers
at the airport, such that each slot is allocated to the user who values
it the most highly. In addition, the agency seeks input on the
appropriate percentages of slots available for auction (both in total
and annually) sufficient to assure an efficient allocation of this
scarce resource.
    Under both options, the time windows for the Limited Slots would be
evenly distributed over the day to the extent possible. The duration of
each Limited Slot would be assigned by a fair allocation process such
that each affected carrier's aggregate lease duration would be
approximately equal to that of the other affected carriers. A technical
report fully explaining how Limited Slots will be categorized and
allocated has been placed in the docket for this rulemaking. Commenters
are encouraged to review and comment on that document.
3. Market-Based Reallocation of Capacity
    For the first five years of the rule the FAA would conduct an
auction of Limited Slots on an annual basis. Under option one, 80
percent of the Limited Slots would be auctioned off over five years,
with 20 percent retired. Under option 2, 100 percent of the Limited
Slots would be auctioned off over five years. This auction process
would guarantee carriers wishing to initiate or extend operations at
the airport an opportunity to acquire slots. Each year there would be
approximately 14 (option 1) or 36 (option 2) slots available in the
auction. Since carriers need pairs of slots, this is equivalent to
seven or 18 round-trips per day. Assuming a minimum competitive pattern
of service is between two and three round-trips per day, the equivalent
of two to nine routes would be available per year. Carriers would be
free to supplement their holdings in the secondary market, which the
agency believes will be stimulated by this rule.
    Under Option 1, the FAA would auction off 16 percent of the Limited
Slots annually. Any carrier could bid on the slot, and it would be
awarded to the highest responsive bidder. The winning parties could
commence operations using the newly acquired slots on the second Sunday
of the following March. In the unlikely event no bids were received,
the FAA would retire the slot until the next auction. The FAA would
retain all auction proceeds. After recouping its costs, the FAA would
spend the remainder of the proceeds on congestion and delay management
initiatives in the New York City area.
    The FAA intends to retire four percent of the Limited Slots
annually for the first five years of the rule under this option. Should
sufficient efficiencies be realized through delay reduction or capacity
enhancing measures, the FAA may decide to auction those Limited Slots
rather than retire them. In addition, the FAA may decide to auction
slots that had previously been retired as new capacity.
    Under Option 2, the FAA would auction off 20 percent of the Limited
Slots annually in a blind auction, with the Unrestricted Slots awarded
to the highest responsive bidders. The carrier initially holding the
Limited Slot would not be able to bid on the slot, and it could not set
a minimum bid price. However, that carrier would retain the auction
proceeds after the FAA has recouped its costs associated with
conducting the auction. As under Option 1, if no bids were received,
the FAA would retire the slot until the next auction in the interest of
delay mitigation. While carriers would be unable to bid on the slots
that they are auctioning, each carrier may negotiate for subleases or
transfers from other carriers in the secondary market or by

bidding on other slots concurrently up for auction and held by other
carriers.\17\
---------------------------------------------------------------------------

    \17\ The FAA will attempt to auction an even number of slots
during each hour to provide an opportunity for a carrier to replace
a slot that it is auctioning. This may not always be possible.
---------------------------------------------------------------------------

    In response to the NPRM, some carriers urged the FAA to permit
complete transparency with respect to the identity of the bidders and
their bids in each round of an auction. The FAA believes that such
transparency with respect to identity of the bidders and their
corresponding bids would encourage gaming of the auction and
significantly reduce the economic efficiency of the initial allocation
of slots. The FAA also believes that an auction where the identity of
the bidders is not known assists new entrants seeking to enter the
market.
    The FAA does not intend to reallocate slots after the first five
years (other than those returned under the rule's use-or-lose
provisions) because it believes that ideally slots should transfer from
one carrier to another through the secondary market. The FAA is
proposing to be actively involved in a limited number of slot
transactions during the first five years of the rule to help establish
that market. Not only will the auctions help create a market for slots,
but all carriers will be able to assess the true market value of a
slot. As noted by Delta in its comments to the NPRM, giving carriers
with marginally profitable slots a financial incentive to sell (or in
this instance sublease) to the highest bidder reduces entry barriers
and maximizes the value of the slot. Armed with information on how much
a given slot is likely to be worth on the open market, carriers (and
their shareholders) will be in a better position to determine whether
to continue operating marginally-performing flights or to sublease the
corresponding slot. The agency believes that it should not take more
than five years for a robust secondary market to develop.
4. New and Returned Capacity
    Given the physical constraints at the airport and the carriers'
ability to sublease slots if the operations associated with the slots
are not financially productive, the FAA anticipates that there will be
little new or returned capacity for most of the time the rule is in
effect. With the advent of NextGen technology, there may be new
capacity in the later years of the rule. To the extent there is any new
or returned capacity, the FAA intends to auction off that capacity
under both options, and would categorize the slots as Unrestricted
Slots.\18\
---------------------------------------------------------------------------

    \18\ If any slots were not bid on in the final year of the
annual auction, the FAA would retire those slots until it
reallocated new or returned capacity. It is unlikely that enough new
or returned capacity would be available to justify an annual
reallocation.
---------------------------------------------------------------------------

F. Auction Procedures

    The FAA is currently engaged in procuring the services of a
contractor to conduct auctions of the proposed Limited Slots.\19\ The
details regarding the specifics of any potential auction will be
disclosed after the contractor has developed and validated an auction
process and the FAA is ready to proceed with an auction.\20\ In
accordance with the agency's Acquisition Management System, the FAA
will publicly announce its intent to conduct an auction on a particular
date or over the course of a particular period of time. The FAA will
also announce its proposed auction procedures and solicit comments on
those procedures. The agency will consider the comments and then
publish its planned auction procedures. An interested party may protest
the procedures up until the date of the auction under 49 U.S.C.
40110(d)(4) and 14 CFR part 17.
---------------------------------------------------------------------------

    \19\ As indicated in the Order Limiting Operations at John F.
Kennedy International Airport, 73 FR 3510 (1/18/08) and the Notice
of Proposed Order Limiting Scheduled Operations at Newark Liberty
International Airport, 73 FR 14552 (3/18/08), the FAA intends to
auction new or returned capacity, if any, under those orders. The
contract would cover auctions at all possible airports. The FAA is
not waiting until this rule is finalized to award the contract,
because this proposal and the two orders contemplate potentially
conducting the first auction before the end of the year.
    \20\ Since the auction will address the lease of slots awarded
by the FAA under its leasing authority rather than under any
administrative allocation, notice to interested parties will be
governed by applicable procurement law rather than the
Administrative Procedure Act.
---------------------------------------------------------------------------

    The FAA does believe that the auction should be structured to allow
for package bidding. With package bidding, each bidder indicates which
groups (packages) of slots it wishes to acquire at prices specified by
the auctioneer at the beginning of each round of the auction. Given the
network nature of the industry, airlines need multiple slots at an
airport in order to operate efficiently. Package bidding will ensure
that the airlines can use all of the slots that they acquire.
    In order to assure that auction participants understand how the
auction process works, the FAA anticipates the contractor would have to
conduct a training seminar and a mock auction prior to each auction. A
single training seminar and mock auction would not suffice since
presumably not every carrier will participate in every auction. The
auction will also have to be structured to prevent gaming. This would
likely be accomplished through the use of activity rules.
    Finally, the contractor would have to provide and maintain a secure
communication mechanism for conducting the auction and develop a Web
site that provides information on the availability of slots and the
logistics of the auction.
    At present, the FAA is contemplating requiring bidding carriers to
provide up-front payments as a prerequisite to participating in the
auction and requiring full payment for the slots at the time of award.
The Federal Communications Commission (FCC) has experienced problems
with bidders who were not financially secure or who were otherwise
unwilling or unable to pay for the awards. The upfront payment could
also discourage bid-sniping by preventing carriers from adding slots to
their bid package beyond the amount of the upfront payment. The FAA
recognizes that paying for the entire lease at one time could be
expensive; however, it also believes that serious bidders should be
able to obtain the requisite financing.

G. Secondary Trading

    All slots will have value in the secondary market. To the extent
that the secondary market is not mature and the value of slots is not
well-known, the auction should inform potential buyers of the value of
these slots and stimulate the secondary market. The FAA believes that
ultimately the best way to maximize competition is with the development
of a robust secondary market. To that end, the agency is not proposing
a system of set-asides and exemptions that would be available to new
entrants and limited incumbents. We agree with several of the carriers
who commented on the NPRM and within the ARC that the system of
preferences and exemptions developed under the HDR and AIR-21 may have
significantly diluted the viability of the secondary market ostensibly
created under the HDR's Buy/Sell Rule. However, we are also unconvinced
that these exemptions and set-asides were the only reason the Buy/Sell
Rule was less than fully effective. Throughout the years the FAA has
received several complaints that carriers were unaware of possible
opportunities to buy or lease slots and that incumbent carriers were
colluding to keep new entrant carriers out of the airport.
    We believe some measures must be taken to assure access to the
secondary market. First, we believe all carriers interested in
initiating operations at

LaGuardia, or increasing their operations there, should have an
opportunity to participate in any transactions. Accordingly, the FAA
proposes to (1) permit carriers to include common slots for sale in the
auction, organized by the FAA, and (2) establish a bulletin-board
system whereby carriers seeking to sublet slots outside the auction
process, or to acquire such subleases, would notify the FAA, which
would then post the relevant information on its Web site.
    If a carrier wishes to include some of its common slots in the
auction, these slots will be treated in the same manner as other slots
being auctioned by the FAA. The carrier would be able to specify a
minimum price for these slots so that it need not give up the slots
unless they command a price that the carrier is willing to accept.
    The FAA has tentatively decided that transactions via the bulletin-
board-system would not have to be blind, and the transaction could
include both cash and non-cash payments. While AirTran and ACAA argued
in their comments to the NPRM that transparency among parties to the
transaction encourages anti-competitive behavior, the FAA finds
compelling the comments of other carriers that a blind, cash-only
requirement is unduly restrictive. In particular, the FAA agrees with
U.S. Airways and Delta that non-cash bids promote competition by
enlarging the pool of potential bidders. Thus, non-cash transactions
should result in both more bidders and potentially higher bids.
However, as noted by United, Northwest Airlines (Northwest), American
and Delta, it is critical that the identities of parties be known if
non-cash assets are permitted because that is the only way to value
those assets. In addition, the non-cash aspect of the transaction would
require direct negotiating.
    The FAA requests comment on ways that these concerns could be met
in a blind secondary market. For example, in the NPRM the FAA proposed
a hybrid scheme whereby the initial offer and acceptance would be blind
and limited to a cash offer, but the parties could negotiate non-cash
assets after the offer had been accepted. The FAA continues to believe
that such an approach may be workable. During the posting of the lease
and subsequent bidding of the slots, the parties' identities would not
be known. Once the auction closed, the FAA would forward the highest
bid to the seller without any bidder identification. The seller would
have a set number of business days to accept the bid. At that point,
the parties' identities would be revealed, and they would have a set
period of time to negotiate the possibility of non-cash assets in lieu
of money as consideration for the lease. If the parties were unable to
come to an agreement, the lease would have to proceed on a cash basis.
Other alternatives may also be viable.
    The FAA takes to heart the concern raised by some commenters that
non-blind transactions could encourage collusion. Regardless of which
approach, if any, is ultimately adopted, the Department already has the
authority under 49 U.S.C. 41712 to investigate, prohibit, and impose
penalties on an air carrier for an unfair or deceptive practice or an
unfair method of competition in air transportation or the sale of air
transportation. The Department has consistently held that this
authority empowers it to prohibit anticompetitive conduct (1) that
violates the antitrust laws, (2) that is not yet serious enough to
violate the antitrust laws but may do so in the future, or (3) that,
although not a violation of the letter of the antitrust laws, is close
to a violation or contrary to their spirit.\21\
---------------------------------------------------------------------------

    \21\ See United Airlines, Inc. v. Civil Aeronautics Board, 766
F. 2d 1107, 1112, 1114 (7th Cir. 1985) and cases cited therein; see
also H.R. Rep. No. 98-793, 98th Cong., 2d Sess. (1984) at 4-5, Order
2002-9-2, Complaint of the American Society of Travel Agents, Inc.,
and Joseph Galloway against United Air Lines, Inc, et al. (Docket
No. OST-99-6410) and Complaint of The American Society of Travel
Agents, Inc., and Hillside Travel, Inc. against Delta Air Lines, et
al. (Docket No. OST-02-12004) (September 4, 2002) at 22-23.
---------------------------------------------------------------------------

    In order to assure that the Department can conduct adequate
oversight, today's proposal would require carriers to file with the
Department a detailed breakdown of all lease terms and asset transfers
for each transaction, and the subletting carrier must disclose all bids
submitted in response to its solicitation. The slot could not be
operated by the acquiring carrier until all documentation has been
received, and the FAA has approved the transfer. Within the context of
the proposed auction discussion in the NPRM, United suggested that the
FAA could publicly disclose non-confidential business information so
that all carriers have an assessment of the relative value of the slots
that are being traded. We have not included language to this effect in
the proposed regulatory text. However, we seek comment on whether it
would be helpful for this type of information to be disclosed.
    Trades among marketing carriers and one-for-one trades would not
have to be advertised. Marketing carriers should not have to open up
transactions to the carrier community as a whole any more than a single
carrier should have to disclose its scheduling decisions with other
carriers. The FAA would approve these transactions, as it has done
historically. Same day trades among marketing carriers that address
emergency situations such as maintenance problems or other unforeseen
operational issues could take place without prior approval by the FAA,
but carriers must notify the FAA of the trade within five business
days. One-for-one trades among carriers would not be subject to the
restrictions of the secondary market because they enhance the
operational efficiency of the airport. However, the exchange of slots
on a one-for-one basis could not be for consideration.

IV. Unscheduled Operations

    As proposed in the NPRM, the FAA intends to limit unscheduled
operations into and out of LaGuardia during the constrained hours.
These operations have been restricted via the LaGuardia Order to six
per hour, but the FAA has recently proposed to reduce that number to
three. Under today's proposal, reservations would be required to use
the airport (except for emergency operations) and could be obtained up
to 72 hours in advance.
    United requested that scheduled carriers be allowed to ferry
aircraft out of LaGuardia for maintenance without having to obtain a
reservation for an unscheduled operation as long as the FAA was given
advance notice. To the extent ATC can handle additional requests (for
example in good weather), it will do so without regard to the reason
for the request. In addition, ATC may decide that a single additional
flight for maintenance purposes would not introduce any additional
delay. However, there is no guarantee that the FAA would accept more
than three reservations per hour, and the determination to handle more
traffic would likely be made on that day. Reservations for all non-
emergency flights would still be required.
    The FAA originally believed that there was no need to treat public
charter operations differently from other unscheduled operations. Based
on comments from the National Air Carrier Association (NACA), the
agency has reconsidered its position. The FAA proposes to allow public
charter operators to reserve one of the three available allowable
operations up to six months in advance. If more than one public charter
operation is desired for a given hour, the public charter operator
without the advance reservation could attempt to secure a reservation
within the three-day window that is available for all other unscheduled
operations.

V. Other Issues

A. 30-Minute Allocations

    The FAA had originally proposed allocating Operating Authorizations
in 15-minute increments. The agency believed that 15-minute increments
would minimize congestion from schedule peaking. Four carriers, United,
Delta, Northwest and American, suggested that slots should be assigned
within 30-minute periods, which is consistent with current practice.
The carriers noted that shrinking the window to 15 minutes would have
no meaningful, positive impact on congestion, but would have a
tremendous negative impact on the ability of carriers to operate at the
airport by unduly complicating scheduling practices. They argued that a
15-minute window would lead to more schedule modifications as seasonal
block times change, additional paperwork burden for carriers because
more trades would be needed, and additional aircraft holdouts on the
ramps leading to increased ramp and taxiway congestion. The FAA agrees
with the commenters and now proposes slots be assigned in 30-minute
windows. The FAA cautions, however, that peaking within the 30-minute
windows could lead to increased congestion. The FAA will continue to
monitor operations and will address any significant operational issues
through discussions with carriers.

B. Limit on Arrivals and Departures

    In response to the NPRM, American and The City of New York
suggested the final rule should regulate arrivals only. American noted
that at O'Hare, the FAA determined delays tend to be more disruptive to
arrivals, and the carrier suggested regulating arrivals only will
adequately address the congestion problem because for each arrival
there would generally be a corresponding departure.
    American is correct that the FAA determined there was no need to
formally limit departures at O'Hare, and both commenters are correct
that, in general, for every arrival there is a departure. However, the
timing of those departures does not necessarily correlate with
arrivals, and the hub scheduling patterns at O'Hare are different from
LaGuardia. ATC also has greater flexibility at O'Hare in determining
runway configurations to accommodate arrivals and departures. In
addition, the sequencing of flights at LaGuardia is so tight that the
FAA does not believe it can merely limit arrivals. LaGuardia is
constrained, arguably overly so, throughout the day. Simply limiting
arrivals would increase the number of minutes of delay already
encountered on a daily basis at the airport. Nor would limiting
arrivals ensure that there is relative balance between arrival and
departure demand that corresponds to available runway capacity. The
agency's experience under the HDR and the LaGuardia Order shows that
carriers often make internal scheduling adjustments between arrival and
departure slots or trade with other carriers to keep schedules within
available capacity. Limiting only arrivals or departures would not
promote that balancing of demand. Accordingly, the FAA continues to
believe both arrivals and departures should be slot-controlled.

C. Use-or-Lose

    For common and limited slots, the FAA is proposing the same use-or-
lose requirement that it proposed under the upgauging proposal in the
NPRM and the requirement adopted in the LaGuardia Order. For operations
not subject to the proposed minimum aircraft size requirement, the FAA
proposed an 80 percent usage requirement over a 60-day period, with the
usage requirements not applying to new operations for the first 90
days. If the usage requirement were not met, the slots would revert to
the FAA and would be retired or auctioned as unrestricted slots in the
next auction. The FAA is proposing that unrestricted slots would not be
subject to a usage requirement.
    In response to the NPRM, the Port Authority argued that the FAA
should adopt a 90 percent usage requirement rather than the proposed 80
percent, because the lower number allows a carrier to schedule
operations only four days of the week. The Port Authority argued that
this type of scheduling was inefficient and should be discouraged. When
looking at cancelled flights, the Port Authority claimed that carriers
would have no problem meeting the suggested 90 percent usage
requirement. In a similar vein, ACAA said that carriers should be
required to release weekend and holiday slots that they did not intend
to use. The association also argued that the usage requirement should
be tied to each scheduled operation (i.e., each slot would be
specifically tied to a particular flight). It maintained that the
current system of determining usage allows carriers with larger
holdings to manipulate their flights so that they meet the usage
threshold even though a significant number of flights are cancelled.
    Delta argued that the proposed 90 percent usage requirement would
be unduly restrictive. United suggested the FAA allow carriers to
cancel a scheduled operation and substitute an unscheduled operation
like a maintenance ferry or a charter flight. The Port Authority
suggested a carrier that failed to meet the usage requirement be
allowed to continue to operate the affected flight until used by
another carrier and the new carrier should be given 120 days to start
new service rather than the proposed 90.
    While there is a value to ensuring a limited resource like a slot
is used, there are certain actions that a carrier must take to
realistically initiate new or expanded service. In the case of
subleases acquired through the secondary market, carriers have control
over the leases' start and end dates. Accordingly, the FAA believes 90
days is sufficient to initiate new service that results from
transactions on the secondary market.
    Given the conflicting comments on whether the usage threshold
should be set at 80 percent or 90 percent, the FAA specifically
requests comment on the appropriate threshold. The Port Authority is
correct that a more stringent usage requirement would allow fewer
instances where a carrier could cancel a flight; however, the FAA
believes that the potential problem raised by the Port Authority is
less a function of usage requirements and more a function of carriers
manipulating how cancelled flights are reported. Since carriers
currently decide which flights to report under a particular Operating
Authorization, it is possible for them to distribute flights to
multiple Operating Authorizations and still meet the usage requirement.
For example, four flights could be distributed over five Operating
Authorizations and each Operating Authorization would meet the 80
percent usage requirement.
    The FAA believes it is more meaningful to address this problem
directly rather than by changing the usage requirement. Simply put,
each slot should have a corresponding scheduled operation. Under
today's proposal, carriers would be required to report a series of
flights under a single slot number rather than in the aggregate. Flight
number or other changes made primarily to circumvent the usage
requirement will apply against the carrier for calculation of Use-or-
Lose. Carriers would be permitted to operate a charter, maintenance, or
ferry operation in lieu of a scheduled operation and not have that
operation discounted as long as they did not abuse the privilege.

Regulatory Notices and Analyses

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

The 2006 NPRM Initial Regulatory Evaluation

    Most comments on the Initial Regulatory Evaluation of 2006 NPRM
were attributed to cost and benefit estimates of the upgauging
requirements and the related analysis of the role of aircraft size in
competition and slot allocation. Since the FAA is withdrawing its
proposal for upgauging, most of the comments are no longer relevant.
See the ``Withdrawal of Upgauging Proposal'' section in today's notice
for additional discussion of comments on and the withdrawal of the
upgauging requirements. There were several policy related comments that
were mentioned in tandem with comments on the regulatory evaluation. We
have treated these comments in the ``Discussion of the NPRM'' and
``Proposal to Allocate Limited Capacity at LaGuardia Efficiently''
sections of today's notice.
    ATA and Delta commented that the FAA used an unrealistic base case
in the 2006 regulatory evaluation. They argued that the FAA used the
unlikely assumption that LaGuardia would revert to a situation where
there would be no cap on the level of operations and therefore the
regulatory evaluation overestimated benefits. They claimed that the
realistic baseline from which to estimate costs and benefits would be a
cap on LaGuardia operations.
    As discussed elsewhere in today's notice the FAA contends that the
LaGuardia Order has kept operations from growing since the expiration
of the HDR, but the agency has always been clear that the Order is
linked to the publication of a final rule. Therefore, the base case
from which to compare the cost and benefits of proposed alternatives in
terms of delay reduction should not be between the Order and any final
rule, but between an unconstrained airport and a final rule. The
airport was close to unconstrained in 2000, which is why the FAA used
its experience in 2000 for the 2006 NPRM and today's notice. In
addition, the New York City area airports experienced nearly
unprecedented delays last summer, since JFK and Newark were not
constrained and carriers were allowed to add flights at will.

Total Costs and Benefits of This Rulemaking

    The FAA estimates that this proposed rule would result in a long-
term improvement in the allocation of scarce slot resources at
LaGuardia. The estimated present value of net benefits of this rule is
between $65 million and $197 million between 2009 and 2019. The costs
of the rule, with a present value between $12 million and $23 million,
are due to the design, implementation and participation in an auction
of slots.\22\
---------------------------------------------------------------------------

    \22\ Present value costs and benefits use a seven percent
discount rate. The draft Regulatory Evaluation in the docket for
this rulemaking contains additional valuations using a three percent
discount rate.
---------------------------------------------------------------------------

    This regulatory impact analysis also assumes as a baseline that in
the absence of this rulemaking. The FAA would not otherwise impose a
cap on aircraft operations at LaGuardia. Therefore, consistent with the
initial Regulatory Evaluation undertaken for the FAA's 2006 NPRM, the
agency estimates that, through the long-term implementation of a cap on
aircraft operations, this rulemaking would result in a 32 percent
reduction in the average delay per operation at LaGuardia relative to
the situation with no cap. This reduction in average delay would
generate present value net benefits of approximately $2.02 billion
between 2009 and 2019. The benefits are estimated by comparing the no-
rule scenario (similar to the situation at LaGuardia in 2000) with the
proposed cap.

Who Is Potentially Affected by This Rulemaking

     Operators of scheduled and non-scheduled, domestic and
international flights, and new entrants who do not yet operate at
LaGuardia.
     All communities, including small communities with air
service to LaGuardia.
     Passengers of scheduled flights to LaGuardia.
     The Port Authority of New York and New Jersey, which
operates the airport.

Key Assumptions

     Base Case: No operating authorizations or caps.
     Cap on operations provides additional delay improvement.
     Option 1: 100 percent of slots held by carriers with fewer
than 21 slots would be grandfathered with 10 years of life; for holders
with 21 or more slots, 90 percent of slots would be grandfathered with
leases of 10 years, two percent would be retired and eight percent
would be assigned with shorter leases auctioned over five years.
     Delay improvement in Option 1 due to retirement of
approximately one minute per average operation.
     Option 2: Identical to Option 1 except there would be no
retirement of slots, and for holders with 21 or more slots, 80 percent
would be grandfathered with 10 year leases and 20 percent would be
assigned with shorter leases auctioned over five years.
     For the purposes of this evaluation, the effective date is
(11/1/08).

Other Important Assumptions

     Discount Rate--7%.
     Assumes 2008 Current Year Dollars.
     Passenger Value of Travel Time--$30.86 per hour.\23\
---------------------------------------------------------------------------

    \23\ GRA, Incorporated ``Economic Values for FAA Investment and
Regulatory Decisions, A Guide'' prepared for the FAA Office of
Aviation Policy and Plans (October 3, 2007). Value is weighted using
LaGuardia shares of 51 percent leisure and 49 percent business
travel.

---------------------------------------------------------------------------

Alternatives We Have Considered

     No caps (no action): This alternative would have allowed
the HDR to expire on January 1, 2007 without replacing it. Based on
history, the FAA expected operators would most likely continue to
expand operations, further worsening airport delays.
     2006 NPRM (withdrawal): The 2006 NPRM would have
instituted caps, provided for mandatory upgauging, and withdrawn 10
percent of slots annually for reallocation. The FAA is replacing this
proposal with the one proposed here.
     Caps: This alternative would permanently impose caps at 75
scheduled operations and three unscheduled operations per hour. It
would grandfather all current Operating Authorizations.
     Option 1 + Caps: This alternative would institute caps as
above, retire approximately two percent of eligible slots in the
interest of reducing delays and reallocate eight percent of eligible
capacity via an annual auction over five years.
     Option 2 + Caps: This alternative would institute caps as
above, and reallocate 20 percent of eligible slots via an annual
auction over five years.
    We are requesting comment from industry on the range of
alternatives considered.

Benefits of This Rulemaking

    The primary benefits of this rulemaking will be due to the delay
reduction from the caps on operations and an improvement in the
allocation of scarce slot resources through the use of an auction
mechanism. In Option 1 of the proposed rulemaking, there will also be
some additional benefits due to delay reduction associated with
retiring approximately 18 slots. Consumers are likely to benefit from
the delay reduction associated with the imposition of caps and the
additional retirement of slots under Option 1. Consumers would also
benefit from any new service resulting from the reallocation of
resources.

Costs of This Rulemaking

    The major costs of this proposed rule cover the costs to the public
and private sectors of designing, implementing and participating in the
auction.

Paperwork Reduction Act

    This proposal contains the following new information collection
requirements. As required by the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)), the FAA has submitted the information requirements
associated with this proposal to the Office of Management and Budget
for its review.
    Some of the information requirements in today's notice are similar
to those originally proposed in the 2006 notice. The FAA has updated
these requirements and summarized them below.
    Title: Congestion Management Rule for LaGuardia Airport. Summary:
The FAA proposes to grandfather the majority of operations at LaGuardia
and develop a secondary market by annually auctioning off a limited
number of slots. This proposal also contains provisions for use-or-lose
and withdrawal for operational need. The FAA proposes to sunset the
rule in ten years. More information on the proposed requirements is
detailed elsewhere in today's notice.
    Use of: The information is reported to the FAA by scheduled
operators holding slots. The FAA logs, verifies, and processes the
requests made by the operators.
    This information is used to allocate, track usage, withdraw, and
confirm transfers of slots among the operators and facilitates the
buying and selling of slots in the secondary market. The FAA also uses
this information in order to maintain an accurate accounting of
operations to ensure compliance with the operations permitted under the
rule and those actually conducted at the airport.
    Respondents: The respondents to the proposed information
requirements in today's notice are scheduled carriers with existing
service at LaGuardia, carriers that plan to enter the LaGuardia market
(by auction or secondary market), and carriers that enter the LaGuardia
market in the future. There are currently fourteen (14) carriers with
existing scheduled service at LaGuardia.
    Frequency: The information collection requirements of the rule
involve scheduled carriers notifying the FAA of their use of slots. The
carriers must notify the FAA of: (1) Its designation of 50 percent of
its Limited Slots; (2) request for confirmation to sublease slots; (3)
its consent to transfer slots under the transferring Carrier's
marketing control; (4) requests for confirmation of one-for-one slot
trades; (5) slot usage (operations); and (6) request for assignment of
slots available on a temporary basis.
    Annual Burden Estimate: The annual reporting burden for each
subsection of the rule is presented below. Annual burden estimates
presented in today's notice are based on burden estimates from the 2006
notice.
    The burden is calculated by the following formula:
    Annual Hourly Burden = ( of respondents) * (time involved)
* (frequency of the response).
Sec.  93.64(c)(3) Categories of Slots: 50 Percent Designation of
Limited Slots
(6 carriers) * (80 hours per submittal) = 480 hours

    Based on the current allocation of Operating Authorizations and the
proposed level of baseline operations each carrier would be
grandfathered under today's proposal, we assumed the 6 carriers with
the most operations at LaGuardia would expend up to ten days of
planning time each, potentially 80 hours, to develop and submit its
designation of 50 percent of its Limited Slots. This designation would
occur once, ten days after the final rule effective date.
Sections 93.65(c)-(d) and 93.66(a) Initial Assignment of Slots and
Assignment of New or Returned Slots
    We assumed the 14 carriers operating at LaGuardia will expend time
submitting and collecting information to participate in the proposed
auctions for slot assignments. The FAA is currently in the process of
procuring auction software and services. The FAA will make available
burden estimates for information requirements relating to auction
participation in a separate notice.
Section 93.68(b)-(f) Sublease and Transfer of Slots
(14 carriers) * (1.5 hours per submittal) * (4 occurrences per year) =
84 hours

    Based on burden estimates from the 2006 notice, we assumed the 14
carriers operating at LaGuardia would expend one and one half hours for
each occurrence of a lease or transfer of a slot. For each operator, we
assumed that a lease or transfer of a slot would occur on average
quarterly.

Section 93.69(b) One-for-One Trades of Operating Authorizations
(14 carriers) * (1.5 hours per submittal) * (4 occurrences per year) =
84 hours

    Based on burden estimates from the 2006 notice, we assumed the 14
marketing carriers operating at LaGuardia expend one and one half hours
for each occurrence of a one-for-one trade of a slot. For each
operator, we assumed that a one-for-one trade of a slot would occur
quarterly.

Section 93.72(a) Reporting Requirements
(14 carriers) * (1.5 hours per submittal) * (6 occurrences per year) =
126 hours

    Based on burden estimates from the 2006 notice, we assumed the 14
carriers operating at LaGuardia expend one and one half hours every two
months of the data required by Sec.  93.72(a).
Section 93.73(d)-(e) Administrative Provisions
(14 carriers) * (1.5 hours per submittal) * (4 occurrence per year) =
84 hours

    Based on burden estimates from the 2006 notice, we assumed the 14
carriers operating at LaGuardia expend one and one half hours every
quarter for administrative provisions.

Summary

    Total First Year Hourly Reporting Burden--858 Hours.
    Total Recurring Annual Hourly Reporting Burden (after first year)--
378 Hours.
    The agency is soliciting comments to--
    (1) Evaluate whether the proposed information requirements are
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
    (2) Evaluate the agency's estimate of the burden;
    (3) Enhance the quality, utility, and clarity of the information to
be collected; and
    (4) Minimize the burden of the collection of information on those
who are to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology.
    Individuals and organizations may submit comments on the
information collection requirement by [insert date], and should direct
them to the address listed in the ADDRESSES section of this document.
Comments also should be submitted to the Office of Information and
Regulatory Affairs, OMB, via facsimile at<PHONE_NUMBER>, Attention:
Desk Officer for FAA.
    According to the 1995 amendments to the Paperwork Reduction Act (5
CFR 1320.8(b)(2)(vi)), an agency may not collect or sponsor the
collection of information, nor may it impose an information collection
requirement unless it displays a currently valid OMB control number.
The OMB control number for this information collection will be
published in the Federal Register, after the Office of Management and
Budget approves it.

Regulatory Flexibility Determination

    The Regulatory Flexibility Act of 1980 (Pub. L. 96-3540 (RFA)
establishes ``as a principle of regulatory issuance that agencies shall
endeavor, consistent with the objective of the rule and of applicable
statutes, to fit regulatory and informational requirements to the scale
of the business, organizations, and governmental jurisdictions subject
to regulation.'' To achieve that principle, the RFA requires agencies
to solicit and consider flexible regulatory proposals and to explain
the rationale for their actions. The RFA covers a wide-range of small
entities, including small businesses, not-for-profit organizations, and
small governmental jurisdictions.
    Agencies must perform a review to determine whether a proposed or
final rule would have a significant economic impact on a substantial
number of small entities. If the agency determines that it would, the
agency must prepare a regulatory flexibility analysis as described in
the Act.
    However, if an agency determines that a proposed or final rule is
not expected to have a significant economic impact on a substantial
number of small entities, section 605(b) of the 1980 RFA provides that
the head of the agency may so certify and a regulatory flexibility
analysis is not required. The certification must include a statement
providing the factual basis for this determination, and the reasoning
should be clear. Such a determination has been made for this proposed
rule.
    The proposed rule affects all 26 scheduled operators at LGA. Based
on a review of the number of employees for each scheduled operator, the
FAA found none of the scheduled operators at LGA are considerd small
entities by Small Buinsess Administration size standards (in this case,
firms with 1,500 or fewer employees). In the NPRM, the FAA identified
two carriers that it believed could qualify as a small business under
the SBA size standards. The agency has reevaluated the size of all
carriers currently operating at LaGuardia and has determined that none
of them are small businesses.
    Using Enhanced Traffic Management System (ETMS) data, FAA has
determined that there would be approximately 70 identifiable
unscheduled operators at LGA which could be affected by this rule.
While some of these operators may be small businesses, we do not
believe they would be impacted signficantly by the proposed rule. While
there would be three fewer slots per hour under our proposal, these
operators seldomly use these slots and typically have greater
flexibility to adjust operations than do scheduled operators.
    Using 2007 Census data, the FAA also reviewed whether there would
be interruptions to service to communities of less than 50,000 in
population. We do not know if there would be any service interruptions
as a result of the rule. We have reviewed population statistics for
every city served from LGA in January 2007 (the base for allocation of
slots under the proposed rule) and found none with fewer than 50,000 in
population.
    Therefore, the FAA certifies that this proposed rule would not have
a significant economic impact on a substantial number of small
entities.

International Trade Impact Assessment

    The Trade Agreements Act of 1979 prohibits Federal agencies from
establishing any standards or engaging in related activities that
create unnecessary obstacles to the foreign commerce of the United
States. Legitimate domestic objectives, such as safety, are not
considered unnecessary obstacles. The statute also requires
consideration of international standards and, where appropriate, that
they be the basis for U.S. standards. The FAA has assessed the
potential effect of this proposed rule and determined that it would
impose no costs on international entities and thus have a no trade
impact. Canadian entities are the only foreign operators at LaGuardia
and their slots are protected by a bilateral aviation agreement and not
affected by the rule. They might benefit from the rule if they choose
to participate in the proposed auction to acquire additional slots.

Unfunded Mandate Assessment

    The Unfunded Mandate Reform Act of 1995 (the Act) is intended,
among other things, to curb the practice of imposing unfunded Federal
mandates on State, local, and tribal governments. Title II of the Act
requires each Federal agency to prepare a written statement assessing
the effects of any Federal mandate in a proposed or final agency rule
that may result in an expenditure of $100 million or more (adjusted
annually for inflation) in any one year by State, local, and tribal
governments, in the aggregate, or by the private sector; such a mandate
is deemed to be a ``significant regulatory action.'' The FAA currently
uses an inflation-adjusted value of $136.1 million in lieu of $100
million. This final rule does not contain such a mandate. The
requirements of Title II do not apply.

Executive Order 13132, Federalism

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

Environmental Analysis

    FAA Order 1050.1E, ``Environmental Impacts: Policies and
Procedures'' identifies FAA actions that are normally categorically
excluded from preparation of an environmental assessment or
environmental impact statement under the National Environmental Policy
Act (NEPA) in the absence of extraordinary circumstances The FAA has
determined that this rulemaking qualifies for the categorical
exclusions identified in paragraph 312d ``Issuance of regulatory
documents (e.g., Notices of Proposed Rulemaking and issuance of Final
Rules) covering administration or procedural requirements (does not
include Air Traffic procedures; specific Air traffic procedures that
are categorically excluded are identified under paragraph 311 of this
Order)'' and paragraph 312f, ``Regulations, standards, and exemptions
(excluding those which if implemented may cause a significant impact on
the human environment).'' It has further been determined that no
extraordinary circumstances exist that may cause a significant impact
and therefore no further environmental review is required. The FAA has
documented this categorical exclusion determination. A copy of the
determination and underlying documents has been included in the Docket
for this rulemaking.

Regulations That Significantly Affect Energy Supply, Distribution, or
Use

    The FAA has analyzed this NPRM under Executive Order 13211, Actions
Concerning Regulations that Significantly Affect Energy Supply,
Distribution, or Use (May 18, 2001). We have determined that it is not
a ``significant energy action'' under the executive order because while
a ``significant regulatory action'' under Executive Order 12866, it is
not likely to have a significant adverse effect on the supply,
distribution, or use of energy.

Additional Information

Comments Invited

    The FAA invites interested persons to participate in this
rulemaking by submitting written comments, data, or views. We also
invite comments relating to the economic, environmental, energy or
federalism impacts that might result from adopting the proposals in
this document. The most helpful comments reference a specific portion
of the proposal, explain the reason for any recommended change, and
include supporting data. To ensure the docket does not contain
duplicate comments, please send only one copy of written comments, or
if you are filing comments electronically, please submit your comments
only one time.
    We will file in the docket all comments we receive, as well as a
report summarizing each substantive public contact with FAA personnel
concerning this proposed rulemaking. Before acting on this proposal, we
will consider all comments we receive on or before the closing date for
comments. We will consider comments filed after the comment period has
closed if it is possible to do so without incurring expense or delay.
We may change this proposal in light of the comments we receive.

Proprietary or Confidential Business Information

    Do not file in the docket information that you consider to be
proprietary or confidential business information. Send or deliver this
information directly to the person identified in the FOR FURTHER
INFORMATION CONTACT section of this document. You must mark the
information that you consider proprietary or confidential. If you send
the information on a disk or CD-ROM, mark the outside of the disk or