United Airlines v. Port Authority of New York and New Jersey – No. 16-14-13
FAA Docket No:
FAA Docket No. 16-14-13
Author:
Kevin C. Willis, Director, Office of Airport Compliance and Management Analysis
Complainant(s):
United AirlinesRespondent(s):
Port Authority of New York and New JerseyAirport(s):
Newark-Liberty International Airport (EWR)
History:
[Appeal Pending.]
Holding:
Violation of Grant Assurance 22, Economic Nondiscrimination, and Grant Assurance 25, Airport Revenues, and Order to Submit Corrective Plan.Abstract:
United Airlines filed a Part 16 Complaint alleging that the Port Authority of New York and New Jersey: (1) charged unreasonable rates using a fee methodology that was not cost-based and lacked transparency, in violation of 49 U.S.C. § 47107(a), Grant Assurance 22, Economic Nondiscrimination, and Policy Regarding Airport Rates and Charges; and (2) generated excessive surplus revenues in order to subsidize non-aeronautical functions, and improperly diverted airport revenue in violation of 49 U.S.C. § 47107(b)(2), and Grant Assurance 25, Airport Revenues; and (3) the Port Authority’s actions were contrary to the Anti-Head Tax Act, 49 U.S.C. § 40116) and the Airline Deregulation Act, 49 U.S.C. § 41713.
In response, the Respondent denied all of United’s allegations and asserted that the flight fees were not unreasonable or unjustly discriminatory. Respondent further claimed as a grandfathered airport there was no unlawful diversion of revenue because it could use airport revenue for non-aeronautical purposes. Finally, the Respondent raised an affirmative defense that United was challenging the reasonableness of fees that were established by agreements to which United was a party.
The Director found that costs included in fees charged to United were not based on a reasonable and transparent cost allocation methodology in accordance with 49 U.S.C. § 47107(a), Grant Assurance 22, and DOT/FAA Policy Regarding Airport Rates and Charges. (p. 17.) The Director also found that the Port Authority did not maintain an adequate audit trail for the allocation of its expenses and engaged in deficient accounting practices and record keeping. (p. 17.) The Director thus noted that corrective action was needed to ensure that the Port Authority’s common costs were allocated according to a reasonable, transparent, and unjustly discriminatory cost allocation methodology applied consistently and with improved accounting practices and record keeping. (p. 17-18.) Moreover, the Director found that the sponsor was in violation of Grant Assurance 22, Economic Nondiscrimination, by virtue of deficient accounting practices, poor record keeping, associated procedures and lack of transparency in setting its rates and charges, which were not consistent with the DOT/FAA Policy Regarding Airport Rates and Charges. (p. 23.)
The Director further reviewed allegations that the airport sponsor had violated federal revenue use obligations by diverting airport revenues to fund to non-airport, money-losing operations, and used airport revenues to fund projects that exceeded the limits of a “grandfather” exception. (p. 18.) The Port Authority denied the allegations, contending that it was a “grandfathered” airport pursuant to the Airport and Airway Improvement Act such that it was allowed to use airport revenue for non-aeronautical purposes. (p. 18.)
The Director concluded that the Port Authority had not clearly articulated the methodology it used to calculate the amount of grandfathered revenues. (p. 22.) The record showed that the Port Authority had a history of large fluctuations in grandfathered payments and that the Port Authority had expended considerable amounts of airport revenue on non-aviation facilities that it did not own. (p. 23.) Additionally, the Port Authority had used excess profits generated by aviation fees to fund non-airport related projects. (p.23.) As such, the Director found that the Port Authority could not demonstrate that it had complied with the grandfather exception permitted by 49 U.S.C. § 47107(b)(2) and § 47133, Grant Assurance 25, Airport Revenues, and FAA’s Policy and Procedures Concerning the Use of Airport Revenues. (p. 23.)
In all, the Director required the sponsor to provide a corrective action plan detailing: (1) how its common costs were allocated according to a reasonable, transparent, and not unjustly discriminatory cost allocation methodology that is applied consistently with EWR; (2) how the sponsor intended to modify its accounting practices and associated procedures in order to eliminate the identified deficiencies concerning the financial management of operations at EWR; (3) how the sponsor intended to establish and present to the FAA an acceptable and proper grandfathering methodology to be used consistently going forward; and (4) how the sponsor intended to identify the total amounts of diverted airport revenue, including for past development expenditure; credit the accounts for each Port Authority airport; adjust its rates and charges at EWR to reflect the change in costs; and identify measures to be taken to prevent future occurrences. (p. 23-24.)
The Port Authority of New York and New Jersey has filed an administrative appeal, which is pending.