FAA Docket No:
FAA Docket No. 16-18-01
Author:
Kevin C. Willis, Director, Office of Airport Compliance and Management Analysis
Complainant(s):
Star Marianas Air, Inc.
Respondent(s):
Commonwealth Ports Authority
Airport(s):
Airports in the Commonwealth of the Northern Marianas Islands (CNMI)
Holding:
Dismissed.
Abstract:
Complainant contended that the Ports Authority was operating CNMI airports in a discriminatory manner by imposing excessive, unreasonable, and discriminatory charges, including head taxes, without any basis or support. (p. 1.) It further stated that these charges did not relate to the Ports Authority’s costs and resulted in revenue surpluses. (p. 1.) Finally, the Complainant alleged that the Ports Authority permitted airside access at one of the Ports Authority terminals (Rota Airport) to Star Marianas’ competitors, while denying Star Marianas the same or similar access. (p. 1.)
The Ports Authority denied the allegations, claiming that it applied the ratemaking methodology consistently to all airlines operating at the three airports, in conformance with the Department of Transportation Rates and Charges Policy. (p. 1.) In addition, Respondent countered that it consulted with the airlines on the proposed rates and charges, and fees. (p. 1.) It also differentiated the rates so that the airlines with fewer passengers and smaller aircraft, operating at the Saipan Commuter, Rota, and Tinian terminals, paid less than the airlines in the Saipan International Terminal Building. (p. 1.) Finally, the Ports Authority admitted that final rates and charges calculations for fiscal years 2009-2014 were reconciled in 2016, and it provided refunds to individual airlines. (p. 1.)
In the foregoing context, the Director considered five issues: (1) whether Ports Authority violated Grant Assurance 1, General Federal Requirements; (2) whether Ports Authority violated Grant Assurance 22, Economic Nondiscrimination; (3) whether Ports Authority violated Grant Assurance 23, Exclusive Rights; (4) whether Ports Authority violated Grant Assurance 24, Fee and Rental Structure; and (5) whether Ports Authority violated Grant Assurance 25, Airport Revenues.
Grant Assurance 1, General Requirements
First, Star Marianas alleged that Ports Authority violated Grant Assurance 1, General Federal Requirements, by imposing unreasonable and excessive charges on a per passenger basis without a maximum limitation based on: fair market value; Ports Authority’s operational costs; and the weight of Star Marianas landed aircraft. (p. 11.) Complainant also alleged Ports Authority was imposing fees or head charges on an individual traveling in air commerce contrary to 49 U.S.C. § 40116(b). (p. 11.) Also alleged was that the Ports Authority violated the Anti-Head Tax Act (“AHTA”) by charging head taxes on passengers traveling through its airports. (p. 11.)
Ports Authority denied Star Marianas’ allegation that it violated the AHTA. (p. 11.) Ports Authority contended that the charges imposed were for its airports’ use, and they were consistent with applicable law and FAA policies. (p. 11.) Ports Authority argued its facility user fees reflected the airport’s debt service, equipment, maintenance, and planned future development costs. (p. 11.)
According to the Director, the record showed that Star Marianas expanded from a cargo carrier to provide passenger services at Saipan in 2009, and that Ports Authority required that Star Marianas pay an additional user fee of $4.95 per passenger in its rates and charges for common use passenger areas in the airport terminals. (p. 11.) Star Marianas claimed that its rent jumped from $302 to $3200 per month because the additional common use fees were based by per passenger. Star Marianas also provided exhibits concerning AHTA and claimed that the Ports Authority’s rates and charges were, in part, a violation of the AHTA. (p. 11.)
The exhibits provided showed that the FAA Honolulu Airports District Office (“ADO”) had asked the Ports Authority to respond to Star Marianas’ rates and charges claim. Based on the information provided by the Ports Authority, the Honolulu ADO determined there was no unlawful head tax. However, the ADO asked the Ports Authority to change the allocation terminology to avoid the appearance that the charges were a head tax. (p. 11.)
The Ports Authority’s rates and charges background and methodology was reviewed to ascertain whether any rates and charges were illegal under AHTA. (p. 12.) To that end, the Ports Authority retained a financial consultant, Ricondo and Associates, to train the Ports Authority accounting staff, audit the rates and charges, review the passenger facility charge (“PFC”) programs, and reconcile any issues they identified. (p. 11.) Indeed, Ricondo determined that the Ports Authority’s airports rates and charges formulas were primarily “compensatory” where the Ports Authority airport rates and charges methodology consisted of: (1) a “cost center residual” landing fee rate for the Airfield Cost Center using total landed weight as the divisor; and (2) a “cost center compensatory” average terminal rental rate for the Terminal Cost Center using total rentable square feet as the divisor. (p. 11.)
In this context, the Director recounted that FAA internal guidance provides that the compensatory methodology permits airport sponsors to allocate capital and operating costs to airport cost centers and formulates rates to recover costs. (p. 12.) The costs allocated to a cost center are listed in a base rate, which the airport recovers from aeronautical users through the aeronautical rates (FAA Order 5190.6B, ¶¶ 18-6 through 18-9). (p. 12.) The methodology described how Ports Authority developed the airlines rates and charges, and fees, assessed to airlines for each cost center and common use areas. (p. 12.) Ports Authority determined the common use area rates and charges by the percentage of passenger traffic generated by each airline and, in the Director’s view, Ricondo analyses showed a transparent and reasonable methodology used by Ports Authority to establish the airport budgeted rates and charges for each fiscal year. (p. 12.)
As such, the Director noted that under 49 U.S.C. § 47129, the FAA may only determine whether a fee is reasonable or unreasonable and is disallowed from setting level of the fee as provided in internal guidance under FAA Order 5190.6B, ¶18-7. (p. 13.) Based on the review of the Ports Authority’s current compensatory methodology, the Director found that nothing in the documents it reviewed appeared to conflict with acceptable methodologies for establishing airport rates and charges with airlines. (p. 13.) Consequently, the Ports Authority’s compensatory methodology used to establish the airport’s rates and charges, and fees was fair and reasonable. (p. 13.)
What is more, the Director noted that a properly formulated rates and charges methodology did not constitute an illegal head tax. (p. 13.) Based on the descriptions of the methodologies provided by the Ports Authority, therefore, the Director found that Star Marianas had not provided persuasive evidence showing how the Ports Authority rates and charges assessed for each cost center and common use areas was, or currently is, a violation of AHTA. (p. 13.) Thus, there was no substantive evidence of Ports Authority levying or collecting a targeted tax, a fee, a head charge, or other charge on (1) an individual traveling in air commerce; (2) the transportation of an individual traveling in air commerce; (3) the sale of air transportation; or (4) the gross receipts from that air commerce or transportation in violation of 49 U.S.C. § 40116. (p. 13.)
Therefore, the Director found Ports Authority’s description of its rates and charges methodology did not constitute an illegal head tax, and it reaffirmed the findings of the Honolulu ADO that the Ports Authority’s rates and charges methodology did not represent an illegal head tax under AHTA. (p. 13.) This was particularly so given that the Part 16 process determines whether sponsors are currently in compliance with federal obligations, and does not provide restitution or financial damages. (p. 13.) Star Marianas’ complaint filed in 2018 alleged anti-head taxes for the fiscal year 2009-2014; as the airport had cured any past violations, the issue was dismissed on this additional ground. (p. 13.)
Grant Assurance 22, Economic Nondiscrimination
Complainant alleged that the Ports Authority was not making terminals available for public use on reasonable terms and without unjust discrimination to all types, kinds, and classes of aeronautical activities, including commercial aeronautical activities. (p. 13.) Additionally, the Complainant alleged that the Ports Authority violated the FAA policy on rates and charges; that fees were unreasonably high; and that there was a head tax in violation of federal law related to the sale of air transportation. (p. 13.) Finally, the Complainant argued that the rates and charges should be set to allow for recovery of operating costs, not to make a profit. (p. 13.)
More specifically, the Complainant argued that the Ports Authority charges were beyond what was permitted in an Airline Use Agreement (“AUA”) and Airport Rules and Regulations and that these charges were imposed after it started passenger services. (p. 14.) Star Marianas also argued that:
• The Ports Authority’s retroactive charges were unreasonable because Star Marianas could not recoup the additional costs from the passengers when Ports Authority delayed its calculations for the prior years, in violation of the AUA. (p. 14.)
• The Ports Authority imposed a fee on Star Marianas unrelated to the adjusted annual costs of terminal operations, that the fee was based solely on the number of Star Marianas passengers enplaned, and that these fees did not have a bearing on Ports Authority’s operational expenses. (p. 14.)
• A monthly rental fee and additional charge for the Star Marianas passengers to use of the terminals were not based on proportional recovery of the terminal costs. (p. 14.)
• The Ports Authority’s landing fees were unreasonable because they did not relate to Star Marianas’ landed weight at the terminals. (p. 14.)
• The Ports Authority applied an arbitrary landing fee rate and then applied 50% of that rate to the terminals. (p. 14.)
• The Ports Authority did not provide any transparent explanation or analysis for landing fee charges for a five year period, and the rates allocated to Star Marianas were not reasonable. (p. 14.)
• It was not able to be competitive with other air carriers; thus, Ports Authority was economically discriminating against Star Marianas. (p. 14.)
The Ports Authority answered that it met with Star Marianas multiple times to discuss its current and future rates and charges methodologies and that Star Marianas was nevertheless confused about the different sections of AUA. (p. 14.) Ports Authority also stated that the methodology used for establishing Joint Use Charges for common use space by more than one airline established by enplanements was a commonly accepted methodology. (p. 14.) Ports Authority affirmed that its new methodology reflected the operating and net capital costs of the facilities and is an acceptable method of valuation. (p. 14). Finally, the Ports Authority argued that Star Marianas contractually obligated itself to the AUA. (p. 14.)
According to the Director, the record showed that although the Ports Authority failed to establish its rates and charges based on an annual evaluation required under the AUA, it had since satisfactorily provided evidence that it had done so retroactively and intended to continue to do so going forward. (p. 14.) The Director was “satisfied that the Ports Authority current rates and charges methodology is transparent and reasonable. The Part 16 process only determines whether sponsors are currently in compliance with federal obligations, and does not provide restitution or financial damages.” (p. 14.) Consequently, “the FAA will consider the successful action by the airport to cure any alleged or potential past violation of applicable federal obligations to be grounds for dismissal of such allegations.” (See Wilson Air Center v. Memphis and Shelby County Airport Authority, FAA Docket No. 16-99-10 (August 30, 2001)).
Finally, Star Marianas failed to meet its burden of proof under Part 16 by failing to present the Director with any substantive or persuasive evidence to support its allegations of any current Grant Assurance 22 violation. (p. 15.) Therefore, the Director dismissed the allegations under Grant Assurance 22, Economic Nondiscrimination. (p. 15.)
Grant Assurance 23, Exclusive Rights
The Complainant averred it operated only cargo services when it entered into a lease with Ports Authority at Rota International Airport. (p. 15.) When it expanded to provide scheduled passenger service, Complainant requested airside access at the terminal like other similarly situated air carriers. (p. 15.) The Ports Authority denied the request, however, requiring Star Marianas to enplane its passengers and cargo at the far West end of the Rota Terminal. (p. 15.) In this context, the Complainant argued that the Ports Authority granted special rights or privileges to other air carriers and has denied this same right to Star Marianas. (p. 15.)
The Ports Authority answered that Star Marianas had airside access at the Rota terminal, and that access was neither direct nor exclusive. (p. 15.) Ports Authority also contended that another airline, Arctic Circle, also was required to enplane its passengers and cargo through the West end of the terminal building to access aircraft. (p. 15.) On this basis, the Ports Authority argued that the reason for the non-exclusive location was that both airlines do not require Transportation Security Administration (“TSA”) screening. (p. 16.)
Given this, the Director noted that if its passengers did not require TSA screening, it was reasonable that Star Marianas passengers could not share the same areas with such passengers and that other space is required for unscreened passengers to board and unload from small aircraft. (p. 16.) Under these circumstances, the Ports Authority provided reasonable terms and without unjust discrimination to Star Marianas without adversely affecting the efficiency and utility of the airport in the Rota airport security program. (p. 16.)
Moreover, Star Marianas did not provide any response to Ports Authority’s argument of compliance with TSA security requirements. (p. 16.) FAA internal policy provides that an exclusive rights violation is the denial of an opportunity to be an on-airport aeronautical service provider by the airport sponsor to other qualified parties (FAA Order 5190.6B, ¶8-10). (p. 16.) In this matter, the Ports Authority provided Star Marianas reasonable access to the airport under the existing requirements, and, furthermore, Star Marianas failed to show which carrier had obtained an exclusive right that Star Marianas itself was denied. (p. 16.) Thus, Ports Authority remained in compliance with its grant assurances and federal surplus property obligations, and the Director dismissed allegations under Grant Assurance 23, Exclusive Rights and Grant Assurance 22, Economic Nondiscrimination.
Grant Assurance 24, Fee and Rental Structure
Star Marianas asserted that the fact that Ports Authority’s revenue exceeded its operational expenses each fiscal year constituted a violation of Grant Assurance 24. (p. 16.) The Ports Authority denied these allegations. (p. 16.)
Given this, the Director noted three principles. First, Grant Assurance 24, Fee and Rental Structure, requires an airport sponsor to maintain a fee and rental structure which will make the airport as self-sustaining as possible under the circumstances existing at that particular airport, and this is best achieved through the use of a rate-setting methodology which quantifies airfield costs and services currently in use and establishes charges linked to those costs. (p. 16.) Second, federal law does not prescribe a single approach to rate-setting; airports may utilize their preferred methodology as long as that methodology is applied consistently to similarly situated aeronautical users and conforms to other requirements outlined in the FAA’s Rates and Charges Policy (see 61 Fed. Reg 31944, 32019 (Jun. 21, 1996)). (p. 16.) Finally, consistent with its responsibilities under Grant Assurance 24, a sponsor has the right to accumulate reasonable surpluses to protect itself against financial contingencies, debt service, and future development. (p. 16.)
Deloitte and Touche (“Deloitte”), Ports Authority’s independent auditor, conducted the Ports Authority Financial Audited financial information, and contrary to Star Marianas’ allegation, the FAA did not find in the Deloitte audits that there was an accumulation of excessive surplus funds for capital and operation costs, or reserves for the local airport system. The accounting firm also did not make any finding in its independent audits that Ports Authority had accumulated excessive surplus funds. (p. 16.)
Thus, the Complainant failed its burden under Part 16 “to show noncompliance with an Act or any regulation, order, agreement or document of conveyance issued under the authority of an Act.” (p. 17.) According to the Director, therefore, Star Marianas had not provided him with any substantive detailed financial evidence to support its allegation that there was an unreasonable amount of surplus funds to cover the capital and operating costs, and unreasonable reserves for the Ports Authority airports system. (p. 16.) Accordingly, the Director found there was a lack of surplus funds in the independent audits is persuasive evidence, and dismissed the allegations under Grant Assurance 24, Fee and Rental Structure. (p. 17.)
Grant Assurance 25, Airport Revenues
Finally, Star Marianas alleged that an independent audit showed that the Ports Authority failed to manage its finances and imposed PFCs on the airlines, including Star Marianas, for FAA-approved projects that it never commenced, for projects the FAA never approved, and that the Ports Authority failed to properly report its expenditures and revenue. (p. 17.) Star Marianas also argued that the audit stated that the Ports Authority disbursed PFC funds to airport projects the FAA had not approved and failed to maintain records to identify these projects. (p. 17.) Star Marianas alleged that Ports Authority lost a large amount of money and improperly used airport revenues to offset the losses and that the Ports Authority was unable to attribute what expenses it paid because of its poor documentation. (p. 17.) Therefore, Star Marianas argued that the excessive surpluses also violated Grant Assurance 25. (p. 17.)
Ports Authority admitted that its independent audit disclosed its lack of monitoring, lack of awareness of program requirements, and failure to maintain a separate accounting record for PFC projects caused the discrepancies. (p. 17.) Ports Authority worked with the independent auditor to implement corrective measures for identified discrepancies, however, and also hired a consultant to assist in reconciling expenditures and bringing the required reporting up to date. (p. 17.)
Finding that the allegations of violations of the PFC statute or regulations were outside the jurisdiction of 14 C.F.R. Part 16, and that facts pertaining to relevant PFCs may only be used as background, the Director dismissed the allegations relating to the PFCs as outside the determination. The Director further determined that FAA Policy permits sponsors to use airport revenue for the capital or operating costs of the airport, the local airport system, or other local facilities that are owned or operated by the airport owner or operator; and directly and substantially related to the air transportation of passengers or property. (p. 17.) In any case, the Director found that Star Marianas did not provide any substantive evidence to overcome the audits that Ports Authority had unlawfully diverted airport revenue for non-airport purposes from the Ports Authority airport system. Additionally, according to the Director, a review of the entire record also did not identify any misuse of airport revenue for non-airport purposes. Therefore, the Director dismissed the allegations under Grant Assurance 25, Airport Revenues.
Index Terms:
Airside Access; Airline Use Agreement (“AUA”); Anti-Head Tax Act (“AHTA”); Audit; FAA Order 5190.6B; FAA Rates and Charges Policy; Fee; Grant Assurance 1, General Federal Requirements; Grant Assurance 22, Economic Nondiscrimination; Grant Assurance 23, Exclusive Rights; Grant Assurance 24, Fee and Rental Structure; and Grant Assurance 25, Airport Revenues; 49 U.S.C. § 40116(b); Proportional Recovery; PFC; Ratemaking; Reasonable Access; Surplus Funds; Terminal Operations