Setting Rates and Charges

Bill Dunn_6By Bill Dunn

Before we dig into the actual Policy on Rates and Charges, a brief history is in order.

The FAA’s policy on Rates & Charges dates back to a June 21, 1996 Federal Register(1) . In response to a legal challenge to certain portions of the policy by the Air Transport Association (now A4A), in 1997, the U.S. Court of Appeals for the District of Columbia Circuit, vacated parts of the initial policy. Then in July 2008, following notice and opportunity for public comment, the FAA adopted three amendments to provide flexibility to operators of “congested airports.” Those amendments were challenged ay the Air Transport Association but upheld by the U.S. Court of Appeals for the District of Columbia. The policy was amended and clarified and printed in its full and current format in a September 2013(2) Federal Register notice.

This particular policy applies to aeronautical uses of the airport and provides standards applicable to airport fees imposed for aeronautical users and uses at an obligated airport. Aeronautical use is defined as any activity that involves, makes possible, is required for safety of, or is otherwise directly related to, the operation or aircraft.

The policy encourages direct negotiation between the parties in order to minimize disputes that may be filed with the FAA. When a dispute does arise, the agency will evaluate the complaint based on Section 113 of the Federal Aviation Act of 1994. It is important to note here that the FAA will not normally investigate reasonableness of a fee structure at a general aviation airport without some evidence of a progressive accumulation of surplus aeronautical based revenue. Or will the agency investigate a fee structure that was established as the result of an agreement by the parties.

Additionally, the policy ties into several Federal Grant Assurances with requirements that rates and charges 1) must be fair and reasonable, 2) may not unjustly discriminate against aeronautical users or groups, 3) revenue use must be in compliance with relevant Federal statutory provisions governing the use of airport revenue. The policy also requires an airport sponsor to establish a fee structure that will make the airport as “self-sufficient” as possible “under the circumstances existing at that particular airport.” Unfortunately, some airport sponsors that seek rate increases attempt to justify those increases by stating that the FAA “requires” them to be self-sufficient when arguing for these increases. They fail to include the “under the circumstances…” part.

There is no single methodology to establishing rates and charges. The two most widely used are 1) residual or 2) compensatory. However, there are times when a hybrid or combination of both of these is used. As long as the hybrid is applied equally to all aeronautical users, the FAA will accept that method. Remember too that one category or group of airport users should not be subjected to larger fees in order to make up revenue lost due to another group or operator that receiving an unusually low or incentivized reduced rate.

Obligated airport sponsors that are proposing increases should remember that under the policy, aeronautical users are entitled to having specific information available that will validate the need. This includes 1) Historical financial information covering the past two fiscal years, 2) balance sheets, 3) profit and loss statements, 4) Economic justification, 5) Planning and forecasting information and 6) airport traffic information. However, when a hybrid model is used, there are additional data that should be made available.

Consideration of the public interest should always be taken into consideration by both the airport and the airport’s users. In addition, the airport sponsor and airport’s users and tenants should attempt to come to agreement on an appropriate fee structure. Simply mandating a new fee structure isn’t a good way to run any business. Remember, airport users are the “consumers of the services” being supplied by the airport. Consumers should have a say in the future of the airport.

Chapter 18 of the FAA Airport Compliance Handbook(3), FAA Order 5190.6b, has a detailed discussion on airport rates and charges.

It is important that an airport sponsor that’s accepted federal grant funding and continues to be obligated under Grant Assurances has a good understanding of the FAA’s policies on these two important issues. Penalties for non-compliance can be severe.

Next month, we will continue looking into these two FAA’s policies. While the Rates and Charges Policy may be challenging to understand in totally, the legislative and agency history on the Use of Airport Revenue is actually quite interesting.