"Revisions to Passenger Facility Charge Rule for Compensation to Air Carriers"

Friday, March 19, 2004

Revisions to Passenger Facility Charge Rule for Compensation to Air
Carriers
The Federal Register


DATES: Effective May 1, 2004.

FOR FURTHER INFORMATION CONTACT: Joseph Hebert, Passenger Facility
Charge Branch, APP-530, Federal Aviation Administration, 800
Independence Avenue, SW., Washington, DC 20591; telephone (202)
267-3845; facsimile (202) 267-5302.

SUPPLEMENTARY INFORMATION:

Availability of Rulemaking Documents

You can get an electronic copy using the Internet by:

(1) Searching the Department of Transportation's electronic Docket
Management System (DMS) Web page (http://dms.dot.gov/search);

(2) Visiting the Office of Rulemaking's Web page at
http://www.faa.gov/avr/arm/index.cfm; or

(3) Accessing the Government Printing Office's Web page at
http://www.access.gpo.gov/su-docs/aces/aces140.html.

You can also get a copy by submitting a request to the Federal Aviation
Administration, Office of Rulemaking, ARM-1, 800 Independence Avenue,
SW., Washington, DC 20591, or by calling (202) 267-9680. Make sure to
identify the amendment number or docket number of this rulemaking.

Anyone is able to search the electronic form of all comments received
into any of our dockets by the name of the individual submitting the
comment (or signing the comment, if submitted on behalf of an
association, business, labor union, etc.). You may review DOT's complete
Privacy Act statement in the Federal Register published on April 11,
2000 (volume 65, number 70, pages 19477-78), or you may visit
http://dms.dot.gov.

Small Business Regulatory Enforcement Fairness Act

The Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996
requires FAA to comply with small entity requests for information or
advice about compliance with statutes and regulations within its
jurisdiction. Therefore, any small entity that has a question regarding
this document may contact its local FAA official, or the person listed
under FOR FURTHER INFORMATION CONTACT. You can find out more about
SBREFA on the Internet at http://www.faa.gov/avr/arm/sbrefa.htm, or by
e-mailing us at 9-AWA-SBREFA@xxxxxxxx

Background

The Aviation Safety and Capacity Expansion Act of 1990 (ASCE Act),
codified under 49 U.S.C. 40117, set up the passenger facility charge
(PFC) program. The ASCA Act allows public agencies to impose a PFC of
$1, $2, or $3 for each enplaned passenger at a commercial service
airport the public agency controls. Public agencies use the money from
such PFC collections to finance FAA-approved, eligible airport-related
projects. Section 158.53 of title 14, Code of Federal Regulations
prescribes the amount of money that air carriers may retain as
compensation for collecting and handling PFCs. Initially, SEC 158.53
allowed air carriers to keep $0.12 of each PFC remitted to recover the
costs of setting up $1, $2, or $3 charges under the PFC program. On June
28, 1994, FAA reduced the rate of compensation from $0.12 to $0.08 for
each PFC collected because air carriers should have recovered the cost
of program implementation by that time. Currently, air carriers may keep
$0.08 of each PFC collected and remitted.

In April 2000, the Wendell H. Ford Aviation Investment and Reform Act
for the 21st Century (AIR-21) changed the PFC program to allow public
agencies to collect PFCs of $4 or $4.50. The issue of air carrier
compensation rose again during the congressional proceedings leading up
to the passage of AIR-21. In House Report 106-513, which accompanied
AIR-21, Congress noted that several air carriers communicated to the
conferees their views that compensation at $.08 is too low. Congress
urged FAA to give the air carriers an opportunity to support their
argument in a rulemaking action.

On April 27, 2000, the Department of Transportation Office of the
Inspector General (OIG) issued a memorandum recommending to FAA
procedures for conducting rulemaking on PFC collection costs.
Specifically, OIG suggested the type of data FAA should collect to
ensure the agency receives the information necessary for evaluation.
Further, OIG recommended accounting and audit procedures that ensure the
costs are supportable.

To be responsive to Congress and OIG, FAA initiated contacts in April
2000 with the air carrier industry to learn about cost categories
compatible with air carrier cost accounting capabilities that might meet
the specifications of OIG. In addition, FAA consulted with independent
accountants familiar with the accounting methods of the air carriers to
learn the extent to which independent accountants would be able to
determine if costs reported by air carriers are "supportable." Based on
these contacts, FAA sent a letter to the air carriers suggesting cost
categories and instructions for collecting incremental costs associated
with PFC collection, handling, remittance, reporting, recordkeeping,
and/or auditing to facilitate the collection of data to be evaluated.
These categories consisted of the following:

(a) Credit card fees;

(b) Audit fees;

(c) PFC disclosure;

(d) Reservations;

(e) Passenger service;

(f) Revenue accounting, data entry, accounts payable, tax, and legal;

(g) Corporate property department;

(h) Training reservations, ticket agents, and other departments;

(i) Carrier ongoing information systems;

(j) Computer reservation systems on-going;

(k) PFC absorption;

(l) Airline Tariff Publishing Company (ATPCO);

(m) Airline Reporting Corporation (ARC); and

(n) Interest income.

FAA noted in its letter that listing an item in the cost definitions did
not necessarily represent a final FAA determination that the item
represents a cost of collecting and remitting PFC revenue that is
reimbursable from PFC revenue. Rather, some items were included because
they had been proposed by at least one air carrier as collection or
handling costs. From the responses to the letter, FAA found the average
PFC handling fee reported by the air carriers was $0.0896 for each $3
PFC collected in 1999 and $0.0995 for each $3 PFC remitted in 1999. Had
a $4.50 PFC been in place that year, the air carriers estimate the
increase in their costs would have raised their overall cost to $0.1065
for each $4.50 PFC collected and $0.1184 for each $4.50 PFC remitted. On
November 20, 2002, FAA issued Notice of Proposed Rulemaking (NPRM) No.
02-19, "Revisions to Passenger Facility Charge Rule for Compensation to
Air Carriers," (67 FR 70878, November 27, 2002). In that rulemaking
action, FAA proposed to amend 14 CFR 158.53 to allow air carriers to
keep $0.10 of each PFC they collect in calendar years 2002 through 2004.
>From 2005 forward, the amount would increase to $0.11 for each PFC
collected. FAA based its proposal on cost data received from Alaska
Airlines, Inc., American Airlines, Inc., Continental Airlines, Inc.,
Delta Air Lines, Inc., Northwest Airlines, Inc., Southwest Airlines
Company, TransWorld Airlines, Inc., United Airlines, Inc, and US
Airways, Inc. FAA initially reviewed the data submitted by the air
carriers to check for consistent data categories and formats, and then
consolidated all the information into a single summary table. This table
can be found in the preamble to the NPRM (67 FR 70880, November 27,
2002). FAA concluded the cost categories used to determine the amount of
compensation for this rule represented the incremental costs directly
associated with PFC collection, handling, remittance, reporting,
recordkeeping and auditing.

Discussion of Comments

FAA received 11 comments in response to Notice No. 02-19. The commenters
include airport operators, scheduled air carriers, and aviation industry
trade associations. Most of the commenters support FAA's proposal to
increase carrier compensation for handling PFCs. However, many
commenters disagree with how FAA determined the proposed rate of
compensation.

FAA received comments from the Allegheny County Airport Authority
(ACAA); the Port Authority of New York and New Jersey (PANYNJ); the
International Air Transport Association (IATA); the Maryland Aviation
Administration (MAA); Southwest Airlines Company (Southwest); the
Airports Council International-North America (ACI-NA) jointly with the
American Association of Airport Executives (AAAE); American Airlines,
Inc. (American); United Airlines, Inc. (United); the Air Transport
Association (ATA); and Continental Airlines, Inc. (Continental).

Compensation Based on Remitted PFCs vs. Collected PFCs

Comments: Although ACAA, PANYNJ, and MAA support FAA's proposal to
increase the rate of carrier compensation, they disagree with FAA's
proposal to change the basis for compensation from PFCs remitted to PFCs
collected. They assert that changing the basis for calculating
compensation might erode the money available to public agencies.

PANYNJ and MAA contend the difference between these compensation bases
becomes apparent when passengers refund tickets. ACAA asserts that if
carriers receive compensation for PFCs collected, then airports would be
subsidizing the carriers for passengers who cancel their reservations
and never travel through airports. In such instance, carriers would not
remit PFCs to the airports. ACAA argues that FAA's proposal violates 49
U.S.C. 40117, which, according to ACAA, requires the Secretary to base
compensation solely on money paid to the public agency. The commenters
suggest that FAA reconsider the basis for compensation and clarify the
issue of refunded tickets.

United supports the use of PFCs collected as the basis of carrier
compensation. United claims that Congressional intent for air carrier
compensation is based on PFCs collected and contends that FAA's past
rulemaking supports this position. United also claims that when FAA
promulgated the rules for carrier compensation, the agency only
requested data based on collected PFCs, not remitted PFCs. Further,
United contends that FAA's past rulemaking action appeared to use the
terms "collected" and "remitted" interchangeably. Based on the above,
United requests FAA to issue a statement that either (i) clarifies that
carriers are (and have been) entitled to retain the designated amount of
each PFC collected or (ii) recognizes explicitly that a dispute exists
over the interpretation of the existing rule and states that FAA is
expressing no view as to whether the old compensation fee was based on
PFCs collected or PFCs remitted, or whether the term "remitted" was used
interchangeable with (and deemed to have the same meaning as "collected"
under the old rule).

FAA Response: FAA disagrees. The intent of FAA's proposal is to set a
rate of carrier compensation on a basis that is clearly defined. FAA
notes that 49 U.S.C. 40117 only requires the rate of compensation to be
"* * * a uniform amount the Secretary determines reflects the average
necessary and reasonable expenses * * * incurred in collecting and
handling the fee." It does not require the Secretary to base the rate of
compensation solely on money paid to the public agency.

The issue of compensation for handling refunded tickets has been a
long-standing concern for both airports and air carriers. The preamble
discussion in the NPRM addresses the issue of refunded tickets, where
FAA notes that regardless of whether air carriers receive compensation
based on PFCs collected or remitted, the aggregate amount of PFC revenue
kept by the carriers for compensation is not significantly different.

Also, FAA notes that carriers incur expenses in collecting and handling
PFCs even when they refund tickets. FAA chose not to adopt these
comments, but to base carrier compensation on PFCs collected to account
for widely varying refund rates between air carriers, while preserving
PFC revenue for airports.

Finally, the request from United for one of two possible statements from
the FAA regarding the existing rule is outside the scope of this
rulemaking and FAA will take no action on this request.

Disproportional Cost for International Carriers

Comments: IATA supports FAA's proposed increase in the rate of air
carrier compensation. However, IATA claims there is a disproportional
cost for international carriers to collect and remit PFCs to airports
they do not serve. With the development of airline alliances, IATA
asserts that international air carriers often sell tickets and collect
PFCs for airports they do not serve. IATA notes that for smaller
airports, international carriers may collect only one or two PFCs each
month. Therefore, IATA requests that FAA consider adopting quarterly
remittance and reporting for international carriers when the total
monthly collection for an individual public agency does not exceed $300.

FAA Response: FAA disagrees. IATA's proposed changes to the collection
and reporting requirements are beyond the scope of this rulemaking
action. Therefore, FAA has not made any changes to the rule in response
to IATA's comments.

Disclosure Costs

Comments: ATA, Southwest, and United oppose FAA's proposal to use
reduced disclosure costs for Southwest in calculating the rate of
compensation. Disclosure costs are those costs associated with
disclosing, in applicable advertising, the existence of PFCs to the
general public. The commenters claim that FAA's failure to use the full
amount of Southwest's disclosure costs in calculating the increased rate
of carrier compensation will result in under-compensation of air
carriers. In response to NPRM, Southwest sent more data supporting its
disclosure costs (Docket No.: FAA-2003-13918).


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