UNITED STATES DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, DC DIRECTOR S DETERMINATION

Transcription

1 UNITED STATES DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, DC AERODYNAMICS OF READING, INC. v.. Docket NO READING REGIONAL AIRPORT AUTHORITY DIRECTOR S DETERMINATION 1. INTRODUCTION This matter is before the Federal Aviation Administration (FAA), based on the formal complaint filed in accordance with the FAA Rules of Practice for Federally-Assisted Airport Proceedings (FAA Rules of Practice), 14 C.F.R.. Part 16. Aerodynamics of Reading, Inc. (hereinafter Complainant), has filed a formal complaint pursuant to 14 C.F.R. Part 16 against the Reading Regional Airport Authority (hereinafter Respondent), operator of Reading Regional Airport (RDG), alleging that the Authority is engaged in economic discrimination and failed to comply with 49 U.S.C (a)(l), (5), and (13)(A) and Federal grant assurances 22(a), (c) and 24. The Complainant is a corporation with its business at Reading Regional Airport, Reading, Pennsylvania. The Complainant is engaged in the business of being a fixed-based operato* and alleges that: The Complainant incorrectly cites 49 U.S.C (b), Wrfien Assurances on the Use of Revenue as the basis for its complaint because the applicable law discussed corresponds to unjust economic discrimination and other assurances under 49 U.S.C (a). and not section 47107(b) that applies to illegal revenue diversion. Proper citations are provided later in the section of the complaint titled, Laws Regulations and Policies. Also, the Complainant cites violations of 49 U.S.C (a). However, this statute, by its express terms, is a policy of the United States Govemment and is not binding on airport sponsors. 2 A fixed base operator, (FBO) is an individual or firm operating at an airport and providing general aircraft services such as maintenance, storage, ground and flight instruction. FAA Order A, Airport Compliance Requirements, Appendix 5 (1989).

2 2 The Respondent has unreasonably discriminated between the rents charged the Complainant and those charged to various other FBO s; The Respondent has required a substantial security deposit from the Complainant but not from other FBO s or tenants; The Respondent has engaged in Discriminatory bidding for available hangars by awarding hangars without notice or opportunity to bid for other parties; and The Respondent has charged rents that result in a substantial surplus that are not required for operation, nor re-invested in the airport. Under the particular circumstances existing at RDG and the evidence of record, as discussed below, we conclude that the Respondent is not in violation of its obligations regarding economic nondiscrimination under (a)(l) and (5) and related grant assurance #22; and the Respondent is not in violation of its obligations regarding fee and rental structures under (a)(l3)(A) and related grant assurance #24. Our decision in this matter is based on the applicable Federal law and FAA policy, and our review of the pleadings and supporting documentation submitted by the parties which comprise the administrative record in this proceeding as reflected in the attached FAA Exhibit 1.4 II. ISSUES Upon review of the allegations and the relevant airport-specific circumstances, summarized below in the Background Section, the FAA has determined that the following issues require analysis in order to provide a complete review of the Sponsor s compliance with applicable Federal law and FAA policy: 1. Whether the differences in lease terms, conditions and rates between those agreed to by the Complainant and its FBO competitors constitute unjust discrimination by the Respondent in violation of Federal grant assurance # 22, regarding unjust economic discrimination. 2. Whether the Respondent, by allegedly engaging in discriminatory bidding for available hangars and awarding hangars without notice or opportunity to airport users, is in violation of Federal grant assurance # 22 regarding unjust economic discrimination. 3. Whether the Respondent, by allegedly charging rents over and above those required making the airport self-sustaining, is in violation of Federal grant assurance #24 regarding airport fee and rental structures. 4 FAA Exhibit 1 provides the Index of the Administrative Record in this proceeding.

3 THE AIRPORT The Reading Regional Airport is a public-use airport operated by the Respondent airport authority. The Respondent maintains its principal offices at 2501 Bernville Road, Reading, Pennsylvania RDG is located in Reading, three miles north of the city center. RDG is an air carrier airport under Title 14 Code of Federal Regulation Part 139 with 102-based aircraft and 155,130 operations for the twelve-month period ending November 18, The planning and development of RDG has been financed, in part, with funds provided by the FAA, under the Airport Improvement Program (Alp), authorized by the former Airport and Airway Improvement Act of 1982, as amended and recodified, 49 U.S.C , et seq. Since 1982, the Respondent, as the airport sponsor has received twenty-five AIP grant agreements with the FAA, totaling $1 2,498,321 in federal airport development assistance. In 1999, the Authority received its most recent AIP grant for $182,931 for the acquisition of snow removal equipment.6 Iv. BACKGROUND On April 12, 1988, Aerodynamics, Inc., an FBO, signed an addendum to its lease, agreeing to pay $36,000 per year or $3,000 per month for the facilities identified in its existing lease agreement and addendum. Additionally Aerodynamics, Inc. operated the West ramp. This increase, according to complainant represented a 100% rent increase. [FAA Exhibit 1, Item 4, Affidavit number 14 and exhibit D] On July 9, 1991, the Complainant, a separate unrelated corporation, purchased the assets and airport lease of Aerodynamics, Inc. This included Hangar 401 and 402 near the airport s West Ramp. The lease provided for a monthly rent of $3, during the first and second years with increases for subsequent years in accordance to the schedule of rental payments listed in exhibit D of the lease or an aggregate total of $1,325, for a twenty-year period. [FAA Exhibit 1, item 3, exhibit 31. i I 5 FAA Exhibit 1, Item 1 provides a copy of the most recent FAA Form 5010 for the Airport. 6 FAA Exhibit 1, Item 2 provides the Airport Sponsor s AIP Grant History listing the federal airport improvement assistance provided by the FAA to the Airport Sponsor from 1982 to the Present. r In its Reply, the Complainant asserts that it leases only buildings and supporting land on the West Ramp. However, the Respondent s Answer claims that the lease includes the ramp areas, which are managed by the Complainant for the benefit of the public without discrimination. A review of the lease indicates the lease premises are identified in exhibit A of the lease and the Complainant did not provide a copy of Exhibit A.

4 4 A. Dissimilar Lease Terms and Security Deposit. The Complainant alleges that on April 12, 1988, the Respondent increased the rent of Aerodynamics, Inc., the former FBO, from $1,500 per month to $3,000 per month. The Complainant contends that the Respondent s purpose behind the greater than 100% increase in rent in 1988 was to somehow discriminate against Complainant and to deliberately discourage the Complainant from operating at RDG, in violation of the grant assurances, federal law and regulations. [FAA Exhibit 1, item 3, ~ara.22.1.~ The Respondent responds that the $3,000 rent was negotiated and paid by Aerodynamics, Inc., the former FBO, three years before the Complainant started operations on the airport. Additionally, the rent was increased to $3,000 because Aerodynamics, Inc. agreed to rent a second hangar. The $ represents the actual increase attributable to Aerodynamics new tenancy on the airport. [FAA Exhibit 1, item 4, para.221. Additionally, the Authority indicates, as a standard practice for leasing commercial space, it determines the site s market rent value before FBO lease negotiations commence. According to the Respondent, since the mid-1980s it has determined market rent value based on valuation reports prepared by an appraisal firm. A valuation report prepared by Airport & Aviation Appraisals, Inc. (f/k/a Homedrome Valuation Services ) established a fair market rent value of $630,000 for the Aerodynamics property. The Authority s standard practice is to negotiate a rental rate equal to 10% to 12% of the site s fair market value. Aerodynamics lease equates to 10.52% of the site s fair market value per year, [FAA Exhibit 1, item 4, para 13 and affidavit para 5 and 6.1. As an addendum to its 1991 lease, the Complainant agreed to make $274,000 in leasehold improvements at its own expense without federal reimbursement and agreed to pay a security deposit of $10,500 which equaled to the first and last month s rent of the original lease term. Completion of the improvements was contingent upon the Complainant ability to secure financing for the project. [FAA Exhibit 1, item 3, exhibit C]. According to the Respondent, it did not demand or require any improvements to the property. The site was completely functional as is. The improvements, proposed by Complainant, were not eligible for Federal grant assistance because the premises are utilized exclusively by a single FBO. [FAA Exhibit 1, item 4, affidavit, para 16-18]. The Complainant asserts that he has been unjustly discriminated against because other FBO leases do not require renegotiation or review every 5 years 8 Complainant does not explain in the record how an increase in rent by the airport in his predecessor s lease in 1988 allegedly discouraged Complainant from operating at the airport.

5 5 as required by the Grant Assurances. [FAA Exhibit 1, Item 3, p. 9, para. 631 The Respondent denies this allegation. [FAA Exhibit 7, Item 4, p. 11, para. 621 The Complainant argues that the 1991 lease also provides that it must pay fuel flowage fees on fuel it uses for its aircraft, which is contrary to the practice of other FBOs at the RDG who do not pay fuel flowage fees. The Respondent indicates that before January 1991, Authority policy exempted aircraft owned or leased by an FBO from paying fuel flowage fees. In January 1991, the Authority changed its policy and eliminated the FBO fuel flowage fee exemption. All new leases and lease renewals include identical provisions similar to the Complainants lease, according to the Respondent, [FAA Exhibit 1, item 4, para. 25 and affidavit, number 241. On October 28, 1996, the Complainant requested the Respondent to extend its lease and reduce its existing lease payments to support the financing of a $600,000 hangar adjacent to its facility. The Complainant alleges that the Respondent denied the request. The Respondent denies the allegation. According to the Respondent, it advised the Complainant that it was willing to negotiate a lease extension from 20 to 35 years. However, it would not reduce the current rent due on the land and building lease but was willing to extend the rent payments over 35 years instead of the existing 20 years as long as it continued to receive market value rents for the additional 15 years. The Respondent also indicated that it would only charge a ground rental rate associated with the new hangar for 35 years at which time the building passes to the Authority and it could charge for the use of the hangar. [FAA Exhibit 1, Item 4, para.26 and Affidavit Number 231. Other FBO Leases CAP Aviation, Inc. On March 28, 1978, the Respondent signed an agreement with CAP Aviation, Inc. to provide FBO services at the airport. Terms of the agreement required CAP Aviation to pay a rental rate of $2,500 per annum for the use of a 4,640 square foot building (hangar #203). The term of the lease was for five years with a 3% increase in rent over the previous year. The lease did not require a security deposit or include provisions providing for the construction of leasehold improvements. The lease did include a provision that prohibited the Respondent from imposing fuel flowage fee increases on CAP Aviation that were not exactly the same as the fee assessed against the other FBOs. [FAA Exhibit, Item 3, para 27,28, 29, 30 and Item 4, para. 27,28,29, 301. Suburban Airlines, Inc. On March 4, 1983, the Respondent signed an agreement with Suburban Airlines, Inc. to provide FBO services at the airport. Terms of the agreement required

6 6 Suburban Airlines to pay a rental rate of $0.822 per square foot per annum for the use of a building identified in exhibit A of the lease9. The term of the lease was for five years with an annual increase indexed to the U.S. Department of Labor s cost of living index and a ceiling limit of 5% increase in rent over the previous year. The lease did not require a security deposit or include provisions providing for the construction of leasehold improvements. The lease did include a provision that prohibited the Respondent from imposing fuel flowage fee increases on Suburban Airlines that were not exactly the same as the fee assessed against the other FBOs. The lease also contains a provision permitting the Authority to adopt reasonable rules and regulations provided that such rules and regulations shall be uniformly applied to allparties. [FAA Exhibit, Item 3, para 31, 32, 33, 34,35 and Item 4, para. 31, 32, 33, 34, 351. Revic, Inc. On July 2, 1986, the Respondent signed a lease with Revic, Inc. d/b/a MillionAir to provide FBO services and to lease 1.89 acres of land for an initial term of 20 years at an annual rent of $8, or $732.37/month. The lease provided for Revic, Inc. to construct facilities on the leasehold; the facilities that would become the property of the Authority at the end of the lease term. The twentyyear lease required Revic, Inc. to pay a ground rental rate lower than the existing building square footage rate charged by the Respondent to other FBOs at the airport. After June 1, 2006, Revic s rental rate would equal the then building square footage rate charged other FBOs. The Complainant alleges that the lower ground rental rate is unreasonably discriminatory. The Authority responds that the ground rental charges does not reflect the value of the new hangar that Revic, Inc. will construct. Upon expiration of Revic s lease, the property and hangar will pass to the Respondent and it will be able to charge market rents for the land and hangar. The lease did not require a security deposit and it did exempt fuel used in the tenant s aircraft from being assessed a fuel flowage fee.. The fuel flowage exemption policy was changed in January 1991 requiring all FBOs to pay fuel flowage fees. The lease included similar provisions to the CAP Aviation and Suburban Airlines agreements that prohibited the Respondent from imposing fuel flowage fee increases that were not exactly the same as the fee assessed against the other FBOs. [FAA Exhibit 1, Item 3, para , and Item 4, para ]. Commonwealth Air, Inc. On July 2, 1986, the Authority signed a lease with Commonwealth Air, Inc. to provide FBO services and to lease 2.44 acres of land for an initial term of 20 years at an annual rent of $1 1,346 or $945.50/month. Similar to Revic s lease, upon expiration of the lease, the property and hangar will pass to the Respondent and it will be able to charge market rents for the land and hangar. 9 The parties did not provide the exhibit A attachment.

7 7 The lease contained similar provisions that existed in the other leases. It prohibited the Respondent from imposing fuel flowage fee increases that were not exactly the same as the fee assessed against the other FBOs. It did not require a security deposit and it did exempt fuel used in the tenant s aircraft from being assessed a fuel flowage fee. The fuel flowage exemption policy was later changed in January 1991 requiring all FBOs to pay fuel flowage fees. [FAA Exhibit 1, Item 3, para ]]. Marc Fruchter Aviation, Inc. On or about February 8, 1991, Marc Fruchter Aviation, Inc. purchased the assets of Commonwealth Air, Inc. and Revic, Inc. including the assignment of their respective leases subject to Respondents consent that could not be unreasonably withheld as indicated by both leases. On April 7, 1995, the Respondent and Marc Fruchter Aviation, Inc. signed an agreement providing for the financing of the airport s east ramp expansion. Under the agreement, the Respondent agreed to apply for federal and state airport improvement funds to pay 95% of the project cost; Fruchter would pay the remaining 5% of the cost. The agreement also provided that upon securing the financing and completion of the project, an addendum to both the Commonwealth Air and Revic leases would be executed providing for additional 10 year terms and 3 five-year renewal options. Both land only leases would be renegotiated in 2006 to reflect the current market rate rents for the land and buildings. [FAA Exhibit 1, Item 3, para ]. The Complainant alleges that, unlike Fruchter Aviation, it had to fund 100% of the improvements to the west ramp, while Fruchter contributed nothing to the construction of the east ramp. The Respondent claims that Fruchter did contribute $25,000 as the required 5% of the project cost for the resurfacing of non-exclusive ramp and apron areas. The Respondent argues that the improvements made to the Complainant s leasehold were not eligible for federal financial assistance because they were repairs and improvements made to exclusive use areas of the airport. The Respondent further argues that the Complainant did enjoy the benefit federal financial assistance. According to the Respondent, govemment grants were secured for resurfacing the non-exclusive area of the West Ramp near the Complainant s site and the Fisher Road that leads directly to the Complainants site. In both cases, there was no cost to Complainant. On February 29, 1996, the Respondent entered into a lease with Fruchter for the North ramp facilities previously occupied by CAP Aviation. The lease was for a term of 10 years, 2 months at an initial rate of $2,200 per month. This lease supersedes the prior lease with CAP Aviation. The lease requires Fruchter to make certain improvements to airport facilities and buildings and the purchase of equipment and fuel trucks.

8 8 The Complainant alleges that in return for making the improvements, Fruchter received a rent reduction during the first year. The Respondent denies this allegation and states that the reduction in Fruchter s rent is due to the two Fruchter subtenants, Competitive PIus and Mid Atlantic Air Museum, paying their rent directly to the Authority. Furthermore, the Fruchter improvements in the 1996 lease were paid directly by the tenant in the same manner that the Complainants improvements were paid by it. The Respondent also indicated that Fruchter, as a condition to its new lease, was required to pay substantial arrearages that the prior tenant incurred. The lease did not require a security deposit. [FAA Exhibit 1, item 4, para.54 and affidavit 21.] The Complainant alleges that it is the only FBO that has been required to pay a security deposit. The Complainant also.alleges that the Respondent has failed to deposit its security deposit in an interest bearing account and to pay the interest in annual payments, as required by paragraph five of the lease addendum. The Respondent acknowledges that both parties negotiated a provision providing for a security deposit and that none of the other f BO leases require a security deposit except the Complainants lease. However, the Respondent avers that it has held the Complainant s security deposit in an interest bearing account. In summary, the Complainant alleges that while all of the leases referenced in this complaint refer to full-service FBOs performing substantially similar services, there are discriminatory lease provisions in Complainant s lease. [FAA Exhibit 1. item 3, para. 57 and item 4, para The Complainant also alleges that all the referenced leases in the complaint are substantially similar physical facilities and buildings except those hangars and building on the east apron rented by the Complainant. According to the Complainant, its facilities were in exceptionally poor condition and required extensive renovation. The Complainant believes that the facilities rented by the other FBOs did not require extensive renovations. The Respondent denies the claim that the facilities were in exceptionally poor condition relative to other sites and indicates that several FBOs, like the Complainant, took possession of the site as is and have made improvements and repairs to their leaseholds at their own expense. [FAA Exhibit 1, item 4, para.581.,.....,.. The Complainant further alleges that it is beihg discriminated against based upon its location on the airport relative to other FBOs, unfairly being charged a fuel flowage fee, unfairly being charged dissimilar lease payments and a security deposit and unfairly being required to construct buildings at its sole expense. The Complainant alleges that none of the leases require renegotiations or review every 5 years as required by the Grant Assurances signed by the Authority and Federal law. [FAA Exhibit 1, item 3, para

9 9 The Respondent argues that none of the terms in the 1991 lease were imposed on the Complainant. The terms and conditions were the result of an arms-length negotiation and are substantially similar to its original terms. The Respondent also argues that all the FBO leases were publicly available at the time that the Complainant negotiated its lease. [FAA Exhibit 1, item 4, Affidavit number Discriminatory "Bidding" The Complainant alleges that the Respondent sought bids from various FBOs and artificially raised the rent charged for Hangar M07 (known as the Dana Hangar) when it became available. The Authority denies the claim that the rental charges were set artificially high or that there was any discrimination in the bidding process.. According to the Authority, in December 1998, Dana Corporation decided not to extend the term of its lease or assign the lease to a third party. Dana surrendered the property and its improvements to the Authority as required by the lease. Both the Complainant and Fruchter Aviation expressed an interest in the facility. Consequently, the Respondent solicited competitive bid proposals and the site was awarded to the Complainant due to its higher bid. The new lease rate reflects a rental rate covering the value of the land and hangar constructed by Dana Corporation. Dana's lease rate was lower, according to the authority because it constructed the improvements and only required a ground lease. The Respondent believes that if the Complainant was interested in obtaining the facility at a lower rate it would have opened direct negotiation with the Dana Corporation for assignment of the hangar. [FAA Exhibit 1, item 3 and 4, para. 65 and Affidavit 25,261 The Complainant also alleges that when the North Ramp hangars became available, the Respondent awarded the facility to Fruchter Aviation without a notice of its availability or provisions for competitive bidding. The Respondent denies the allegation that the facilities became available and argues that CAP Aviation had previously assigned its lease to Fruchter in a private transaction. Fruchter acquired all of the rights of CAP Aviation including the right to negotiate an exclusive lease extension. According to the Respondent, under the terms of the lease it was not required or permitted to put the leasehold up for bid. Additionally, the Respondent asserts that the Complainant has received two properties by means of a similar process on the airport without competitive bidding by purchasing existing leases in private transactions. [FAA Exhibit 1, item 3 and 4, para. 65 and Affidavit 25,261. i C. Self-sustaining The Complainant alleges that the Respondent has violated grant assurance #24 requiring an airport to be as self-sustaining as possible by charging rents over and above those required to make the airport self-sustaining and accumulating

10 10 substantial surpluses which are not required for airport operation, nor re-invested into the airport. Specifically, the Complainant alleges that between 1996 and 1999, the Respondent had a combined revenue surplus of $818,875 in excess of its operating requirements and in violation of federal law. [FAA Exhibit 1,Item 3, para. 951 To support its allegations, the Complainant includes copies of the airport's FAA form 125, Operating & Financial Summary for fiscal years 1996 to1 999 that indicate the airport's revenue consist of the following: Period Ending Revenue Surplus FY 1996 $ 90,249 FY 1997 $267,323 FY 1998 $1 20,328 FY 1999 $ Cash and Investments $0 $0 $3,821,478 $2, The Respondent denies the allegation that RDG had a surplus of $818,875. The Respondent argues that existing federal statutes permit the sponsor to maintain "reasonable reserves and other funds to facilitate financing and cover contingencies" (49 U.S.C (a)(I 3)); Respondent has a long-term debt of $4,420,000 from construction bonds issued in 1998; and Respondent must pay debt service on its taxable and its tax-exempt bonds through It must also maintain a reasonable resewe for contingencies. Regarding its cash and investments for fiscal years ending 1998 and 1999, the Respondent offers the following: FY 1999 Cash and Investments $2,344,614 Restricted Cash for construction from issuance of General Notes in $1,742,409 Sinking Fund restricted for debt service on 1998 taxable bonds - $ Passenger Facilities charges-restricted for FAA approved construction - $37, Authority's general operating account - $100,000 Reserve $362,000 FY 1998 Cash and Investments $3, Restricted Cash for construction from issuance of General Notes in $3,383, Passenger Facilities charges-restricted for FAA approved construction - $47, Authority's general operating account - $1 10, Reserve $280,000 [FAA Exhibit 1, item 4, para. 74 and affidavit at para. 331

11 V. APPLICABLE FEDERAL LAW AND FAA POLICY The Federal role in civil aviation has been augmented by various legislative actions that authorize programs for providing Federal funds and other assistance to local communities for the development of airport facilities. In each such program, the airport sponsor assumes certain obligations, either by contract or by restrictive covenants in property deeds and conveyance instruments, to maintain and operate its airport facilities safely and efficiently and in accordance with specified conditions. Commitments assumed by airport sponsors in property conveyance or grant agreements are important factors in maintaining a high degree of safety and efficiency in airport design, construction, operation and maintenance as well as ensuring the public fair and reasonable access to the airport..the Airport Improvement Program Title 49 U.S.C , et seq., provides for Federal airport financial assistance for the development of public-use airports under the Airport Improvement Program (AIP) established by the Airport and Airway Improvement Act of 1982, as amended. 49 U.S.C , et seg., sets forth assurances to which an airport sponsor agrees as a condition of receiving Federal financial assistance. Upon acceptance of an AIP grant, the assurances become a binding contractual obligation between the airport sponsor and the Federal government. The assurances made by airport sponsors in AIP grant agreements are important factors in maintaining a viable national airport system. The FAA has a statutory mandate to ensure that airport owners comply with these sponsor assurances. a, e.g., the Federal Aviation Act of 1958, as amended and recodified, 49 U.S.C ,40113,40114,46101,46104, 46105,46106,461 10, and the Airport and Airway Improvement Act of 1982, as amended and recodified, 49 U.S.C (d), 47106(d), 4710t(k), 47107(1), (d), FAA Order A, Aimorf Compliance Requirements (Order), issued on October 2, 1989, provides the policies and procedures to be followed by the FAA in carrying out its legislatively mandated functions related to federally obligated airport owners' compliance with their sponsor assurances. Airport Sponsor Assurances As a condition precedent to providing airport development assistance under the Airport Improvement Program 49 U.S.C , et seq., the Secretary of Transportation and, by extension, the Federal Aviation Administration (FAA) must receive certain assurances frorr the airport sponsor. 49 U.S.C (a)

12 12 sets forth the statutory sponsorship requirements to which an airport sponsor. receiving Federal financial assistance must agree. These sponsorship requirements, or assurances, are included in every airport improvement grant agreement as set forth in FAA Order A, Airport Improvement Proqram (AIP) Handbook, issued October 24,1989, Ch. 15, Sec. 1, Sponsor Assurances and Certification. Upon acceptance of an AIP grant by an airport sponsor, the assurances become a contractual obligation between the airport sponsor and the Federal government. The FAA has a statutory mandate to ensure that airport owners comply with these sponsor assurances. The FAA considers it inappropriate to provide Federal assistance for improvements to airports where the benefits of such improvements will not be fully realized due to inherent restrictions on aeronautical activities. The FAA Airport Compliance Proqram The FAA discharges its responsibilities for ensuring airport owners compliance with their Federal obligations through its Airport Compliance Program. The FAA s airport compliance efforts are based on the contractual obligations, which an airport owner accepts when receiving Federal grant funds or the transfer of Federal property for airport purposes. These obligations are incorporated in grant agreements and instruments,of conveyance in order to protect the public s interest in civil aviation and to ensure compliance with Federal laws. The FAA Airport Compliance Program is designed to ensure the availability of a national system of safe and properly maintained public-use airports operated in a manner consistent with the airport owners Federal obligations and the public s investment in civil aviation. The Airport Compliance Program does not control or direct the operation of airports; rather it monitors the administration of the valuable rights pledged by airport sponsors to the people of the United States in exchange for monetary grants and donations of Federal property to ensure that the public interest is being served. FAA Order A, sets forth policies and procedures for the FAA Airport Compliance Program. The Order is not regulatory and is not controlling with regard to airport sponsor conduct; rather, it establishes the policies and procedures to be followed by FAA personnel in carrying out the FAA s responsibilities for ensuring airport compliance. It provides basis guidance for FAA personnel in interpreting and administering the various continuing commitments made to the United States by airport owners as a condition for the grant of Federal funds or the conveyance of Federal property for airport purposes. The Order analyzes the various obligations set forth in the standard airport sponsor assurances, addresses the nature of those assurances, addresses the application of these assurances in the operation of public-use airports, and facilitates interpretation of the assurances by FAA personnel.

13 13 Enforcement of Airport Sponsor Assurances FAA Order A covers all aspects of the airport compliance program except enforcement procedures. Enforcement procedures regarding airport compliance matters, absent the filing of a complaint under FAA Rules of Practice for Federally-Assisted Airport Proceedinqs (14 CFR Part 16), continue to be set forth in the predecessor order, FAA Order issued August 24,1973, and incorporated by reference in FAA Order A. See FAA Order , Sec. 5-3, and FAA Order A, Sec FAA Rules of Practice for Federally-Assisted Airport Proceedinqs (14 CFR Part 16) were published in the Federal Register (61 FR 53998, October 16, 1996) and were effective on December 16, Public Use of the Airport The owner of any airport developed with Federal grant assistance is required to operate the airport for the use and benefit of the public and to make it available to all types, kinds, and classes of aeronautical activity on fair and reasonable terms, and without unjust discrimination. Assurance 22, Economic Nondiscrimination, of the prescribed sponsor assurances implements the provisions of 49 U.S.C (a)(l) through (6), and requires, in pertinent part, that the sponsor of a federally obligated airport Will make its airport available as an airport for public use on reasonable terms, and without unjust discrimination, to all types, kinds, and classes of aeronautical activities, including commercial aeronautical activities offering services to the public at the airport. Assurance 22(a) may establish such fair, equal, and not unjustly discriminatory conditions to be met by all users of the airport as may be necessary for the safe and efficient operation of the airport. Assurance 22(h) may... limit any given type, kind, or class of aeronautical use of the airport if such action is necessary for the safe operation of the airport or necessary to serve the civil aviation needs of the public. Assurance 22(i) Subsection (h) qualifies subsection (a) and subsection (i) represents an exception to subsection (a) to permit the sponsor to exercise control of the airport sufficient to preclude unsafe and inefficient conditions that would be detrimental to the civil aviation needs of the public. However, in all cases involving the airport owner imposing restrictions on the use of the airport for safety and efficiency reasons, the FAA will make the final

14 13 determination of the reasonableness of the airport owner's restrictions that deny or restrict use of the airport. (FAA Order 6A, para. 4-8). The owner of an airport developed with Federal assistance is responsible for operating the aeronautical facilities for the benefit of the public. FAA Order A, Sec. 4-7(a). This means, for example, that the owner should adopt and enforce adequate rules, regulations, or ordinances as necessary to ensure the safe and efficient operation of the airport. See Order, Secs. 4-7 and 4-8. Reasonable, and Not Unjustly Discriminatory Terms Assurance 22, Economic Nondiscrimination, of the prescribed sponsor assurances satisfies the requirements of 49 U.S.C.47107(a)(5). It provides, in pertinent part, that the sponsor of a federally obligated airport will ensure that each fixed-based operator at any airport owned by the sponsor shall be subject to the same rates, fees, rentals, and other charges as are uniformly applicable to all other fixed-based operators making the same or similar uses of such airport and utilizing the same or similar facilities. Assurance 22(c) FAA Order A describes the responsibilities under Assurance 22 assumed by the owners of public use airports'developed with Federal. assistance. Among these is the obligation to treat in a uniform manner those users making the same or similar use of the airport and to make all airport facilities and services available on fair and reasonable terms without unjust discrimination. See Order, Secs. 4-14(a)(2) and 3-1. The FAA considers it inappropriate to provide Federal assistance for improvements to airports where the benefits of such improvements will not be fully realized due to inherent restrictions on aeronautical activities. See Order, Sec. 3-8(a). The owner of any airport developed' with Federal grant assistance is required to operate the airport for the use and.benefit of the public and to make it available to all types, kinds and classes of aeronautical activity on fair and reasonable terms, and without unjust discrimination. See Order, Sec. 4-13(a). Fee and Rental Structure Assurance 24, "Fee and Rental Structure," of the prescribed sponsor assurances satisfies the requirements of, 49 U.S.C (a)(l3). It provides, in pertinent part, that the sponsor of a federally obligated airport "agrees that it will maintain a fee and rental structure consistent with Assurance 22 and 23, for the facilities and services being provided the airport users which will make the airport as selfsustaining as possible under the circumstances existing at the particular airport."

15 FAA Order A describes the responsibilities under Assurance 22, Economic Nondiscrimination, and Assurance 23, Exclusive Rights, assumed by the owners of public use airports developed with Federal assistance. Among these is the obligation to treat in a uniform manner those users making the same or similar use of the airport and to make all airport facilities and services available on fair and reasonable terms without unjust discrimination and without granting an exclusive right of use. See Order, Secs. 4-14(a)(2) and 3-1. The obligation of airport management to make an airport available for public use does not preclude the owner from recovering the cost of providing the facility through fair and reasonable fees, rentals or other user charges which will make the airport as self-sustaining as possible under the circumstances existing at the particular airport. See Order, Sec. 4-14(a). Each commercial aeronautical activity at any airport shall be subject to the same rates, fees, rentals and other charges as are uniformly applied to all other commercial aeronautical activities making the same or similar uses of such airport using the same or similar facilities. See Order, Sec. 4-14(a)(2). FAA policy provides that, at general aviation airports, variations in commercial aeronautical activities leasehold locations, leasehold improvements, and the services provided from such leasehold may be the basis for acceptable differences in rental rates, although the rates must be reasonable and equitable. - See Order, Sec. 4-14(a)(Z)(c). i: r However, if the FAA determines that commercial aeronautical activities at an airport are making the same uses of identical airport facilities, then leases and contracts entered into by an airport owner subsequent to July 1, 1975, pursuant to the Airport and Airway Development Act of 1970, as amended, shall be subject to the same rates, fees, rentals and other charges. See Order, Sec. 4-14(a)(W). FAA policy further provides that, all leases with terms exceeding five years should provide for periodic review and adjustment of the rates and charges based on an acceptable index. This periodic lease review is expected to facilitate parity of rates and charges between new commercial aeronautical tenants and long-standing tenants making the same or similar use of airport facilities and to assist in making the airport as self-sustaining as possible under the circumstances existing at the airport. See Order, Sec. 4-14(a)(2)(f). I ::.. V. ANALYSIS AND DISCUSSION Grant assurance #22 provides protection from unjust economic discrimination to aeronautical activities. Grant assurance #22 at (c) provides that the airport may

16 16 treat dissimilarly, dissimilar aeronautical uses of the Airport. As provided in Assurance 22(c), FBOs must be making the same or similar uses of identical or similar facilities at an airport to require that a sponsor charge the same rates, fees, rentals and other charges to all such FBOs, for the sponsor to remain in compliance with this assurance. Additionally, FAA Order A provides that a sponsor may charge different rates to similar users of the airport if the differences can be justified as nondiscriminatory and such charges are substantially comparable. See Order, para. 4-14(d)(l )(c). The prohibition of unjust economic discrimination does not prevent a sponsor from accepting differing lease rates resulting from differing time frames of lease terms. A sponsor does not have an obligation to equalize the terms of use, but can pumue agreements with the more recent leaseholders that more nearly seme the interests of the public. The FAA does not require that a sponsor maintain equal lease rates over time between competing FBOs. See Penobscot Air Services LTD v FAA, 164 F.3d 713,726 (1 Cir., 1999). Against this background, the FAA considers the following allegations made by the Complainant in regard to allegations of unjust economic discrimination. issue 1 : Whether the differences in lease terms, conditions and rates between those agreed to by the Complainant and its FBO competitors constitute unjust discrimination by the Respondent in violation of Federal grant assurance # 22, regarding unjust economic discrimination. As noted above in the Background section, the Complainant makes several allegations to support its position that the Authority has unjustly discriminated against the Complainant. Specifically, the Complainant alleges that the Authority in 1988 increased the rent on the facilities that Complainant leases since 1991 to somehow deliberately discourage the Complainant from operating at RDG; the Complainant is paying different rates than other tenants even though its facilities were in exceptionally poor condition and required extensive renovation and building construction at the Complainants expense; only the Complainant was required to pay a security deposit on the facilities it leases; the lease tens of other FBO s unjustly discriminate against the Complainant because they do not require renegotiation or review ever five (5) years as required by the grant assurances; the Complainant was required to make investments in its leasehold facilities that were not required of other FBOs or for which other FBOs were given reductions in rent; and the Complainant must pay a fuel flowage fee not imposed on other FBO s. 10 The FAA notes that this guidance appears under the sub-heading At air carrier airports. The FAA has accepted that this guidance is generally applicable to the circumstances of FBO s and air carriers at air carrier and general aviation airports.

17 17 On the basis of the record before the FAA, we find that the Respondent did not violate grant assurance #22 as alleged by the Complainant. In support of our finding, we offer the following analysis. First, the FAA is not persuaded that the purpose of doubling the rent was to somehow discriminate against either the Complainant or the former FBO and to deliberately discourage the Complainant from operating at RDG. The Complainant provides no evidence to overcome the Respondent s explanation that the rent increase was the result of an increase in facilities leased by the former FBO. Specifically, in his sworn affidavit, the Executive Director of the Authority explained that the rent increase was a result of the former FBO expanding its operations from one building to two buildings. [FAA Exhibit 1, item 4, affidavit at para. 14 and exhibit D] Moreover, we find the Complainant s arguments regarding the increase in rental payments without merit. As established by the Respondent, the rental payment at issue was negotiated and paid by Aerodynamics, Inc., the former FBO, between April 1988 and July 1991, or three years before the Complainant started operations on the airport. The Complainant admits that it purchased the assets of the former FBO s lease agreement in July Against this background, it is simply unreasonable for the FAA to consider an allegation that the Authority raised the rental rates of the former FBO in order to unjustly discriminate against the Complainant without any explanation or evidence. As indicated in a 1994 FAA record of decision involving a rent disparity issue, the FAA made it clear that: The purpose of the grant assurances is to protect the public interest in the operation of Federally obligated airports. The purpose is not to provide alternative or supplemental rights to those normally available to commercial tenants in disputes with their landlords, Le. negotiation or commercial litigation under applicable state and local laws. The FAA does not consider that Congress intended grant assurances and the FAA compliance process to provide a device by which a commercial aeronautical tenant can abrogate an otherwise valid commercial lease with a sponsor because the operations under the lease are less: profitable than the tenant anticipated. Such use of the grant assurances would be especially inappropriate in a case like this, where the complainant did not negotiate directly with the s onsor but elected to assume a prior tenant s lease through acquisition. E Second, it is clear from the record evidence the Authority, since the mid-1 980s, has determined the fair rental value based upon third party appraisal reports. The use of appraisals to establish rental values of non-airfield airport facilities is a common industry practice and is not precluded by any Federal law and/or FAA policy. Additionally, we agree with the Respondent that the appraisal considered, among other things, the location of the site and the conditions of the 11 Sky East Services, Inc. and Hampton Air Transport System. Inc. v. Suffolk County, New York, FAA Docket Nos and

18 18 improvements being leased. While the Complainant refutes the vaiidity of the appraisal s conclusions regarding the condition of the facilities at the commencement of the Complainant s lease, the Complainant has provided no credible evidence to establish that the appraisal is in any way invalid or prepared contrary to professional appraisal standards. The extent of the evidence offered by the Complainant to support its argument is a reference to several pictures in the appraisal that Complainant argues maintains, contrary to the written conclusions of the appraisal report, show the very poor condition that the facilities were in before the Complainant began renovations. [FAA Exhibit 1, item 5, para. 6, 8, 12, 14, and 161 The FAA finds the Complainant s opinion of these photographs insufficient evidence to overcome the appraiser s certification that [t] he appraised value as set forth in this report is supported with consideration and the use of standard accepted appraisal practices and valuation procedures. [FAA Exhibit 1, item 4, exhibit C, p. 61 Even if the Complainant could establish that the appraisal was somehow completed in error, it would also be necessary for the Complainant to show why it was unreasonable for the Authority to rely on what it believed to be an accurate and independent, third party valuation of the facilities. While the Complainant asserts that language in the appraisal report makes it apparent that the Authority wanted to eliminate the Complainant s FBO because of the unusually large number of FBOs on an airport the size of RDG [FAA Exhibit 1, item 5, para.18 & 191, we do not share in the Complainant s conclusion. Indeed, the Complainant s allegation infers that the appraisal was something less than an independent valuation; an allegation which clearly lacks a preponderance of credible record evidence. We also note that the Complainant accepted the facilities in an as is condition and was fully aware of the lease rental rates at the commencement of its lease at RDG. Article 111, Paragraph B.1 of the lease also included this affirmation made by the Complainant: Lessee accepts the premises in their present condition; and, without expense to Lessor, will repait and maintain, at Lessee s sole expense, any structures or installations thereon and remove, or cause to be removed, any debris to the extent required for its use thereof. The Complainant has a responsibility and an obligation to perform the necessary due diligence to determine the financial viability of the FBO operation. The time to do this is before the lease is signed, not nine years after it has been operating. Moreover, the FAA finds the assertion that the Complainant tolerated the alleged state of disrepair (i.e. non-functioning sewer and electricity) for nine years before bringing its complaint is difficult to comprehend. Additionally, the fact that some lease rates cited by the Complainant may be different simply because the leases were executed prior to the Authority s appraisal policy does not create a perse violation of the grant assurance. As discussed above, the prohibition of unjust economic discrimination does not

19 19 prevent a sponsor from accepting differing lease rates resulting from differing time frames of lease terms. Also, a sponsor does not have an obligation to equalize the terms of use that result from the execution of leases at different points in time. See Penobscot Air Services LTD v FAA. So long as the airport sponsor is not capricious in the application of its existing policies, a sponsor can pursue agreements with the more recent leaseholders that more nearly serve the interests of the public. To this end, the Complainant has made no showing that the Authority has established other FBO lease rates differently since the adoption of its policy in the mid-1980 s. Third, the FAA finds that the Authority did not unjustly discriminate against the Complainant when it required the Complainant to pay a security deposit. While the Respondent admits that no other lease requires a security deposit with the exception of the Complainant s lease, this fact alone is not tantamount to a finding of unjust economic discrimination. In order to establish a claim of unjust economic discrimination, a complainant must establish that it requested similar terms and conditions as other similarly situated airport users and was denied for unjust reasons. In this case, the Complainant does not assert that it requested and was denied a waiver of a security deposit. In fact, it appears the opposite is true. In his affidavit, the Executive Director of the Authority states that the Complainant s lease was negotiated at arms length, and its terms and conditions are substantially similar to those that Complainant sought from the outset of the negotiations. [FAA Exhibit 1, item 4, affidavit at para. 41 In its Reply, the Complainant does not specifically challenge the Executive Director s conclusion. I. Fourth, the FAA is not persuaded by the Complainant s argument that the Respondent unjustly discriminated against it by not requiring other FBO leases be renegotiated or reviewed every 5 years. In fact, the Complainant s own lease does not require renegotiation after the first five years of the lease. Rather, the Complainant s lease is for an initial term of twenty years with predetermined lease payments. [FAA Exhibit 1, Item 3(b), p 12, 14, and exhibit D]. Moreover, the Grant Assurances do not require that aeronautical leases be renegotiated every five years. As cited by the Complainant, FAA Order A, para. 4-14(d)(2)(f). states: All leases with a term exceeding 5 years shall provide for periodic review of the rates and charges for the purpose of any adjustments :o reflect the then current values, based on an acceptable index. This periodic lease review procedure will facilitate parity of rates and charges between new FBO services coming on the airport and long -standing operators. It will also assist in making the airport as self-sustaining as possible under the circumstances existing at that particular airport. Periodic lease review does not necessarily require a renegotiation of the lease agreement. This recommendation can be satisfied by ensuring appropriate rent