FAA Attempts to Demystify Economic Non-Discrimination

The FAA recently updated the Airport Compliance Manual on Unjust Discrimination Between Aeronautical users. Find out what changes were made.

Post Category: Jet Talk

The Federal Aviation Administration (FAA) broke its decade-long silence on the Airport Compliance Manual (FAA Order 5190.6B) in November 2021. Substantial revisions to Chapter 9, Unjust Discrimination Between Aeronautical Users, provide the first update to the Order since it was issued in 2009.  Three changes in particular impact the FAA’s economic nondiscrimination policy for airport owners and tenants.

  • New Section 9.2(e) – Air Carrier Incentive Program.
  • Expanded Section 9.6(d) – discussion of minimum standards.
  • Updated Section 9.7(d)(2) – guidance on leasing apron space constructed with federal funds.

Brief History of Grant Assurance 22

In the wake of World War II, with military bases dormant across the US, the government developed a peacetime business model for the aviation industry. Between 1946 and 1982, airport sponsors (private individuals or public agencies) could receive federal funding by agreeing to grant assurances.  Grant Assurance 22, Economic Nondiscrimination, generally binds a sponsor for 20 years following grant acceptance. The obligation sets fair economic rules of play for aeronautical users. A grant assurance violation occurs when one aeronautical user receives more favorable terms than another similarly situated tenant.

Air Carrier Incentive Program

Generally, similar aeronautical users are charged comparable rates. The incentive program is an exception. It is essentially a coupon to encourage increased carrier service. It allows sponsors to attract new carriers and fuel healthy competition at their airports by offering reduced or waived fees to carriers willing to provide new air service. New service includes flights to new destinations, nonstop service not previously offered, increased flight frequency to destinations, or bringing a new air carrier to the airport. In a 2012 reply to Las Vegas McCarran International Airport, the FAA deemed “landing weight increases” (up gauging) a new air service only if the carrier proved it could fill the capacity for the additional service and add flights without reducing service to another market.

The subsidies at Wichita Mid-Continent Airport, Kansas (“Wichita,” now Dwight D. Eisenhower International) offer a creative historical example that predates the FAA’s incentive program guidance. When a significant carrier left the airport in 2002, Wichita attracted low-cost carrier AirTran with a state economic development program offering millions in subsidies. At first, the FAA responded negatively to the AirTran subsidy (similar to a pay advance) because Wichita received $28 million in federal grants from the FAA between 2002 and 2005. However, later, the FAA decided that calling the contribution an “unacceptable case of economic non-discrimination” was a misstep because the state (not the airport) provided the subsidy. The FAA eventually found that the sponsor did not violate Grant Assurance 22.

Today, sponsors have clear guidance on how to implement incentive programs, and incentives are subject to specific rules:

  • Nonaeronautical users must always be charged fair market value rent at spaces designated for nonaeronautical uses in the Airport Layout Plan (ALP).
  • Excessive promotions, like free or nominal rent, are prohibited.
  • The airport’s name and carrier program specifics must be on “prominent display” in advertisements (i.e. not in the fine print).
  • Sponsors cannot base fee structures on promotion calculations or shift the cost of incentive programs to program non-participants. Sponsors of multiple airports can use promotion revenue generated from one airport at another airport.
  • Each carrier must receive the promotional offer, lasting a maximum of two years. Sponsors can strategically stagger incentive program timelines.

Lease of Apron Areas

Grant Assurance 22 and Airport Compliance Manual Section 9.7 clarify that airports merely keeping runways open to aeronautical users does not satisfy their grant assurance obligations. To meet the public use requirement, airport sponsors must keep available space and ensure access to support services for aeronautical users. Section 9.7(d)(2) allows sponsors to lease tie-down or apron space to aircraft owners and FBOs. However, leasing facilities constructed with federal funds generally violate Grant Assurance 22. To lease federally funded space, the sponsor must have FAA preapproval. Otherwise, the sponsor risks noncompliance from engaging in an activity or use contrary to the approved ALP. Sponsors with FAA approval or sponsors with non-federally funded spaces available should consider the following when drafting a lease:

  • General aviation airports can offer FBOs a temporary, reduced startup incentive rate. The agreement between the sponsor and FBO must explicitly describe the duration of the incentive period and the standard rate that takes effect once the incentive period ends..
  • FBOs that perform service functions like tie-down management and snow removal must operate under the sponsor’s reasonable, pre-approved fee structure. Fee increases “based upon obsolete baselines and calculations” violate Grant Assurance 22.
  • To ensure available space for future aeronautical users, sponsors may only lease the space that FBOs demonstrate an immediate need for.  Further, sponsors can never lease public-use taxiways or fueling areas.
  • Aeronautical users’ right to self-service must be “free of unreasonable restriction.”  If users follow the FAA’s safety and efficiency guidelines, their right to tie down, self-fuel, clean, and repair their aircraft cannot be infringed.
  • Impermissible hangar use includes residential occupancy or storage, limo and auto service or storage, office space for non-aviation business, long-term antique aircraft storage, and storing dangerous materials. To avoid violating Grant Assurance 22, sponsors should include a lease clause prohibiting nonaeronautical hangar use.

Minimum Standards

Minimum standards are the minimum requirements for commercial aeronautical activities conducted at a sponsor’s airport. Airport Compliance Manual Section 9.6(d) strongly encourages sponsors to create tailored minimum standards that encompass the airport’s circumstances and adhere to FAA guidance. Sponsors with reasonable, uniform standards actively prevent violations of Grant Assurance 22 by promoting fair business practices that comply with the community’s expectations. Here are four common pitfalls:

  • (a) Safety and efficiency conditions depart from FAA’s guidance. In Mile-Hi Skydiving Center v. City of Longmont (Oct. 2021), the FAA found that the sponsor’s fees and reporting criteria for parachuting activity did not violate Grant Assurance 22 – but sent a warning – implementing standards beyond FAA guidance could lead to future assurance violations. The FAA’s cautionary tale played out three months later in Theuma & Paragon Skydive, LLC., v. Arizona. In Theuma, the FAA found a Grant Assurance 22 violation because the sponsor restricted solo-skydiving without an FAA safety assessment stating solo skydives were unsafe.
  • (b) Standards are irrelevant to the activity. In Theuma, the FAA also found that a requirement on Paragon Skydive to carry an expensive insurance policy for activity unrelated to its business violates Grant Assurance 22.
  • (c) Standards used to protect providers are unattainable or applied discriminatorily. Once again, in Theuma, the FAA concluded that sponsors requiring skydiving liability insurance entirely unavailable or available only on unreasonable terms violate Grant Assurance 22. The FAA further found that charging a 10% sales fee on the skydiving operation, but charging similar operators only 1.5%, violated Grant Assurance 22.
  • (d) Imposing standards future users cannot meet. In May 2022, the FAA determined in HTX Helicopters v. Rhode Island Airport Corporation (RIAC) that RIAC’s recently updated noise rules were unreasonable because airport users could not comply. Further, RIAC’s decision not to renew a tenant’s lease after the tenant’s contested breach of the unreasonable noise restriction violated Grant Assurance 22.

Hire Jetlaw to Help Your Airport Stay Compliant

The FAA provides hundreds of millions in grant funding to airports each year. During the first seven months of 2022, the FAA provided over $608 million to 441 airports across 46 states. Failing to understand and comply with Grant Assurances can have serious consequences. Although most violations are not deliberate evasions of an airport’s obligations, serious compliance deviations or serial offenses can lead the FAA to withhold grant funding or land the airport on the Airport Noncompliance List. Trust Jetlaw’s team of skilled attorneys and experts to help you navigate and comply with your grant assurance obligations.

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