[Federal Register Volume 66, Number 161 (Monday, August 20, 2001)]
[Rules and Regulations]
[Pages 43680-43718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-20691]
[[Page 43679]]
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Part III
Department of Transportation
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Federal Aviation Administration
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14 CFR Part 187
Fees for FAA Services for Certain Flights; Final Rule
Federal Register / Vol. 66, No. 161 / Monday, August 20, 2001 / Rules
and Regulations
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DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 187
[Docket No.: FAA-00-7018; Amendment No. 187-12]
RIN 2120-AG17
Fees for FAA Services for Certain Flights
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Final Rule.
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SUMMARY: The FAA is issuing this final rule, required by law, lowering
the fees it established by interim final rule, which was issued on May
30, 2000 (65 FR 36002, June 6, 2000). The interim final rule
established fees for FAA air traffic and related services for certain
aircraft that transit U.S.-controlled airspace but neither take off
from, nor land in, the United States. This final rule allows the FAA to
continue to charge fees as required by law. This action also addresses
a recent Court of Appeals opinion concerning the interim final rule.
DATES: Effective August 20, 2001.
FOR FURTHER INFORMATION CONTACT: Randall Fiertz, Office of Cost and
Performance Management, (APF-2), Federal Aviation Administration, 800
Independence Avenue, SW., Washington, DC 20591; telephone (202) 267-
7140; fax (202) 493-4191.
SUPPLEMENTARY INFORMATION:
Availability of the Final Rule
You can get an electronic copy using the Internet by taking the
following steps:
(1) Go to the search function of the Department of Transportation's
electronic Docket Management System (DMS) web page (http://dms.dot.gov/search).
(2) On the search page type in the last four digits of the Docket
number (7018). Click on ``search.''
(3) On the next page, which contains the Docket summary information
for Docket No. 7018, click on the document number for the item you wish
to view.
You can also get an electronic copy using the Internet through
FAA's web page at http://www.faa.gov/avr/armhome.htm or the Federal
Register'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. Be sure
to identify the amendment number or docket number of this rulemaking.
The 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 their local FAA official, or the person
listed under FOR FURTHER INFORMATION CONTACT. You can find out more
about SBREFA on the Internet at our site, http://www.faa.gov/avr/arm/sbrefa.htm. For more information on SBREFA, e-mail us at [email protected].
Introduction
Since 1996, the Federal Aviation Administration (FAA) has
undertaken several rulemaking actions to impose fees for FAA services
provided, made available, or used by certain flights. Congress directed
the FAA to establish these fees to recover the cost of FAA services
rendered to certain aircraft operators who otherwise do not contribute
by taxes or other assessments to the cost of the air traffic control
system. The details of the authority as well as the fees and other
pertinent details are provided below.
The FAA's rulemaking efforts to impose these statutorily required
fees have been repeatedly challenged in court. The most recent
challenge resulted in an opinion of the U.S. Court of Appeals for the
District of Columbia Circuit that was issued on July 13, 2001 (Air
Transport Association of Canada vs. FAA; 00-1334, July 13, 2001). In
that opinion, issued in response to a consolidated petition for review
of the Interim Final Rule (IFR) that established the fees, the Court
stated, ``Because FAA has failed to articulate the basis for its
conclusions that `the unit costs of providing [air traffic control]
services to overflights within each environment [are] identical to the
unit costs of providing [air traffic control] services to all air
traffic within each environment,' we vacate the 2000 Rule and remand to
the FAA for further proceedings consistent with this opinion.''
Because the Court faulted the explanation provided by the FAA in
the IFR, and not the substance of the IFR, the FAA has determined that
the publication of this Final Rule will both meet the requirements of
the statute and address the concerns of the Court. Moreover, the
publication of this rule completes the FAA's task of establishing the
fees as directed by Congress. Also, this action provides a detailed
record that explains the basis of these fees--which the FAA, through
its agency expertise, developed to meet the Congressional mandate.
Overview
The provision of air traffic control and related services by the
FAA involves an exceedingly complex series of events requiring
thousands of people and hundreds of machines, collectively costing many
billions of dollars. Some 40,000 to 50,000 flights operate within the
U.S. air traffic system each day; only about 650 (or fewer than 1.5%)
of these flights meet the definition of an Overflight, and only about
300 flights per day are currently subject to these fees.
As detailed below, many different services are provided, made
available, or used in several different ways to flights operating in
the U.S. air traffic system. While no two flights are exactly alike,
all flights that enter the air traffic system receive benefits from the
entire ATC system, whether requested or not. All the services provided
by the FAA are required for all flights because the ATC system is an
interdependent, interlocking chain of people and equipment that
seamlessly benefits all flights in all circumstances, with or without
the operators' participation or knowledge, to travel safely through
U.S. airspace.
Services to these flights, as detailed below, usually begin with
the filing of a flight plan, but continue well beyond the flight plan
(e.g., training, airspace planning, emergency services, etc.). As
Congress recognized, the development, operation and maintenance of the
ATC system involves many activities and services (the statute lists a
few of these services) whose fixed and common costs ``swamp'' any of
the highly variable activities and services that are provided to, made
available to, or used by any individual flight. FAA used its Cost
Accounting System (described in the ``Costing Methodology Report,''
provided in the docket, FAA-00-7018, item 6) to determine the costs of
providing the air traffic services used by all flights (including those
subject to the fees). As costs can be segregated by the lines of
business of the FAA (in this case Air Traffic Services), the costs can
be further broken down by the major airspace environments (Terminal,
Oceanic, and Enroute) where services are provided to flights in U.S.-
controlled airspace. The flights that are subject to these fees use
mainly Enroute and/or Oceanic services. Therefore, only the
[[Page 43681]]
costs of these two air traffic environments were used in deriving the
fees, in part to ensure that only the costs ``directly related'' to
services for flights in these two airspace environments would be
considered in establishing fees.
Since the ATC system is available to all flights, and all flights
benefit from the ATC system, the FAA does not distinguish between
flights as to the services provided within each ATC environment.
Consequently, there is little, if any, cost difference between any of
the flights within each ATC environment. Nearly all costs for services
provided or used serve to make the system available, with any
individual flight cost variability lost in a sea of fixed and common
costs (see discussion of the first comment below). While there are cost
differences between the two environments (Enroute and Oceanic), and
these are reflected in the fees, ultimately the costs of providing the
air traffic control and related services to any given aircraft within
each operational environment are essentially identical. Any cost
variation in services provided an individual flight is de minimis. The
costs are essentially the same, whether the flight flies at 41,000
feet, 31,000 feet, or 5000 feet, or whether the flight has one radio
contact or many radio contacts with controllers. Also, the FAA has no
current or projected system (nor does FAA believe one could be
developed economically) that could track the de minimis cost difference
that might exist between individual flights.
Accordingly, the fees described below fairly treat all users the
same in terms of costs, just as all flights are treated the same in
terms of the benefits and services. Those who are subject to the fees,
who are otherwise interchangeable with any other user in the ATC
system, pay fees based on the same costs as other users because the
services provided, made available, or used are the same as for any
other flight. Therefore, as detailed below, the fees imposed in this
rulemaking are based directly on the costs to the FAA of providing
services for safe air transportation for all flights, including those
subject to fees.
As noted by the Court of Appeals in the case cited above, it would
appear that the costs of some flights should be different from others.
But the ATC system does not provide services individually; rather it
provides benefits globally. This is because of the interlocking
relationship of the costs of the air traffic control system and the
requirement to have all services available to all flights at all times
to achieve safety for all. Set forth below, especially in the FAA's
response to the comments, are the details of how the FAA has complied
with the statutory mandate, along with further explanation of why the
cost to the FAA of any flight, in either the Enroute or the Oceanic
environment, is essentially the same, on a per-mile basis, within each
environment.
Background
Authority To Establish Fees
The Federal Aviation Reauthorization Act of 1996 (the Act) directs
the FAA to establish by Interim Final Rule (IFR) a fee schedule and
collection process for air traffic control (ATC) and related services
provided to aircraft, other than military and civilian aircraft of the
U.S. Government or of a foreign government, that neither take off from,
nor land in, the United States (49 U.S.C. 45301, as amended by Public
Law 104-264). Such flights are commonly referred to as ``Overflights.''
The Act further directs the FAA to seek public comment after issuing
the Interim Final Rule and to subsequently issue a Final Rule.
The Act directs the FAA to ensure that the fees authorized by the
Act are ``directly related'' to the FAA's costs of providing the
service rendered. The Act further states that ``services for which
costs may be recovered include the costs of air traffic control,
navigation, weather services, training and emergency services which are
available to facilitate safe transportation over the United States, and
other services provided by the Administrator or by programs financed by
the Administrator to flights that neither take off from, nor land in,
the United States.''
Services for which fees can be charged under the Act are those
``rendered'' or ``provided'' by the FAA. By specifying that these
services include all ``services which are available to facilitate safe
transportation over the United States,'' the Act further recognizes
that, due to the integrated and interlocking nature of the air traffic
control and related services, fees will be based on the cost of all FAA
services provided, made available, or used by those aircraft operations
covered by the Act.
Every aircraft, including those covered by the Act, directly
receives the benefit of a wide variety of services through the
integrated FAA system merely by being present in U.S.-controlled
airspace. No request for services is necessary, as it is impossible for
flights to safely pick and choose what services are necessary for their
own safety and that of others in the ATC system.
It is clear that Congress well understood that the full range of
these ATC and related services would be used by the FAA in calculating
the fees when Congress provided that costs may be recovered for the
many services that are available to facilitate safe transportation of
aircraft over the United States.
Fee Concept
The FAA's ATC system is considered the preeminent ATC system in the
world. Each year, some 40 percent of the world's aircraft operations
take place within this system. The system is a fully integrated,
massively complex collection of people and equipment, with backup
capabilities and redundancies, which facilitates the safe
transportation of aircraft in U.S. airspace every moment of the day.
To accomplish this task, the FAA makes available a wide array of
services that are rendered directly or indirectly to the highly diverse
and frequently dense aircraft operations in U.S. airspace. These
aircraft operations range from the smallest, most basic, private
aircraft operating in good weather from grass fields, to the largest,
most sophisticated, commercial aircraft operating in bad weather to the
busiest airports in the world. These aircraft operations also include a
large assortment of U.S. and foreign government and military aircraft
operating at all extremes of flight.
One category of these aircraft operations involves aircraft that
neither land in nor takeoff from the United States, but do operate in
U.S. airspace under the direction of the FAA. These ``Overflights'' are
a microcosm of the larger, complex set of aircraft operations.
Overflights involve virtually every size and type of aircraft flying
everything from short distances at low altitudes to long distances at
high altitudes. The same tremendous variety of equipment,
instrumentation and capabilities seen in all other flights (i.e., non-
Overflights) is also seen in Overflights.
The type and scope of interaction between the FAA and a given user,
either an Overflight or a non-Overflight, may vary considerably from
one flight to another, but the services rendered involve making
available at all times the total system that facilitates the safe
transportation of all aircraft. For the ATC system to properly provide
safe flight to all operators, the many services provided, made
available, or used must work together harmoniously so that the FAA can
serve any aircraft anywhere in
[[Page 43682]]
the ATC system, regardless of how it is equipped and where it is going.
Any aircraft flying in FAA-controlled airspace may use any system
or set of systems during any portion of the flight. Due to the passive
nature of parts of the ATC system, such as navigational aids, the FAA
does not always know precisely who is using a particular aspect of the
ATC system, when, or how many times. Likewise, any aircraft flying in
the ATC system receives many services automatically just by being in
the system, without having to request the services specifically. All
flights benefit from merely entering the system, and these benefits are
far beyond any explicitly requested by a user.
Communication between the user and the FAA may be initiated by
either the FAA or by the aircraft operator. Oftentimes, vital ATC
services are provided and received without the full knowledge of both
parties, the provider and the recipient. For example, the routing of
aircraft to avoid other aircraft or bad weather, or to enjoy better
flying conditions, is frequently accomplished by the FAA without the
user's specific knowledge (or understanding of why a particular routing
or re-routing was given by the FAA). Similarly, the use of navigational
aids and other automatic flight information systems is nearly always
accomplished without the knowledge of the FAA. For example, satellites
and VOR's emit radio signals that are available for use for
navigational purposes by any and all aircraft equipped to receive their
signals--and this is a genuine benefit to all such aircraft--but the
FAA has no way of knowing or metering when these signals are being
received and by whom. These aspects of the ATC system, provided by the
FAA at considerable cost, are in many ways comparable to signals and
warnings used in other modes of transportation (e.g., highway traffic
lights, warning signals at railroad crossings, lighted directional
buoys in harbors and waterways, weather channels and reports), all of
which contribute in major ways to transportation safety but are
impossible to meter directly to specific users. Finally, many other
services, such as emergency assistance or routing to an alternate
airport, may be accomplished without the knowledge of affected
aircraft, other than the one having the emergency or needing the
service.
To establish fees that capture this dynamic, varied and highly
integrated system that must meet the highest of safety standards, the
FAA has chosen a fee-setting methodology (as detailed below) that not
only captures the costs of making available the many services rendered,
but fairly meters those costs among the users based on the number of
miles flown in the ATC system by each user.
In summary, the fee system established under this rulemaking has
been based directly on the FAA's costs of making the services rendered
by this highly integrated ATC system available to all flights,
including Overflights, to facilitate their safe operation in the
airspace controlled by the United States.
Overflight Operations
Operators of overflight aircraft benefit from the FAA's provision
of ATC and related services in several ways. First, and most
importantly, FAA's air traffic services enhance safety through the
availability of ATC, navigation, and communications services, as well
as the provision of many emergency services that facilitate safe air
transportation. Second, flying through U.S.-controlled airspace allows
the operator to choose optimized routing for the aircraft, which is a
substantial benefit. The level and type of ATC and other services that
are provided or made available to operators of overflights depends, in
part, on the portions of U.S.-controlled airspace such flights transit.
These services that are available to operators include communications,
navigation, radar surveillance, emergency services, and flight
information services. For aircraft transiting U.S. enroute airspace,
Air Route Traffic Control Centers (ARTCCs) provide separation by means
of radar surveillance (if they are operating under instrument flight
rules or generally in airspace above 18,000 feet). Also, these flights
mainly use navigational aids and radio communication with ARTCCs.
For aircraft transiting oceanic airspace, where radar surveillance
and some navigational aids are not available, navigation is generally
conducted by on-board systems. Aircraft separation, however, is
provided under procedural control, under which flights report their
position to an air traffic controller each time they fly over a
specified reporting point.
The FAA estimates that approximately 236,000 non-public flights
(i.e. in aircraft that are not statutorily exempt) annually transit
U.S.-controlled airspace without landing or taking off in the United
States (see the report entitled ``Overflight Fee Development Report, as
Amended,'' item 101 in the docket).
Charging overflights for ATC and related services is accepted in
the international arena. The International Civil Aviation Organization
(ICAO) states that ``where air navigation services are provided for
international use, the providers may require the users to pay their
share of the related costs * * *.'' (ICAO's Policies on Charges for
Airports and Air Navigation Services, Paragraph 36 (Document 9082/6)).
Further, paragraph 47 of Document 9082/6 notes that ``providers * * *
may require all users to pay their share of the cost of providing them
[air navigation services for international use] regardless of whether
or not the utilization takes place over the territory of the provider
State.'' (Document 9082/6, adopted by ICAO in December 2000, has been
placed in the docket as item 119. An earlier version of this document,
ICAO Document 9082/5, had been previously placed in the docket as item
7.)
Use of Overflight Fees
At the same time Congress passed the Act, it also established 49
U.S.C. 41742, which sets forth how the Overflight Fees are to be used.
Each year, $50 million from fees or other funds made available to the
FAA are authorized and appropriated for the Essential Air Service (EAS)
program. This program, administered by the Office of the Secretary of
Transportation, provides air carrier service to small communities. The
statute has been in effect since October 1996, and $50 million has been
authorized and appropriated each subsequent year. The statute
underscores the need for the FAA to act expeditiously in establishing
and collecting Overflight Fees.
History
On March 20, 1997, the FAA published an Interim Final Rule (IFR),
``Fees for Air Traffic Services for Certain Flights through U.S.-
Controlled Airspace'' (62 FR 13496), which established fees for FAA air
traffic and related services provided to certain aircraft that transit
U.S.-controlled airspace but neither take off from, nor land in, the
United States. The FAA invited public comment on the IFR and held a
public meeting on May 1, 1997. The effective date of the rule was May
19, 1997, and the comment period closed on July 18, 1997. The FAA also
published two additional amendments to that IFR on May 2, 1997 (62 FR
24286) and October 2, 1997 (62 FR 51736).
That rulemaking was subsequently challenged. The Air Transport
Association of Canada (ATAC) and seven airlines petitioned the United
States Court of Appeals for the District of Columbia (Court) to review
the rule. On January 30, 1998, the Court issued its opinion on the
eight consolidated petitions in the case of Asiana Airlines v. the FAA,
134 F. 3d 393 (D.C. Cir.
[[Page 43683]]
1998). The Court rejected the petitioners' claims that: (a) the FAA
acted improperly in employing an expedited procedure before the
effective date of the IFR; and (b) the FAA violated the anti-
discrimination provisions of various international aviation agreements.
However, the Court concluded that the FAA's methodology of determining
cost violated statutory requirements. Therefore, the Court vacated the
IFR fee schedule and remanded the IFR to the FAA for further
proceedings consistent with the opinion. On July 24, 1998, the FAA
published a Final Rule (63 FR 40000) removing the 1997 IFR.
After the FAA removed the 1997 IFR, the FAA met with various user
and aviation interest groups to listen to their concerns about fees
under the Act. The last such meeting was on May 24, 2000, and included
the Department of Transportation General Counsel and members of her
staff. A summary of each of these meetings can be found in the docket
for this rulemaking.
On June 6, 2000, the FAA published a new Interim Final Rule with a
request for comments and notice of another public meeting (65 FR 36002,
June 6, 2000). The FAA held the public meeting on June 29, 2000, and 12
individuals representing 10 different organizations made presentations.
A discussion of the comments made at the public meeting can be found in
the following section of this document. The FAA began charging fees on
August 1, 2000. The FAA extended the comment period on October 6, 2000
(65 FR 59713), and again on October 27, 2000 (65 FR 64401), closing the
comment period on December 26, 2000. Also, on November 1, 2000, the
Congress enacted the National Transportation Safety Board Amendments
Act of 2000 (Public Law 106-424). Section 16 of that Act deemed the
Interim Final Rule, published on June 6, 2000, to have been issued in
accordance with the Act.
Just before the August 1, 2000, effective date of the current fees,
the ATAC and seven airlines again petitioned the Court to review the
Interim Final Rule. The petitions were again consolidated into a single
case. Issues raised by the petitioners included some of the same
process and procedure questions raised in the previous litigation, as
well as new issues regarding the adequacy of information provided by
the FAA to support the fees and whether the fees meet the statutory
requirement of being ``directly related'' to the FAA's costs of
providing the services. The Court heard oral arguments on May 14, 2001.
On July 13, 2001, the Court issued an opinion, described in the
``Introduction'' section of this rulemaking.
Reports Adopted by the FAA
The FAA asked Capital Economics, a firm with expertise in finance,
accounting and economics, to review the fee schedule developed by the
FAA to recover the costs of providing ATC and related services to
``Overflights.'' Capital Economics is located in Washington, DC, and
specializes in conducting analysis of complex regulatory issues. The
FAA requested Capital Economics to assist in responding to comments on
the IFR. The FAA has adopted for this rule the Capital Economics
report, entitled ``A Review of FAA Overflight Fees.'' This report has
been placed in the rulemaking docket (Docket No. FAA-00-7018, item 99).
The Capital Economics review confirms that the FAA's fee structure
is well within the scope of commonly accepted economic, financial, and
accounting principles as applied in a practical, real-world setting.
Also, in Capital Economics' view, the FAA's reliance on a mileage-based
fee structure complies with the statutory requirement that the fees be
cost-based and not value-based. The review also finds that due to the
prospective high metering costs of other alternative methods, the
mileage-based metric is likely to be the least expensive measure to
employ to assign costs to Overflights. In addition, the FAA agrees with
Capital Economics' conclusion that there is no better alternative
allocation mechanism than the mileage-based method used by the FAA,
even ignoring metering costs. The report indicates that the fee
structure developed by the FAA meets the ``subsidy-free'' test, which
means that the Overflight Fees do not subsidize other agency costs,
users, or services. The basis for these conclusions is captured in the
Capital Economics report.
The FAA also has relied extensively on the work of the accounting
and professional services firm, Arthur Andersen, which has been one of
the agency's partners in developing its Cost Accounting System (CAS)
and has provided advice to the FAA on CAS-related accounting matters.
Arthur Andersen developed a ``Costing Methodology Report,'' which was
used by the FAA in deriving its Overflight Fees. Arthur Andersen later
published an Addendum to this report. Both of these items are included
in the rulemaking docket (FAA-00-7018), items 6 and 101, respectively.
The Costing Methodology Report describes how the CAS captures costs for
all FAA lines of business and how costs are assigned to the Enroute and
Oceanic Services. The Addendum to the Arthur Andersen report addresses
several of the principal comments the FAA has received on the
Overflight Fee IFR.
As noted above, the FAA has adopted the Capital Economics and
Arthur Andersen reports in responding to many of the comments received
in this rulemaking. Those comments are addressed in detail below.
Discussion of Comments
The FAA received a total of 57 different comments, many of them
multiple times, from the 28 commenters listed below, in response to the
Interim Final Rule, including statements made at the public meeting
held on June 29, 2000. In addition, the FAA either already had or
received several letters, reports and other items of information
relating to the Interim Final Rule. The FAA carefully considered these
documents as well as the comments prior to issuing this Final Rule.
A number of the commenters generally agree that the FAA has the
right to collect fees for its services; however, many argue that the
methodology the FAA uses to derive its fees is flawed. Several
commenters requested additional information or clarification regarding
certain underlying assumptions, cost categories, terminology, cost
data, cost allocation processes, and reports provided by consultants.
Although many of the requests for information did not identify a
specific issue or problem, the FAA has attempted to respond to these
comments wherever possible, and has provided an additional reference or
a point of contact where further information can be obtained if needed.
Many commenters included extensive attachments in support of their
position, which can be found in the docket. Most comments are from
foreign air carriers, trade associations representing those air
carriers, and individuals. The commenters are:
Air Europa Lineas Aereas, S.A.U
Air New Zealand Limited
Air Transport Association of Canada (ATAC)
Airtours International Airways Ltd.
American Airlines
Association of Asia Pacific Airlines (AAPA)
Aviation Assembly
British Airways PLC
Corsair
Deutsche Lufthansa A.G.
Eric A. Jackson
Iberia Lineas Aereas De Espana
International Air Carrier Association (IACA)
[[Page 43684]]
International Air Transport Association (IATA)
International Business Aviation Council, Ltd.
Japan Airlines Company, Ltd.
John R. Bell II
Joseph A. Beaudoin (on behalf of the ATAC)
KLM Royal Dutch Airlines
KPMG LLP (on behalf of the ATAC)
Long Haul Charter Carriers of Italy
LTU-Lufttransport-Unternehmen GmbH. (LTU)
Michael Jengo, Jr. (on behalf of Air New Zealand and other air
carriers)
Monarch Airlines Limited
National Business Aviation Association, Inc. (NBAA)
Qantas Airways Limited
Richard Henrikson
Societe Air France
Summary of Comments and Disposition
As stated earlier, many of the commenters agree that the FAA has
the right to charge fees for Overflights; however, those commenters
disagree with several elements of the FAA's approach to determining
those fees. Generally, commenters raise numerous detailed issues on the
Interim Final Rule, a number of which have been repeated by several
commenters. Therefore, for clarity, the FAA has grouped most of the
comments. The following list identifies the major substantive issues
raised by the commenters:
The cost of providing air traffic control and related
services to Overflights versus non-Overflights in the Enroute and
Oceanic environments,
The inclusion of fixed and common costs in the Overflight
Fee cost pool,
Whether Overflight Fees are subsidizing other costs or
services,
The definition of fees ``directly related'' to costs as
used by the Act,
Lack of consultation,
Violation of the Administrative Procedure Act (APA),
Violation of international agreements,
Violation of International Civil Aviation Organization
(ICAO) guidelines,
Accounting and charging for services provided by air
traffic controllers at Enroute Centers before having the cost of
Terminal Services,
Accounting for costs incurred in the transitional airspace
between Oceanic and Enroute Services,
How the FAA determines the cost of providing services to
Overflights,
Individual fees for each service delivery point (SDP),
Alternative methods to assign costs to users, and
Requests for additional information.
These comments, and all others received, are addressed below.
1. The Cost of Providing Air Traffic Control and Related Services to
Overflights Versus Non-Overflights in the Enroute and Oceanic
Environments
Many commenters suggest that Overflights cost less than non-
Overflights for various reasons. Several air carriers give specific
examples of the difference between costs of providing service to
Overflights versus non-Overflights. British Airways states that the FAA
incurs a higher level of labor costs for ATC services to aircraft at
lower altitudes. The following are additional examples that express the
same concern.
According to the Air Transport Association of Canada (ATAC), the
FAA assumes that the level of service it provides to each flight is the
same regardless of the degree of congestion in the airspace transited
by the flight. That is, the FAA assumes that the labor costs required
for controllers to maintain proper separation in congested airspace are
the same as the labor costs required in sparsely used airspace. The
ATAC states that the FAA fees rely on this assumption, even though ATAC
notes that the FAA itself acknowledges on page 2 of its original Fee
Development Report (Docket item 4), that ``the level of air traffic
service provided to Overflights depends, in part, on the portions of
U.S.-controlled airspace transited by such flights.''
The ATAC also states, ``the FAA assumes that the level of services
provided to each flight is the same on a per-mile basis regardless of
the number of sectors transited by the flight. This assumption ignores
the costs incurred by the FAA when a flight is handed off from one
sector to another. Such costs will differ among flights with the same
number of GCD miles but transiting different numbers of sectors.''
Qantas Airways opines that ``one of the main assumptions underlying
the FAA's fee calculations is that the ATC services provided to Enroute
and Oceanic Overflights, respectively do not differ from ATC services
provided to other Enroute or Oceanic flights.'' Qantas notes that the
FAA provides no information to show the validity of this assumption.
Joseph A. Beaudoin, a former air traffic controller, states, in
comments submitted on behalf of the ATAC, that Overflights represent a
``miniscule percentage'' of total Enroute traffic, and that the vast
majority of Enroute traffic is either (1) flights operating at lower
altitudes (below 18,000 feet) the entire time they are in the Enroute
environment, or (2) flights transitioning through the lower altitude
airspace on their way to or from the Terminal environment or high
altitude sectors (18,000 feet and above). Mr. Beaudoin maintains that
these low altitude and transitional flights require a much higher level
of controller attention and contact than do the Overflights, and
provides several pages of narrative explaining in great detail what he
believes is involved in providing ATC services to each type of flight
in the Enroute environment. His conclusion is that Overflights require
much less time and effort on the part of the controller, and that
Overflights require much less in the way of services and equipment than
low altitude and transitional flights.
In subsequent comments, Mr. Beaudoin also asserts that the
controller manpower required to service Overflights and non-Overflights
is not common since controllers generally are not simultaneously
providing services to Overflights and non-Overflights. Mr. Beaudoin
further comments that the FAA's labor costs are not fixed; rather the
number of controllers providing services varies, depending on the
volume of aircraft operating within the particular geographical area or
sector and the nature of those aircraft operations.
Michael Jengo, Jr., a former air traffic controller, submits, on
behalf of Air New Zealand and other air carriers, another comment on
the ATC services offered in the Oceanic environment, stating, ``There
is a significant difference in the level of ATC services provided to an
Overflight that traverses oceanic non-radar airspace and a flight that
lands or departs a U.S. airport.''
The consulting firm of KPMG, which submitted several detailed
comments on behalf of the ATAC, states that by using Average All-
Aircraft Cost as a surrogate for Average Overflight Cost, the FAA
ensures that the Overflight fees in the Enroute environment are not
``directly related'' to the FAA's costs of providing ATC services to
Overflights.
KPMG further argues that Low Altitude and Transitional Flights
require a high level of FAA controller attention and contacts with
radar facilities because they occur within airspace: (1) in which
aircraft are constantly requesting or requiring clearance to change
altitude; (2) that is often congested; and (3) which is frequently
affected by weather problems and airport delays.
KPMG concludes that because most flights are non-Overflights, the
Average Cost used by the FAA is close to the
[[Page 43685]]
average cost to provide services to non-Overflights, and the
substantial differences in costs between provision of ATC services to
Overflights and non-Overflights results in a large disparity between
the Overflight Fees and the actual costs of providing ATC services to
Overflights.
FAA Response: The FAA disagrees with these comments. The FAA
believes its Overflight Fee development approach is a reasonable one,
consistent with the Act, and that it fairly assesses fees for the
provision of ATC and related services. The FAA did not seek to
differentiate between Overflights and non-Overflights for the following
reasons: (1) The FAA incurs the vast majority of costs by making its
comprehensive ATC system available to all flights (regardless of the
type of aircraft and its equipment and capabilities); (2) the FAA's
marginal cost, including labor cost, for providing services to any
flight is close to zero; (3) the majority of FAA's costs are common and
fixed costs; and (4) the controllers' responsibilities for Overflights
are not fundamentally any different than for non-Overflights.
In the statute requiring the Fees (49 U.S.C. 45301), Congress
provided:
[The FAA] shall ensure that each of the fees required by
subsection `a' is directly related to the Administration's costs of
providing the service rendered. Services for which costs may be
recovered include the cost of air traffic control, navigation,
weather services, training and emergency services which are
available (emphasis added) to facilitate safe transportation over
the United States, and other services provided by the Administrator
or by programs financed by the Administrator to flights that neither
take off nor land in the United States.
The FAA incurs a significant amount of costs simply by making
services available, as Congress specifically authorized (as quoted
above), since the same ATC infrastructure is used to provide services
to Overflights and non-Overflights. Also, the benefits all flights
receive flow mainly from the ATC system, not the individual ATC actions
related to an individual flight.
The FAA ATC system is designed to service and benefit all flights
by providing for safe passage for all flights all the time. Overflights
can be anywhere in the ATC system at any point in time for any amount
of time, and can use any of the available services, regardless of the
type of flight, user, aircraft, or the aircraft equipment and
capabilities. Overflights are provided, have made available, or use the
extensive ATC and related services because of weather deviations,
aircraft type and equipment, radar vectors, traffic congestion, flight
stability/comfort, merging routes/crossing routes, transitioning from
one ATC environment or servicing point to another, as well as many
emergency services such as diverting to alternate airports. No matter
where an aircraft is in U.S.-controlled airspace, the FAA makes
available an extensive and full offering of services to that aircraft
to facilitate safe air transportation. As a conservative estimate, the
burden each flight imposes on the FAA is determined by the number of
miles flown by that flight in each ATC environment. Therefore, each
Overflight is charged an appropriate fee based on its Great Circle
Distance (GCD) mileage traveled in the Enroute airspace and its GCD
mileage flown in the Oceanic airspace.
The FAA agrees with the conclusions presented by Capital Economics
in its report (Docket item 99), which supports the FAA's fee
methodology with respect to Enroute and Oceanic Services (in section
IIIA, Enroute, pages 8-10):
The marginal cost of servicing any particular flight in the
Enroute environment is very small. This is due to several factors.
The Enroute airspace environment is not capacity constrained. System
constraints do exist, but they are in other environments, such as
Terminal Radar Approach Control Facility (TRACON) and Terminal
Operations. In addition, for safety purposes, the air traffic
control system has significant built-in redundancy, with multiple
overlapping components. Also, in providing air traffic control
services, the FAA incurs costs by making services available (e.g.,
radio navigation aids and broadcast weather services) regardless of
whether any particular flight uses the services. These services are
always available in full supply to any and all users that need to
use them. Once an aircraft enters U.S.-controlled airspace, the U.S.
ATC system is immediately engaged, and the entire ATC infrastructure
and full scope of services are available, regardless of the type of
flight, user or aircraft. The requirements of providing full and
constant availability of services to all users are designed into the
system and result in real costs incurred in the provision of air
traffic control services.
These factors ensure that no additional physical assets would be
required to service an additional flight. In addition, the level of
service utilization does not directly impact on those costs that in
many other contexts are considered variable, such as labor costs.
Consider the following:
(1) An air traffic controller is paid the same amount regardless
of whether he or she has to monitor a particular aircraft across his
or her screen or communicate directly with that aircraft. Similarly,
a controller is paid the same regardless of whether he or she has to
communicate with an aircraft once or a dozen times. A controller is
also paid the same regardless of whether he or she works during
hours when the airspace is quiet or hours when the airspace is busy.
(2) Controllers have to be trained to provide all Enroute air
traffic control services and meet all air traffic situations
regardless of whether or not they encounter all air traffic
situations. The cost of training does not vary depending on how much
service is delivered.
(3) Enroute radar and navigation equipment have to be
operational at all times regardless of how many flights are in the
airspace. It is not possible to shut off one or more radar or
navigational aids at any point in the day in order to reduce the
overall cost of the radar system.
(4) Telecommunications capability and capacity have to be
available at all times during the day regardless of whether any, or
how many, transmissions are made. Telecommunication services are
procured on a fixed lease basis, similar to renting a pipeline,
whereby costs do not increase with small additions to traffic.
Thus, in addition to the fact that the entire ATC system is
built to provide a level of service to all users, regardless of
whether they actually utilize all the services, the lumpy (fixed
over substantial output ranges) nature of input costs traditionally
considered to be variable, such as labor or communications, means
that the additional cost of servicing an additional flight is very
small.
This is not to say that there are no differences in the marginal
costs of servicing one type of Enroute flight versus another. It is
to say however that both costs are very small and are swamped by the
allocation of fixed and common costs that must be made in order to
cover the costs of ATC services.
The Capital Economics report states further, with respect to
Oceanic Services (in section IIIB, Oceanic, page 12):
The marginal cost of servicing any Overflight or non-Overflight
in the Oceanic environment is very small. In fact, there may be no
difference in the marginal costs between the two types of flight as
the same types of procedural controls are generally used for non-
Overflights as for Overflights. The services they receive are very
similar, if not identical, while in the Oceanic environment. But,
more importantly, any marginal cost differences that do exist are
swamped by the large fixed and common costs that must be allocated.
2. The Inclusion of Fixed and Common Costs in the Overflight Fee Cost
Pool
Several commenters state that the FAA should not have included
fixed and common costs in the Overflight Fee cost pool. They argue that
the FAA should have included only the marginal cost of Overflights in
order to meet the statutory requirement that fees be ``directly
related'' to costs. Specific comments on this issue were received from
ATAC, which states that the FAA makes the assumption that all Enroute
or Oceanic costs not categorized as ``overhead'' are costs that should
be included in determining fees directly related to FAA's costs of
providing
[[Page 43686]]
services to Overflights. Furthermore, ATAC comments that by failing to
remove all fixed costs, the FAA overstates the costs directly related
to providing services to Overflights.
Lufthansa and KPMG assert that the FAA should remove from the total
costs attributable to Overflights all costs that would have been
incurred, even if the FAA provided no services to Overflights. They
state that the overhead amounts removed by the FAA from the Overflight
Fee cost base clearly do not include all FAA fixed costs of providing
ATC services; they believe that all fixed costs should have been
removed.
FAA Response: The FAA disagrees with these comments. All users of
the ATC system benefit by being in the system, and all should bear the
costs. The FAA developed a unit cost for providing air traffic and
related services in the Enroute and Oceanic environments to provide a
mechanism for apportioning fairly among all users the overwhelmingly
large common and fixed costs of the ATC system. The FAA derived the
unit costs by dividing the total costs of providing ATC services, less
overhead, in each environment, Oceanic and Enroute, by total miles
flown in that particular airspace. The use of mileage allows tailoring
of the costs to the individual user in a manner that is easy to
administer but fair to the users.
As Capital Economics points out in its previously cited report, if
the FAA were to charge only the marginal cost of the specific ATC and
related services provided to Overflights, it would be unable to recover
anywhere near the cost of the activity. Capital Economics notes (in
section II, page 3), ``Faced with this situation, economists typically
call for a fee system involving a marginal or incremental component
plus a markup to cover fixed and common costs.'' This is essentially
what the FAA has done. All directly related costs (including fixed and
common costs) are derived from CAS data and apportioned among all
flights, whether Overflights or non-Overflights.
In its January 1998 opinion (Asiana Airlines v. the FAA, 134 F. 3d
393 (D.C. Cir. 1998)), based on its review of FAA's previous Overflight
Fees, the United States Court of Appeals for the District of Columbia
Circuit recognized that provision of ATC and related services to
Overflights entails fixed and common costs that must be allocated:
The difficulty with determining the portion of fixed and common
costs attributable to Overflights is that by definition these costs
are shared among a great number of users besides Overflights and so,
in a sense, do not directly relate to the quantity of services
consumed. Thus, a method must be devised to apportion these costs
among all the users who benefit from them, without violating the
strictures of the statute.
Understanding the existence and nature of FAA's fixed costs, the
Court also stated:
There may be methods to reasonably determine an appropriate
fraction of the FAA's fixed costs to assign to each Overflight, and
if the FAA does not have enough information to precisely determine
the burdens imposed by individual flights, it may proceed based on
the best data available.
Because all users receive benefits from the ATC system, and because
making ATC and related services available involves a significant amount
of fixed and common costs, it is clearly consistent with the Act, as
noted by the Court, that the FAA find a way to allocate those costs
among all users who benefit from them. This is exactly what the FAA has
done. It recognized the need to allocate fixed and common costs, and
used an appropriate economic method based on the best available data.
This does not mean that the unit cost methodology used by the FAA is
the only way these costs could be apportioned. There may indeed be
another way to do it--but Congress left it to the FAA to determine the
methodology. The method chosen by the FAA is clearly reasonable and
within the parameters specified by the Court. Indeed, as Capital
Economics notes (in section II, pages 4-5):
* * * there are many appropriate methodologies. This problem
arises in practice in countless settings: virtually every business
firm or government organization provides not just one service but
several, and these services are often the joint product of the
entity's operations. It may be possible to isolate the marginal or
incremental costs of servicing a particular subgroup of customers,
and this may be possible for each and every conceivable subset of
customers. However, in the presence of fixed and common costs the
sum of these marginal costs will fall below the total costs of
serving all customers. In the extreme, but not uncommon, case of
very large fixed and common costs, it is quite possible that the
separate marginal or incremental costs of servicing any and all
subgroups is virtually zero for each group. It is customary in these
instances to allocate costs based on sales revenues, level of
customer activity, level of production, or some other similar,
conventional method. Examples of such allocation methods are
ubiquitous.
3. Whether Overflight Fees Are Subsidizing Other Costs or Services
Commenters suggest that the FAA subsidizes other services or costs
by treating Overflights the same as all other flights in the Enroute
and Oceanic environments. Similarly, KPMG claims that because the FAA's
costs for Overflights are substantially lower than for non-Overflights,
the FAA's use of ``Average Cost'' as a surrogate for ``Overflight
Cost'' means that the FAA is requiring Overflights to subsidize
substantially FAA's provision of ATC services to non-Overflights. Based
on this assumption, KPMG theorizes that Overflight fees are not
``directly related'' to FAA's costs to provide ATC services to
Overflights.
FAA Response: The FAA disagrees. As previously explained, the FAA
developed a unit cost of providing, or making available, ATC services
in both the Enroute and Oceanic environments. The FAA then applied
those unit costs to total miles flown to achieve a fair, as well as
direct, allocation of costs between Overflights and non-Overflights in
each environment that does not subsidize any user.
Commenters who allege or at least suggest the possible
subsidization of Overflights by non-Overflights do not provide any
convincing analysis to support their claims, whereas the Capital
Economics analysis demonstrates that the Overflight Fees are subsidy-
free.
Capital Economics states (in section II, page 6): ``Fees that are
subsidy-free are widely regarded by economists to be preferable to
those that are not. This is because subsidy-free fees prevent one
service from subsidizing or from being subsidized by the other services
offered.'' The Capital Economics analysis goes on to state that
``subsidy-free fees are defined as those that pass two tests: (1) Fee
revenues from a service do not exceed the Stand Alone Costs (SAC) of
that service; and (2) fee revenues for a service are never below the
incremental cost of that service, measured as the total cost savings of
not producing the service.''
The Capital Economics report states (in section IIIC, page 13) as
follows:
An FAA analysis of Enroute Overflights, attached to this report
as Attachment 1, has determined that the stand-alone cost (SAC) of
servicing these flights is at least $181M. The cost of servicing
these Enroute Overflights (which underlies the current fee
structure) is estimated to be approximately $30M, which is well
below the upper bound, the SAC of serving these flights. Thus, the
current fee structure quite easily passes the first of the subsidy-
free tests outlined earlier--revenues for the service do not exceed
the SAC of the service. In addition, as commenters have argued, the
incremental cost of servicing Overflights is extremely low and
perhaps nearly zero. Thus, the estimated $30M cost that serves as
the basis for Enroute Overflight fees under the current fee
structure easily passes the second test for subsidy-free pricing--
the costs recovered by the fees are never lower than incremental
costs.
[[Page 43687]]
An FAA analysis of Oceanic Overflights, included in Attachment 1
has determined that the stand-alone cost of these flights is at
least $28M. As a result, the current fee structure easily passes the
first of the subsidy-free tests outlined earlier. That is, the
current fee structure is based on an estimate of approximately $19M
to service these flights, which is well below the SAC of serving
these flights. In addition, as commenters have argued, the
incremental cost of servicing Overflights is very low. Thus, the
estimated $19M in costs which underlies the current fee structure
easily passes the second test for subsidy-free pricing: the costs
recovered by the fees are never lower than incremental costs.
The system the FAA has developed does not subsidize any user. Costs
that are incurred on behalf of users who are statutorily exempt from
Overflight Fees (i.e., military and government aircraft), as well as
the Canada-to-Canada flights, have not been assigned to other users.
Costs incurred on behalf of those parties are borne by the FAA.
4. The Definition of Fees ``Directly Related'' to Costs as Used by the
Act
Several commenters claim that Overflight Fees do not meet the
Congressional requirement that the fees be ``directly related'' to
FAA's costs of providing the ATC services to Overflights, and that the
FAA does not provide a definition of ``directly related'' in the
Interim Final Rule. One comment received on this issue is from the
ATAC, which states, ``We understand that an issue may exist as to
whether Congress intended the FAA to recover only incremental costs to
providing ATC services to Overflights. To the extent that that was
Congressional intent, the FAA makes the unwarranted assumption that all
Enroute or Oceanic costs not categorized as ``overhead'' are costs that
should be included in calculating costs directly related to FAA's costs
of providing services to Overflights.'' Another commenter, LTU, states,
``While the words ``directly related'' are recited in the preamble and
the Overflight Fee Development Report, these words are never
interpreted nor explained. It seems the FAA does not accept the
``directly related'' language, either as used by Congress or by the
Court of Appeals.''
FAA Response: The FAA disagrees with this comment. In the statute
requiring the Fees (49 U.S.C. 45301), Congress provided:
(The FAA) shall ensure that each of the fees required by
subsection ``a'' is directly related (emphasis added) to the
Administration's costs of providing the service rendered. Services
for which costs may be recovered include the cost of air traffic
control, navigation, weather services, training and emergency
services which are available (emphasis added) to facilitate safe
transportation over the United States, and other services provided
by the Administrator or by programs financed by the Administrator to
flights that neither take off nor land in the United States.
Congress did not define ``directly related'' for the FAA. As is common
with many similar statutes, Congress left it to the FAA to reasonably
interpret the Act to determine which costs are ``directly related'' and
thereby useable in the derivation of the FAA's Overflight Fees. While
some commenters may disagree, the FAA has chosen a reasonable and
somewhat narrow definition of costs so that each fee (Enroute and
Oceanic) is directly related to FAA's costs of making available the
many services that could be, and are, used by Overflights. And, as
Capital Economics states (in section II, page 2), ``There is no
standard, or agreed upon, definition of `directly related' in the
accounting or economic fields.''
Overflight Fees are based on the FAA's actual costs, as required by
the Act, and as determined by the new Cost Accounting System (CAS),
derived directly from the costs of the many services made available.
The CAS provides the total cost pools for the services provided in the
Enroute and Oceanic environments. All costs that are traceable to these
two environments are used in the fee development process. All costs
attributable to the other two ATS Services, Terminal and Flight
Services, are specifically excluded, even though some Overflights use
these services.
Additionally, although directly traceable to specific services, the
FAA excludes all overhead costs from the total cost pools used in
deriving its Overflight Fees. This exclusion, as well as the exclusion
of Terminal and Flight Service costs, is done through an abundance of
caution to ensure compliance with the statutory provision that the fees
must be ``directly related'' to the FAA's costs of the services
provided, or made available, to Overflights. Within each cost pool
(Enroute or Oceanic), costs are apportioned between Overflights and
non-Overflights according to Overflight and non-Overflight miles. Then,
to ensure that each Overflight is charged an amount that reflects the
quantity of ATC and related services made available to it, a mileage-
based fee structure is employed. The result is that each individual
operator's fees are directly proportional to its number of Overflight
miles flown, as measured by Great Circle Distance from point to point
of U.S.-controlled airspace.
5. Lack of Consultation
Nearly every commenter complained that the FAA should have engaged
affected parties in consultations before issuing the Interim Final
Rule. Several commenters further requested the FAA to consult with them
after the effective date of the Interim Final Rule, but before issuance
of the Final Rule.
FAA Response: The FAA disagrees. The FAA did engage in consultation
before the Interim Final Rule was issued. The FAA acknowledges that the
nature of the consultation may have been different than that expected
or desired by many commenters. It was as much as is allowable under
U.S. law, and the FAA believes it was effective in making the views of
the users known.
The FAA published the Fees for FAA Services for Certain Flights
(commonly referred to as ``Overflight Fees'') Interim Final Rule on
June 6, 2000. Although conducting rulemaking via an Interim Final Rule
(IFR) is not the FAA's normal or necessarily preferred rulemaking
practice, the FAA was directed by Congress in the Act to use the IFR
process to establish Overflight Fees.
Since then, the FAA has received several affirmations of
Congressional intent, including two letters from Congress (Docket items
23 and 28) as well as the subsequent legislation (Docket item 97)
reaffirming the Congress's direction that the FAA establish Overflight
Fees via the IFR process.
Since passage of the Act, the FAA has on several occasions met with
user and aviation interest groups to listen to their concerns about
fees. The FAA held a meeting with representatives from the European
charter carriers, two meetings with the Washington Aviation Assembly,
and a meeting with counsel from interested airlines. A summary of each
of these meetings can be found in the docket of this rulemaking, items
11, 15, 16, and 22, respectively. The FAA held a public meeting on June
29, 2000, to provide information regarding the Interim Final Rule and
to invite comments from interested parties.
Additionally, and separate from the Overflight Fee rulemaking, the
FAA held two Cost Accounting ``Industry Day'' meetings (July 29, 1999
and June 30, 2000) to present and discuss Enroute and Oceanic costs for
fiscal years 1998 and 1999, respectively. Finally, the docket of the
current rulemaking was extended twice to allow additional comments for
FAA's consideration prior to issuing a Final Rule. Several additional
comments were submitted to
[[Page 43688]]
the docket even after the final closing of the comment period on
December 26, 2000. The FAA has also considered and addressed those
comments (in this section) in proceeding with the Final Rule.
Many commenters stated that the FAA violated international
agreements and ICAO guidelines by not consulting with users prior to
the implementation of the Overflight Fee Interim Final Rule. The FAA
disagrees with the commenters on this issue. However, the agency has
decided to take advantage of an option available to it to provide
another forum for consultation. The FAA intends to form an Aviation
Rulemaking Committee for Overflight Fees (pursuant to the
Administrator's authority under 49 U.S.C. 106(p)(5)) soon after
publication of the Final Rule.
Aviation Rulemaking Committees were authorized under the 1996 FAA
Reauthorization Act, and afford the FAA additional opportunities to
obtain direct, firsthand information and insight from interested
parties by meeting together and exchanging ideas with respect to
proposed and existing rules. In this instance, the Aviation Rulemaking
Committee's primary task will be to propose possible revisions to the
Overflight Fees.
The FAA expects that the Overflight Fee Rulemaking Committee will
serve as a forum for interaction among the FAA, the users, and the
public. The Committee will be assigned specific tasks by the FAA
Administrator or the Assistant Administrator for Financial Services.
The FAA intends to establish such a committee within 90 days after
the issuance of this Final Rule. At that time, a Notice will be
published in the Federal Register with specific details such as
committee charter, membership, administration, and duration.
6. Violation of the Administrative Procedure Act (APA)
A significant number of commenters claim that the FAA violated the
Administrative Procedure Act (APA) by issuing an IFR rather than a
Notice of Proposed Rulemaking (NPRM). In addition, some commenters
argue that the FAA should not have used an IFR for what they claim to
be the ``second'' or ``supplemental'' fee schedule following the 1997
IFR.
The ATAC captured many commenters' opinions in its statement at the
public meeting asserting that the 1998 Court of Appeals opinion
required that any subsequent fee schedule issued under the Act would
require an NPRM pursuant to the APA. The ATAC added that the APA calls
for notice to and comment by affected parties before any rule may
become effective and that the FAA acted improperly by setting the fees
without prior notice and comment.
One commenter claims that APA notice and comment procedures may be
waived in extreme circumstances and there does not appear to be any
reason to employ extraordinary procedures in this case given that the
FAA has been developing the fees for several years.
FAA Response: The FAA disagrees that it violated the APA. The FAA
published its previous Overflight Fee IFR on March 20, 1997. This
rulemaking was reviewed by the United States Court of Appeals for the
District of Columbia. The Court rejected the petitioners' claims that
(1) the FAA acted improperly in employing an expedited procedure before
the effective date of the Interim Final Rule, and (2) the FAA violated
the Administrative Procedure Act. Subsequently, the recent (July 13,
2001) decision by the Court of Appeals (referred to above) agreed with
the FAA.
7. Violation of International Agreements
LTU, Lufthansa, Iberia Airlines, Japan Airlines, AAPA, British
Airways, Air New Zealand, and others comment that the FAA violated
international/bilateral agreements by not consulting with the affected
parties before issuing the rule.
FAA Response: The FAA disagrees with these comments, as noted
previously. The FAA did consult with all parties as required by both
U.S. and international law.
The FAA provided an opportunity for foreign governments, foreign
air carriers, and other interested parties to provide comments on the
IFR for approximately two months before its effective date. In
addition, the FAA met formally and informally with representatives from
foreign governments and the user community to receive and provide
information regarding the IFR. The FAA held a public meeting (on June
29, 2000) to allow interested parties yet another opportunity to voice
their concerns regarding the rule. While this is not the type of
consultation desired by the commenters, it is consistent with
international and U.S. obligations of the FAA in this rulemaking.
Commenters further state that bilateral agreements and ICAO
recommendations impose an obligation or a responsibility upon the
United States to consult with other governments and their carriers
prior to imposing user fees. To the extent possible, the FAA met with
those governments that expressed an interest in meeting with the agency
regarding the rule. Indeed, two informational meetings were held, in
February of 1999 and 2000, with a number of members of the Washington
Aviation Assembly, a group of Washington-based diplomats from a number
of foreign Embassies, including specifically representatives of
virtually all of the countries with carriers significantly affected by
the Interim Final Rule.
In the previous litigation (Asiana Airlines v. the FAA, 134 F. 3d
393 (D.C. Cir. 1998)), the U.S. Court of Appeals agreed with the FAA's
position on consultation. The Court's opinion stated:
We agree with the FAA that its actions did not violate any
duties actually imposed by international aviation agreements. Most
of the agreements relied upon by petitioners speak of general aims,
not specific obligations * * *. The petitioners have not cited any
international agreement that comes close to imposing duty to
consult. But even if such a duty could be found in an agreement only
to encourage consultations, the record does not indicate that the
FAA failed to consult with affected foreign users. Prior to the
effective date of the IFR, FAA staff held informal meetings as well
as public meeting with representatives of foreign airlines, provided
copies of materials from the docket relevant to the IFR development,
and accepted forty comments on the rule. Although these exchanges
may not have influenced the content of the regulations made
effective on May 19, 1997, the terms ``consultation'' and ``exchange
of information'' in the cited international agreements do not import
the full notice and comment apparatus of APA. The procedures adopted
by the FAA cannot be said to have breached the terms of these
international agreements.
The FAA's rulemaking and consultative procedures in the current IFR
have been nearly identical to the previous rule. The FAA believes that
there has been no violation of any international obligation of the U.S.
As explained more fully under the previous comment on ``lack of
consultation,'' the FAA intends to establish an Aviation Rulemaking
Committee for Overflight Fees to serve as a forum for interaction among
the FAA, the users, and the public on matters relating to Overflight
Fees.
8. Violation of International Civil Aviation Organization (ICAO)
Guidelines
Lufthansa, Japan Airlines, AAPA, ATAC, Air New Zealand, and others
claim the FAA violated ICAO guidelines by not consulting with affected
parties prior to promulgation of the rule and by issuing an Interim
Final Rule. AAPA indicates that the United States has an obligation to
consult with users regarding any fees due to the large area of
international airspace that has been designated to it by ICAO. Air New
[[Page 43689]]
Zealand asserts that the Interim Final Rule cites ICAO guidance for
navigation charges in justifying its user fees, but ignores that the
same document calls for prior consultations on fees.
FAA Response: The FAA disagrees with the commenters who allege that
it violated ICAO guidelines. The ICAO principles they cite do not
require authorities to conduct consultations prior to implementation of
user fees. These principles--which at the time FAA issued the IFR and
the comments were received--were set forth in paragraph 22 of ICAO
Document 9082/5, Statements by the Council To Contracting States on
Charges for Airports and Air Navigation Services (Docket item 7). They
``recognize the desirability of consultation with airport users before
significant changes in charging systems or levels of charges are
introduced.'' Further, ICAO Document 9082/5 goes on to state, in
paragraph 44 that ``The principles enunciated with respect to
consultation concerning changes in airport charges in paragraph 22 are
applicable to changes in air navigation services charges.''
The ICAO guidance document indicates that there may be a need for
more specific consultation with respect to air navigation charges, but
then states, in paragraph 45, that ``consultation implies no more than
discussions between users and providers in an attempt to reach general
agreement on any proposed charges, and that failing such agreement,
governments would continue to be free to impose the charges
concerned.'' The Council continues in paragraph 45 with the
recommendation that ``when any significant review of existing charges
or the imposition of new charges is contemplated by a provider of air
navigation services, appropriate prior notice should, so far as
possible, be given at least two months in advance to the principal
users.'' This (the 2-month advance notice) is what the FAA did in the
current instance. When it issued the current Interim Final Rule, the
FAA acknowledged its responsibility to conform to ICAO guidelines where
possible; and (by giving 2-month advance notice, with opportunity to
comment, before the fees went into effect, and holding the public
meeting on June 29, 2000) did so to the maximum extent possible under
U.S. law.
It should be noted that, subsequent to the issuance of the IFR and
the receipt of public comment, ICAO in December 2000 issued a new Sixth
Edition of the above cited guidance document. The new document,
entitled ``ICAO's Policies on Charges for Airports and Air Navigation
Services,'' has been placed in the docket (Docket item 119). While it
includes some new material and a rearrangement of previous guidance,
the language cited above is retained, almost verbatim, in paragraph 49
of the new document, the only difference of any consequence being a
recommendation that 4-months advance notice be given for fee changes,
vs. the 2-months that were recommended at the time FAA issued the
Interim Final Rule.
9. Accounting and Charging for Services Provided by Air Traffic
Controllers at Enroute Centers, Before Having Determined the Cost of
Terminal Services
Air New Zealand, Lufthansa, Air France, Iberia Airlines, Japan
Airlines, KPMG, and Joseph Beaudoin (on behalf of the ATAC), and others
comment that the Overflight Fees might not be accurate because the FAA
has not yet determined the cost of Terminal Services. Without having
determined these costs, they question whether the FAA can properly
account for services provided by Enroute Centers to aircraft taking off
or landing at airports that lack an air traffic control tower.
FAA Response: The FAA acknowledges that the cost data for Terminal
Services is not yet available in CAS at the service level. The FAA
disagrees, however, that Terminal Service costs are required to
calculate Overflight Fees. They simply are not. Since Overflights do
not use Terminal Services, only the Enroute and Oceanic Service costs
are needed. CAS has been providing Enroute and Oceanic costs since
1998.
Enroute controllers sometimes provide approach control services for
airports that have no control tower; this occurs most commonly at
island airports outside the U.S. Controllers are not actually scheduled
on duty to provide this service exclusively; therefore, controller
labor costs are not affected by assisting flights landing at these
airports. Only very minor costs are associated with the provision of
this particular service, compared with the significant amount of fixed
and common costs that are incurred in providing multiple services.
Thus, the impact on costs of providing services at airports that have
no control tower is de minimis. This circumstance is addressed as
follows in the Capital Economics report (see Capital Economics report,
Docket item 99, Section IIIA, page 11):
If we expand the analysis to consider the incremental cost of
adding the entire block of Overflights as a group while holding all
other services at their normal levels we must conclude that the
change in total costs is still very small. That is, if we start with
a system that handles only non-Overflights and then add all
Overflight traffic to that system, the change in total costs would
be negligible. But this is also true of any similarly sized subgroup
of flights. Whether this subset be defined as `Overflights' or `all
flights that are enroute to South Dakota,' the change in total costs
from serving these subsets (holding all other services at their
regular levels) is negligible. This is true of any system
characterized by very large shared input costs. Moreover, to trace
costs to specific services also has its costs. In such
circumstances, a composite of services is usually priced as a group.
The incremental costs of Enroute controllers serving flights at
non-tower airports would be very small and thus make essentially no
difference in the overall cost pool. Therefore, it is not necessary to
delay the implementation of Overflight Fees to be able to calculate the
de minimis effect of Terminal costs on the fees.
10. Accounting for the Costs Incurred in the Transitional Airspace
Between Oceanic and Enroute Services
Several commenters argue that the FAA did not account for the costs
incurred in the transitional airspace between Oceanic and Enroute
Services. Former controller Michael Jengo, arguing on behalf of Air New
Zealand and several other international air carriers, cites the example
of a Tokyo-to-San Francisco flight. At about 200 miles from San
Francisco, this flight would be transferred from non-radar airspace to
a radar transitional sector, which would then descend the flight from
cruise altitude to about 13,000 feet into the Bay TRACON airspace. He
states that an Oceanic Overflight does not normally receive such
transitional service, and that, therefore, the flight landing or taking
off will require more manpower and equipment than an Oceanic flight
that only transits U.S. airspace.
The ATAC asserts that the FAA failed to provide sufficient
information for the portion of FAA's total cost pool dedicated to
providing ATC services to aircraft in the combined Enroute and Oceanic
environments. And Air New Zealand points out that while there are costs
involved in ``transitioning'' between Oceanic and Enroute Services, it
is not clear where these transitional costs are allocated.
In a supplemental declaration, Mr. Jengo states, ``oceanic air
traffic controllers are generally assigned on a given day to either
oceanic procedural sectors or to the oceanic radar transitional sector
* * * they do not
[[Page 43690]]
work both procedural and radar sectors at once.''
KPMG asserts that given this differentiation between procedural and
radar transitioning sectors, and the fact that ``oceanic overflights
are primarily procedural,'' and ``do not normally use radar
transitioning sector,'' it also follows that neither controller
manpower nor capital equipment in the Oceanic radar transition
environment is common among Overflights and non-Overflights.
FAA Response: The FAA disagrees with these comments. The FAA has
identified clear boundaries between where Oceanic airspace ends and
Enroute begins for purposes of the Interim Final Rule. The IFR does not
attempt to address and account individually for all local variations or
nuances in the ATC system. Instead, the CAS uses carefully developed
business rules that are generally consistent with the boundaries
between Enroute and Oceanic, and tracks costs accordingly. Flights
departing from or landing in the United States descend or ascend in
airspace that is generally radar-controlled and thus fall under the
``Enroute'' cost and service category. Within Oceanic airspace, the FAA
generally provides the same type of Oceanic procedural services to all
flights. Overflights constitute only about 1.25 percent of all Enroute
flights and a little more than 10 percent of all Oceanic flights, and
it is impossible to meter the use of all services that an Overflight
could use.
The comments that the costs of providing ATC services to non-
Overflights in transitional airspace are significantly higher than the
costs of providing such services to Overflights appear to reflect a
misunderstanding of exactly how these costs are accounted for under the
CAS. The airspace Mr. Jengo calls ``oceanic radar transitional sector''
is, by the FAA's CAS definitions, accounted for as Enroute airspace,
because of the type of services (radar, communication, navigation,
etc.) provided in that region. The CAS attempts to group services in
logical categories, according to the type of services the FAA provides.
Where there are variations in controller activities, these differences
are mostly reflected in the CAS.
The commenters appear to be concerned that much greater costs are
incurred in providing service to the non-Overflights, and that as a
result the Oceanic Overflights are essentially being over-charged to
provide this greater level of service to the non-Overflights. This is
not the case, however, since, as explained in the two preceding
paragraphs, the costs of services provided in the ``radar transitional
sectors'' are generally assigned under Enroute, rather than Oceanic.
11. How the FAA Determines the Cost of Providing Services to
Overflights
Many commenters argue that the FAA should determine the cost of
providing services solely to Overflights. Some commenters state that
the FAA could use other, more appropriate methods such as activity-
based costing (ABC), to better allocate Enroute and Oceanic costs. The
ATAC suggests that the FAA conduct an activity analysis associated with
Overflights in both the Enroute and Oceanic environments, along with a
cost-driver analysis indicating how best to allocate costs to each
activity.
KPMG, in comments submitted on behalf of the ATAC, states that it
is not reasonable for the FAA to rely solely on the Arthur Andersen
Costing Methodology Report (Docket item 6) and FAA's own ``improper''
assumptions, given that the FAA could instead use the well-accepted ABC
methodology to determine its actual costs to provide ATC services to
Overflights. KPMG further indicates that ABC is a standard cost
accounting method that apportions costs of resources to those specific
activities that the resources support.
In additional comments submitted later (KPMG ``Report on New
Materials Regarding FAA's Overflight Fees,'' Docket item 105), KPMG
asserts that the FAA has the means to make a reasonable estimate of the
portion of its labor costs that are attributable to Overflights. KPMG
again argues that the FAA could have used ABC to determine its actual
costs of providing ATC services to Overflights.
FAA Response: The FAA disagrees. The concept of ABC cannot be
applied in a useful way to Overflights, because it would require a
fundamentally different approach to Cost Accounting than the one that
the FAA has been working to develop for several years. Massive amounts
of specific, detailed data, not currently collected, on individual
actions by each controller would be needed to implement an ABC
approach. This type of approach was considered by the FAA early on in
the development of the current CAS, but was rejected as being neither
practicable nor particularly useful. The costs in time and dollars to
gather and maintain detailed activity data would have been substantial
and the data itself was not considered meaningful for managerial
purposes. In addition, there would still be a need to allocate the
overwhelming amounts of common and fixed costs, as is done under the
current CAS, since these costs represent all but a minimal part of the
overall costs of providing the ATC and related services. This is so
because all of the FAA's ATC services must be available at all times to
all flights (Overflights or non-Overflights) regardless of the amount
of air traffic activity to ensure the safety of any flight. As noted in
the Act:
Services for which costs may be recovered include the costs of
air traffic control, navigation, weather services, training and
emergency services which are available (emphasis added) to
facilitate safe transportation over the United States, and other
services provided by the Administrator or by programs financed by
the Administrator to flights that neither take off nor land in the
United States.
The FAA incurs a significant amount of cost by making ATC services
available, whether or not such services are used by a specific flight
at a particular time. The services rendered involve making available at
all times the total system that facilitates the safe transportation of
all aircraft. As noted by Capital Economics in their review (see the
Capital Economics report, Docket item 99, Section III A, Page 8):
These services are always available in full supply to any and
all users that need to use them. Once an aircraft enters U.S.-
controlled airspace, the U.S. ATC system is immediately engaged, and
the entire ATC infrastructure and full scope of services are
available, regardless of the type of flight, user or aircraft. The
requirements of providing full and constant availability of services
to all users are designed into the system and result in real costs
incurred in the provision of air traffic control services.
See also the FAA's response to comments under the heading ``The
cost of providing air traffic services to Overflights versus non-
Overflights.'' In addition, the FAA recognizes that, while there may be
very small differences in the marginal costs of providing services to
one type of an Enroute flight versus another, these incremental costs
are so small relative to fixed and common costs that total Enroute
costs must be allocated to cover the full cost of the services
provided. On this point, the Capital Economics analysis concludes (see
Capital Economics report, Section III A, page 10):
This is an absolutely crucial point that seems lost on
commenters, who complain that activity-based costing or some other
close examination of the production process would allow a more
direct and complete relationship between costs and outputs to be
established. In other words, they hold that while the costs may be
difficult to trace back to individual outputs, it is in fact
possible to do so and a careful study of the activities involved
will shed light on how costs should
[[Page 43691]]
be assigned. This reveals a misunderstanding of common and joint
costs, which are the primary feature of air traffic control costs in
providing services to Overflights.
Consider an example of an input that is common to the production
of two outputs, such as the fence that a farmer installs to contain
his cows and sheep. The installation cost of the fence is clearly
common to both the production of cows and of sheep. Commenters would
suggest that studying the production process under activity based
costing principles would allow for the cost of the fence to be
attributed precisely between the cows and sheep. But in reality they
cannot be so assigned regardless of how closely they are studied.
They are shared costs.
Even inputs that are traditionally considered variable, such as
labor, can be largely or completely common. Consider the case where
all the wear and tear on the farmer's fence is due to aging. The
farmer's time spent on fence mending is a cost that is common to
both the production of cows and sheep, and no amount of scrutiny or
activity based costing techniques will allow them to be assigned to
one output versus the other. The farmer's fence-mending efforts are
a common input into the production of both cows and sheep. In a
similar vein, it is not at all clear that controller time used in
providing ATC services to flights is separable or assignable to
individual flights. The suggestion that monitoring contacts made
with aircraft will allow one to do this ignores the fact that, in
providing ATC services, a controller is by definition simultaneously
monitoring and providing safe passage for all flights within his or
her airspace, Overflights and non-Overflights included.
12. Individual Fees for Each Service Delivery Point (SDP)
Several commenters suggest that the FAA should have a unique fee
for each SDP because each SDP has had its unique costs identified by
the FAA's Cost Accounting System.
KPMG adds that the FAA failed to provide information on cost
differences between SDPs, or an explanation of the reason why costs
were not allocated between Overflights and U.S. originating/terminating
flights at individual SDPs in order to capture differences in costs in
different portions of U.S. airspace. In addition, KPMG argues that the
cost differentials among the various SDPs do not solely reflect the
differing number of flights encountered by each SDP. To the contrary,
the differentials reflect different cost structures for each SDP (e.g.,
differing levels of costs for labor, telecommunications and other
inputs based on local rates and charges for labor, electricity,
telecommunications, etc., and/or the price, efficiency and/or
characteristics of equipment). KPMG suggests that in order for each
Overflight Fee to be ``directly related'' to the costs of providing ATC
services for that Overflight, the FAA needed to make an adjustment to
reflect the actual cost structure for the SDP(s) involved in servicing
that Overflight.
Qantas Airways expresses its concern that the proposed Oceanic
charge does not differentiate between the Atlantic and Pacific,
although intuitively there would seem to be differing operational
conditions in these two areas.
Air New Zealand and other commenters ask that the FAA provide data
to support its derivation of its Oceanic unit rate for each segment
(Atlantic or Pacific) of Oceanic airspace in terms of the numbers of
aircraft movements and the distances flown.
FAA Response: The FAA agrees that it has a significant amount of
cost data available by SDP and that the costs of providing Enroute and
Oceanic Services differ by varying degrees from one SDP to another. The
FAA disagrees, however, with the suggestion that it should have
determined unique fees for each SDP for this rulemaking. As noted by
Capital Economics (see Capital Economics report, Section III A, Page
14):
Commenters complain that the FAA has acknowledged that its cost
accounting system allows it to measure costs by Center. They argue
that, therefore, Overflights should be charged based on the actual
Centers crossed since costs may vary by Center.
In the current fee determination, the FAA has opted for a
simplified fee structure to minimize Overflight administration
costs, particularly for the introduction of the fees. The present
fee determination aggregates costs across Centers and charges a per-
mile fee based on the total cost of all Centers. In effect, the fee
is based on an average Center cost.
The administrative burden of proving flight tracking, billing
and collections, and customer service related to Center-based fees
would be significant. Establishing fees by Center would mean
additional workload that would include: setting up, maintaining, and
monitoring an automated system to provide the necessary data;
conducting quality control for billing and collections to ensure
that each flight has been assigned the appropriate rate for each
Center; and providing customer support for such detailed inquiries.
All these costs would add to the overall cost of supplying ATC
services to Overflights, which all Overflights would have to bear
through higher fees. These administration costs could result in
higher overall fees for all. In addition, there are some specific
service costs that have been identified in total for all Centers,
but a determination has not yet been made as to how best to
attribute them to specific Centers. Thus, achieving Center-based
pricing would require additional accounting work.
The FAA does not have SDP-specific data for all of its costs.
Indeed, significant amounts of total costs at the 21 Centers (SDPs) are
currently available only at aggregate levels that would need to be
allocated among all SDPs if SDP-specific fees were to be adopted. More
than 15 percent of Enroute costs and more than 45 percent of Oceanic
costs are in this category. Allocation of those costs among the SDPs
would require new accounting systems. While there may be differences
between SDPs, the costs of measuring those differences would exceed any
benefits that might result from greater precision in fee setting.
Meanwhile, the FAA continues to work to implement improvements and
refinements in the CAS. Assuming that the system evolves to the point
where all costs can be fairly and accurately assigned by SDPs, the FAA
will again consider the option of charging fees by SDPs.
13. Alternative Methods To Assign Costs to Users
Commenters suggest that the FAA should consider other ``better''
measures, such as cost per activity, cost per flight hour, cost per
handle, or some other appropriate method, for assigning costs to users.
KPMG, for example states, ``The FAA also makes the unwarranted
assumption that miles traveled is an appropriate measure of the cost
incurred in providing ATC services. At the Industry Presentation, the
FAA presented information on `Cost per Flight Hour' and `Cost per
Activity' and stated that `Cost per Activity' is a more meaningful
measure of the costs incurred by the FAA at Enroute SDPs.'' KPMG also
states ``The FAA has failed to provide any explanation of why the
extensive flight data available was not used to determine a reliable
allocation of costs, despite the statement in the Andersen Report that
`automation systems readily track events related to (ATS) services.'
For example, a `handle' is a measurable event tracked by automation
systems at each service delivery point and can be considered a unit of
service * * *.'' Air New Zealand suggests that using mileage as a
denominator results in Oceanic Overflights picking up twice their share
of costs, on a per-flight basis, compared to all Oceanic flights.
FAA Response: The FAA disagrees with these comments. Cost per
Flight Hour and Cost per Activity are used globally in the FAA's cost
measurement methodology for management purposes to ensure a well
rounded approach to understanding the agency's costs and in gaining ATC
managerial efficiencies. But these types of measurements are not
internationally accepted, nor do systems exist to track Overflights on
either a
[[Page 43692]]
Cost per Flight Hour or a Cost per Activity basis. FAA did, however,
consider several other metrics before making its determination that
using the average unit cost approach with Great Circle Distance (GCD)
miles was most appropriate and most fair for the Overflight Fee IFR.
Other metrics considered include the following:
Cost per air traffic control handle (count of each time an
aircraft is handed-off from one Sector to another, either within the
same ATC Center or between different Centers), which is a type of
Activity Based Costing system;
By actual distance flown (as opposed to GCD);
By amount of time flown within the ATC system; and
By weight of aircraft type--together with various weight-
based combinations such as square root of aircraft weight, GCD times
square root of aircraft weight, and square root of GCD times aircraft
weight.
Upon reviewing the above alternatives, the FAA concluded that
average unit cost, coupled with GCD, has the following advantages:
Widely used and accepted around the world (e.g.
Eurocontrol, Airservices Australia, Airways Corporation of New Zealand,
and NAV CANADA (enroute));
Generally considered a good approximation of the level of
services provided;
Eliminates most of the effects of weather, winds, air
traffic control instructions, as well as traffic volume and flow;
Shortest possible distance between two points, giving the
user the lowest possible charge based on distance.
The other options did not offer these advantages.
Overall, recognizing that the FAA is precluded by statute from
using any of the weight-based measures (since weight is essentially a
measure of value), the advantages of using Great Circle Distance appear
to far outweigh those of any other usable metric.
Most importantly, the FAA found that cost-per-mile method is the
most accurate and non-discriminatory (objective measure that can not be
influenced by the FAA or users), and the least expensive measure to
use. The Enhanced Traffic Management System (ETMS), which provides the
flight data used to derive the fees and to determine the charge for an
individual flight, is a proven and existing system. Any other method of
measuring contacts or services (e.g., Activity Based Costing systems)
would have to be separately and specifically developed, at considerable
cost, for what represents less than 1.5 percent of total flight
activity in U.S.-controlled airspace. Moreover, using flight-miles as
the basis for setting fees is a widely accepted practice in
international aviation (e.g., Eurocontrol, Airservices Australia,
Airways Corporation of New Zealand, and NAV CANADA (enroute)). Congress
left it up to the FAA to determine the most appropriate measure for the
agency, regardless of practices around the world, so long as the metric
chosen is permissible under the Act.
14. Cost of Overflight Billing and Collections
In several reports prepared on behalf of the ATAC and numerous
international air carriers, KPMG questions the methodology used by the
FAA to allocate billing and collection costs. For example, it states,
``The FAA has failed to provide any analysis of the costs associated
with billing and collection of Overflight fees, or any discussion of
the rationale for charging such fees on a per-mile basis.'' It further
notes, ``The FAA fee schedule will result in the same billing and
collection fees to a carrier who has one long Overflight as to a
carrier with many shorter Overflights resulting in the same total
mileage. The assumption that GCD miles are the appropriate basis for
apportioning billing and collection costs is without explanation or
foundation.''
FAA Response: The FAA acknowledges that it provided only a summary,
rather than a detailed analysis of its billing and collections costs
when it published the Interim Final Rule. The FAA has in fact done
considerable analysis of its billing and collection costs. The FAA
reviewed its billing and collection costs again in preparing the Final
Rule and, as a result of that review, billing and collection costs have
been reduced by nearly 17% in this rule. The following table presents a
detailed, item-by-item comparison of the earlier estimate with the
current one. Differences in the estimates are explained in the notes
following the table.
BILLING CODE 8010-01-U
[[Page 43693]]
[GRAPHIC] [TIFF OMITTED] TR20AU01.001
BILLING CODE 8010-01-C
[[Page 43694]]
Major differences between FY99 and current billing and collections
costs: The changes from the previous cost estimate are the result of
having more ``actuals'' rather than ``estimates'', including more than
8 months of actual operating experience under the IFR. Development
costs dropped $80,000 due to removal of an estimated $100,000 to
develop external web access (to be included later, when completed),
offset by a $20,000 increase for OARMIS revalidation. Operating costs
are substantially lower due to greater efficiencies realized in the
operation of the air traffic data extraction and processing activities
as well as the accounting and billing operations.
FY99 figures and calculation of Billing and Collections costs: The
developmental costs of $1,550,000 were to be recovered over 2 years in
equal annual amounts of $775,000. Operating costs were estimated to be
$963,000 per annum. Thus, the annual recovery was $775,000 + $963,000,
for a total of $1,738,000 for each of the initial two years.
Current figures and calculation of Billing and Collections costs:
The developmental costs of $1,470,000 will be recovered over 2 years in
equal annual amounts of $735,000. Operating costs are now estimated to
be $725,000 per annum. Thus, the annual recovery will be $735,000 +
$725,000, for a total of $1,460,000 for each of the initial two years.
The use of GCD miles flown to allocate billing and collection
costs: The FAA chose an allocation methodology that reasonably and
fairly allocates these costs among all users. There is significant
variation in the number and length of flights from one operator to
another. It is true, as KPMG notes, that one long flight might be
charged the same amount of billing and collection costs as a large
number of much shorter flights. It is far from clear, however, whether
this is a problem or not. Alternative methods that might be considered
include (a) a flat charge per bill; (b) charging on a per-flight basis;
(c) some combination of (a) and (b); or (d) some combination of (a) or
(b) with the current per-mile method. While the FAA has identified this
issue for further study and discussion, it has nevertheless determined
that the current system of allocating billing and collection costs on
the per-mile basis is reasonable and appropriate, and consistent with
the authorizing statute.
15. Increase in Costs of Providing Services From FY 1998 to FY 1999
Commenters express concern that the FAA's costs of providing
services to Overflights increased significantly from FY 1998 to FY
1999. For example, the AAPA states, ``It is unclear why FAA's costs to
provide service for Overflights jumped over fifty percent, a
significant increase, from fiscal year 1998 to fiscal year 1999.'' KPMG
notes ``During the Industry Presentation, the FAA revealed that its
expenses for capital acquisition and implementation costs were
substantially higher in FY 1999 than in FY 1998.''
FAA Response: The FAA acknowledges that the cost of providing
Enroute and Oceanic Services increased from 1998 to 1999. When the FAA
released its FY 1998 cost data, it acknowledged that its costs were
understated. This was attributable to (1) FAA's failure to capitalize
and subsequently depreciate a number of assets, and (2) a particularly
conservative costing methodology used with the new Cost Accounting
System. In FY 1999, as the CAS evolved further, the FAA was able to
capitalize a significant amount of assets based on better data. The FAA
also made accounting refinements in such areas as telecommunications
costs, allowing more accuracy in cost reporting. These accounting
refinements in telecommunications costs resulted in more accurate, but
increased, allocations to certain services.
In addition, the FAA's costs of providing overall service increased
in FY 1999 in both the Enroute and Oceanic environments. Acquisition
costs increased significantly due to a continued focus on modernization
efforts, such as the Display System Replacement and the Wide Area
Augmentation System project.
16. The Possible ``Over-Allocation'' of Costs to the Oceanic Cost Pool
The AAPA asks for an explanation of why the Oceanic fees are
approximately 54% of the Enroute fees, although total Oceanic costs of
$94 million are only about 4% of total Enroute costs of $2.4 billion.
They express concern that this might represent an over-allocation of
FAA costs to the Oceanic environment.
FAA Response: The FAA disagrees that there may have been an over-
allocation of costs to the Oceanic Service. The unit rates for
Overflight Fees are determined by the number of miles flown in each
separate environment (Oceanic and Enroute). The higher the number of
miles flown in one environment, the greater the denominator when
dividing costs by miles to calculate the unit rate. In FY 1999, the
number of miles flown in the Oceanic environment was 483,522,588, while
the number of miles flown in the Enroute environment was 6,619,138,872.
This explains why the Oceanic fee is a higher percentage of the Enroute
fee despite Oceanic costs being a significantly smaller number compared
to Enroute costs.
The FAA does not believe that the facts of the situation provide
any support for the concern that costs may have been over-allocated to
the Oceanic Service due to the methodology the FAA used to develop its
fees. The FAA uses the total cost (less overhead costs) of each of the
two Services (Enroute and Oceanic) and the total miles flown in each
respective environment to determine the unit rate for each. All data
used in the calculation are actual figures. Since the two Services are
very different, this methodology is quite reliable for allocating the
costs. For the above reasons, the FAA's fee development methodology
does not result in an over-allocation of costs to the Oceanic
environment.
17. British Airways Asks the FAA To Provide a More Precise Definition
of ``Flights'' and How Data on Flights and Miles Are Gathered
FAA Response: In the FAA's Enhanced Traffic Management System
(ETMS) database, a flight is entered into the system when the operator
of the aircraft files a flight plan, and/or the FAA receives its points
of entry into, and exit from, U.S.-controlled airspace. Also, flights
are generally confirmed by radio communication, contact reports, or
radar detection. For the purposes of Overflight Fees, a flight is
defined by when an aircraft transits U.S.-controlled airspace, but
neither takes off from nor lands in the U.S.
In the Oceanic environment, when an aircraft reports its Oceanic
position to the FAA, the position coordinates become part of ETMS.
Similarly, in the case of Enroute traffic, radar systems provide
aircraft coordinates that become part of the same database. These
coordinates are then used to determine where the aircraft entered and
exited the U.S.-controlled airspace. The Great Circle Distance for the
flight is then calculated between the entry and exit points, and
multiplied by the appropriate unit rate to determine the amount of the
fee to be billed.
18. Qantas Airways Suggests That ``Search and Rescue'' Costs Should Not
Be Included in the Overflight Fee Cost Base, According to ICAO Guidance
FAA Response: The FAA agrees. Search and Rescue costs have not been
included in either the Enroute or the Oceanic cost pools.
[[Page 43695]]
19. A Better Explanation Is Needed of the Canada-to-Canada Domestic
Flight Exemption
Commenters request a better explanation of the Canada-to-Canada
exemption. For example, Air New Zealand expresses concern ``that the
fees might be applied in a discriminatory fashion because Canada-to-
Canada flights are exempt from the Overflight fees,'' thereby causing
an estimated loss in revenue to the FAA of $9.7 million annually. The
commenter notes further that this may be in violation of Article 15 of
the Chicago Convention or the provision of ICAO Document 9082/5 (Docket
item 7) that requires non-discriminatory treatment of foreign users.
FAA Response: U.S.-to-U.S. and Canada-to-Canada flights often
transit the other country's airspace for any of several reasons, such
as weather, volume of activity, equipment malfunction, more direct
routing, pilot request, etc. Currently, the FAA and NAV CANADA have an
agreement in place to mutually exempt from otherwise applicable
Overflight fees for aircraft of any nation that transit one country's
airspace but originate and land in the other country. The loss in
revenue to each air traffic service provider is roughly equivalent, and
the arrangement is beneficial to both in terms of the safer and more
efficient operation of the joint ATC system serving high volumes of
aircraft near the borders of the two countries.
The FAA was very cognizant of the various non-discriminatory
provisions cited by the commenters when it was structuring the
arrangement with NAV CANADA, and does not believe the agreement
violates any of those provisions. The agreement exempts aircraft that
take off from and land in the same country, regardless of nationality,
and does not exempt aircraft belonging to or operated by a specific
country. For example, when Air Canada flies from Vancouver to Toronto,
a large portion of that flight often occurs in U.S.-controlled airspace
near the U.S.-Canada border, yet there is no fee charged by the FAA.
Aircraft of any country flying that same route would be equally exempt.
20. The Cost of the U.S.-NAV CANADA Agreement
Air New Zealand asks for more detailed cost data on the flights
affected by FAA's agreement with NAV CANADA, as well as the specifics
of the arrangement with NAV CANADA. Also, Qantas Airways asks whether
the cost of providing services to Canadian traffic has been excluded
from the calculation of Overflight Fees.
FAA Response: On December 6, 2000, the FAA placed three additional
documents (see Docket No. FAA-00-7018; items 100-102) in the Overflight
Fee docket relating to the agreement with NAV CANADA. These are as
follows:
(1) Internal FAA Memo of April 12, 2000, providing ATC activity
data for use in the FAA Overflight Fee Development Report (Item 4 in
the Overflight Fee docket).
(2) An Addendum to the Overflight Fee Development Report showing
the estimated fee collections with Canada-to-Canada flights excluded.
(3) The September 1999 Agreement between the FAA and NAV CANADA.
Collectively, these documents show that FAA's estimated costs of
providing ATC services to the exempted Canada-to-Canada flights have
been removed from the expected Overflight Fee billings. Thus, there is
no cross-subsidization of the exempted flights. Those flights are now
estimated to cost $9.7 million on an annual basis, and the amount to be
billed annually by the FAA is that much less. While FAA's total costs
related to Overflights are estimated at $43.2 million, Overflight Fee
billings will amount to only an estimated $33.5 million. As noted in
the IFR, the difference of $9.7 million represents the cost to the FAA
of the mutual exemption arrangement with NAV CANADA. This cost will not
be passed on to Overflight customers or to any other user; it will be
borne by the FAA.
21. Requests for Additional Time Before Overflight Fees Are Implemented
The Long Haul Charter Carriers of Italy and other commenters
request more time to factor the Overflight Fees into their costs of
providing service.
FAA Response: The FAA denied this request for a number of reasons.
As noted previously, in the Federal Aviation Reauthorization Act of
1996 (the Act), Congress directed the FAA to establish Overflight Fees
expeditiously by the Interim Final Rule process. In spite of several
opportunities to do so, Congress has chosen not to change this
statutory direction, and even reaffirmed that point last year in the
NTSB Authorization Act (see Docket item 97). Also, each year since 1997
EAS has been funded based on the assumption that fees were being
collected. The FAA moved as expeditiously as possible to implement the
new fees. This nevertheless took a long time to accomplish, due in
large part to the FAA's decision to wait until it had sufficiently
accurate cost data from which to derive the fees. This data was not
available until after the Inspector General's audit of FAA's financial
statements for FY 1999 was completed on March 1, 2000.
Throughout this process, however, the FAA has always indicated its
intent to implement the new Overflight Fees via the Congressionally
directed IFR process. (See the several meeting summaries in the docket
for this rulemaking--items 11, 15, 16, and 22.) Even prior to those
meetings, the FAA distributed an information paper (see Docket item 9)
to more than 150 countries at an ICAO Conference in Montreal in
September 1998, informing them that, ``FAA is working as expeditiously
as possible to issue another interim final rule (emphasis added) that
will reestablish overflight fees.''
Finally, about three months in advance of publication of the
current IFR, the FAA sent a letter of notification to the aviation
industry informing known Overflight operators of FAA's imminent plans
to reestablish Overflight Fees by an IFR. (See Docket item 1). This
letter also was published in the Federal Register of March 9, 2000.
In view of the above information and notification provided by the
FAA over the past few years regarding its intent to issue another IFR
on Overflight Fees, and in view of the fact that the IFR, when issued,
provided another 2-month advance warning before the fees were
effective, the FAA did not believe any additional delay in the
effective date of the fees was necessary.
22. Air New Zealand Asks What Traffic Growth Assumptions the FAA Used
in the Derivation of Its Overflight Fees
FAA Response: None. The FAA used only FY 1999 cost and flight data.
The current Fees are based on the FAA's actual costs for FY 1999, as
shown in the FAA's final audited financial statements. The FAA derived
the unit rate by using these actual costs and the actual miles flown
that year in each (Enroute and Oceanic) environment. No part of the Fee
methodology is based on growth assumptions.
23. Exceptions From Fees for Emergencies
American Airlines comments that flights that are scheduled to
either land in or take off from the U.S., but then have to make an
unscheduled foreign stop for safety-related reasons (thereby becoming
an Overflight) should not be charged Overflight Fees.
FAA Response: The FAA disagrees. Congress directed the FAA to
establish
[[Page 43696]]
Overflight Fees for those flights that neither take off from, nor land
in, the United States (except military and government aircraft of the
United States and foreign governments). The FAA must enforce this
Congressional direction in a nondiscriminatory manner. Regardless of
whether the situation is considered an emergency, if any flight
constitutes an Overflight, as defined by the Interim Final Rule and the
Final Rule, the FAA is required by law to charge Overflight Fees to
that flight.
24. Determining Total Costs Before Being Able To Calculate Overflight
Fees
Some commenters suggest that the FAA must be able to determine its
total costs before being able to calculate Overflight Fees accurately.
KPMG, supported by several other commenters, asserts that the FAA did
not explain how it determines its total costs pool, and that the FAA's
failure to determine its total costs raises a fundamental issue of
whether the FAA has obtained and used the information it needs to
determine its costs of providing ATC services in the Enroute and
Oceanic environments.
Japan Airlines, Iberia Airlines, and others assert that, since the
CAS is not yet fully operational, the FAA cannot accurately state how
much it spends on Overflights.
FAA Response: The CAS has been capable of determining the FAA's
total cost pool since its initial implementation at the end of FY 1997.
Currently, the Enroute, Oceanic, and Flight Services costs have been
itemized and identified at the Service level. All other costs are
captured at the FAA lines of business (LOB) level. To ensure that all
costs have been captured, the FAA reconciles total costs in the CAS to
total costs in the FAA's General Ledger Accounting System, the
Departmental Accounting and Financial Information System (DAFIS). Also,
on an annual basis, FAA produces a ``Statement of Net Costs,'' which
reports overall agency expenses. This is one of six standard statements
published each year as part of FAA's annual financial statements. Those
statements can be found on the Internet at http://www.faa.gov/aba/html_finance_manage/fin_state_ann_rep.html.
The FAA disagrees that it did not discuss how it determines its
total cost pool. As the Costing Methodology Report (Docket item 6, page
iii, Executive Summary) states, ``The purpose of this report is to
describe (1) how the Federal Aviation Administration's (FAA) Cost
Accounting System captures costs for all FAA lines of business, and (2)
how costs were assigned to the Enroute and Oceanic air traffic control
(ATC) services.''
In addition, the Arthur Andersen Addendum to the Costing
Methodology Report (Docket item 98, Section 3, page 6) states:
The CM Report included a section (Section 3.0) that described
the origin of CAS financial data. While the report focuses on how
financial data, related to the Enroute and Oceanic services, were
processed, the scope of the system covers all areas of FAA costs,
including non-Enroute and Oceanic data. Arthur Andersen participated
in the development of the reconciliation process and subsequent FAA
enhancements to confirm that all costs are reconciled between the
general ledger and the CAS. These procedures are in place and are
routinely performed by FAA personnel.
The FAA, of course, does not dispute that the CAS has not yet been
fully implemented. It is a work-in-progress, currently expected to be
in place agency-wide by the end of FY 2002. But it is not needed
agency-wide to derive Overflight Fees. All that is needed for that is
the cost data for Enroute and Oceanic Services (since Overfights use
only those two Services), and CAS has been providing that data since
1998.
25. The FAA Included Non-Recurring Costs in Enroute and Oceanic Cost
Calculations
Several commenters, including Air New Zealand, British Airways,
Lufthansa, LTU, KPMG, and others maintain that in the Enroute and
Oceanic cost calculations, the FAA should not have included such non-
recurring costs as those related to the Y2K computer problems.
KPMG complains further in its later comments (see KPMG ``Report on
New Materials Regarding FAA's Overflight Fees,'' Docket item No. 105)
that the Arthur Andersen Addendum (Docket item 98) does not address
what it (KPMG) considers the overriding problem, i.e., that, even if
the one-time Y2K costs were correctly ``expensed,'' rather than
``capitalized,'' for financial accounting purposes, it is improper to
treat them as recurring expenses for purposes of the Overflight Fees.
FAA Response: The FAA disagrees. When determining its total costs,
the FAA must include those costs that are ``expensed'' in their
entirety in that year, as well as the applicable portion of
``capitalized costs'' that was expensed. Expenditures fall into one of
these two categories. Some costs are expensed, meaning that the total
cost is recognized as an expense in the period in which it is incurred,
because the benefit of the incurred expense is also received in that
period. Some costs, however, are capitalized, meaning that the entity
expects to receive the benefit of the cost over more than one year. In
these cases, a portion of the cost is expensed each year the benefit is
received.
The FAA's Office of Financial Management publishes a desk guide
that summarizes FAA's accounting practices for deciding the kinds of
costs that are expensed versus those that are capitalized (see Arthur
Andersen's discussion of this in the Costing Methodology Report
Addendum, Docket item 98, pages 7-8). The desk guide indicates that
software costs can be capitalized, but makes an exception for
``enhancements that merely correct a design flaw or extend the useful
life of the software.'' The desk guide can be found on the Internet at
http://www.faa.gov/aba/html_finance_manage/asset__cap.html.
The FAA's practice is in accordance with Statement of Federal
Financial Accounting Standards (SFFAS) No. 10, ``Accounting for
Internal Use Software'' issued by the Federal Accounting Standards
Advisory Board (FASAB). This statement is effective in FY 2001, and the
Board has encouraged its early implementation. SFFAS No. 10 advises
expensing Y2K costs as they are incurred. The Board's advice in this
instance is based on the fact that ``enhancement'' needs to be limited
to instances where new capabilities are being added to the software.
Since Y2K remediation did not add new capability, these costs were
expensed in the year incurred.
In addition to Y2K costs, there are financial adjustments
representing both costs and credits that are included in the Enroute
and Oceanic cost pools. These include: value of inventory held
primarily at the FAA Logistics Center, disposal of obsolete or retired
supplies, disposal of certain inventory, value of inventory due to
holding and repairs to damaged inventory, and correction of a prior
year expense. Offsetting these adjustments to a large extent are
several credits, for the over-expensing of certain environmental and
capital investment costs in FY 1998. All of the costs in this cost
category are directly related to the provision of Enroute and Oceanic
Services. As stated clearly in the IFR, and again in the Final Rule,
FAA intends to update and adjust its fees regularly to reflect changes
in costs. Thus, whatever the net effect of these adjustments on the
level of the Overflight Fees, it will not be an ongoing cost to users.
In addition, while
[[Page 43697]]
this treatment of the prior year's non-recurring expenses and credits
for the purposes of setting the current year's fees may introduce time-
lag issues into the recovery of costs through fees, it is a treatment
that can be expected to provide accurate cost recovery over time. That
is, while hypothetically it is possible that last year's non-recurring
costs are a poor indicator of the current year's non-recurring costs
and is therefore likely to lead to somewhat inaccurate fees, over time
there is no reason to believe that it will be systematically over or
under the appropriate amount of costs incurred. In the long run, any
incidental overcharges that occur can be expected to be at least
largely, if not entirely, offset by instances of undercharges.
In addition if, as the petitioners suggest, the FAA were to attempt
to resolve this timing issue by deviating from the standard cost
classification rules outlined above, it would inject a highly
subjective and arbitrary process concerning cost treatment into every
round of rate setting.
26. The FAA Expensed Costs That Should Have Been Capitalized
Many commenters express concern that the FAA expensed costs should
have been capitalized. Air New Zealand suggests that a better
explanation of depreciation policies is needed, because a significant
amount of capital costs appear to be expensed in the current year
rather than being capitalized and depreciated over the life of the
asset.
KPMG comments that FAA's capital cost categories are described as
expensed costs that are related to implementation of capital systems,
acquisitions, and research, engineering and development costs. KPMG
says the FAA methodology assumes that these costs are directly related
to flights occurring during the fiscal year in which they are expensed,
and that the association of these costs with capital programs strongly
suggests that this assumption is unwarranted. KPMG concludes that, even
where expensing of capital investment costs for financial statement
purposes is warranted, such costs should be spread over the period of
the anticipated benefit for purposes of determining annual costs
``directly related'' to the ATC services provided.
KPMG complains that Arthur Andersen is silent with respect to other
large costs that the FAA has improperly expensed for purposes of
determining its costs ``directly related'' to Overflights. These
include the $668 million--25% of total Enroute costs, and an additional
$33 million--33% of the total Oceanic cost pool. KPMG argues that the
benefits of NAS modernization programs extend over many years and for
purposes of economic analysis, these costs must be spread throughout
the period of the benefits rather than expensing them in the year
initially incurred.
FAA Response: The FAA agrees in part. The FAA's capital investment
appropriations, Facilities and Equipment (F&E) and Research,
Engineering and Development (RE&D), are used both for acquisitions that
are expensed as well as for acquisitions that are capitalized. Examples
of valid expense items that may be paid from FAA's capital
appropriations include training, maintenance, spare parts, and other
consumables. In determining its depreciation policy, the FAA has
followed Federal Accounting Standards. As noted previously, the FAA's
Office of Financial Management publishes a desk guide that summarizes
FAA capitalization and accounting practices. Chapter 2 of this desk
guide instructs FAA personnel responsible for accounting for property,
plant, and equipment, how to treat these items properly. This document
provides the following guidance regarding capitalization of software
and research and development costs, respectively:
* * * software costs that are not eligible for
capitalization include * * * enhancements that merely correct a
design flaw or extend the useful life of the software.'' Y2K
remediation expenses fall into this category.
* * * Expense any costs incurred for a project before
technological feasibility has been determined.'' This describes
research and development projects as executed by the FAA.
This desk guide states that the procedures and policies on which
the guide is based are in compliance with all relevant Federal
Accounting Standard Advisory Board Statements as well as requirements
of the Chief Financial Officers Act.
As part of the FAA's annual financial audit for FY 2000, which was
completed on March 1, 2001, it was determined that certain costs that
had been expensed in 1999 should have been capitalized. In particular,
subsequent to publication of the FY 1999 Financial Statements, it was
determined that some of the costs captured under the Enroute and
Oceanic ``ARA Expensed F&E Labor/Non-Labor'' categories should have
been capitalized instead of being expensed. As a result of this
adjustment, the cost category entitled ``depreciation'' has increased
slightly due to the additional costs now being capitalized and then
depreciated over periods of up to 20 years. These costs were derived
from various projects relating to the provision of Enroute and Oceanic
air traffic services.
The net impact is the following:
Enroute Service
------------------------------------------------------------------------
Original FY 1999 Amended FY 1999
costs costs
------------------------------------------------------------------------
ARA Expensed F&E Labor/Non-Labor.. $668,351,218 $421,196,901
Depreciation...................... $208,296,479 $213,706,687
Net change due to adjustment...... ................. ($241,744,108)
------------------------------------------------------------------------
Oceanic Service
------------------------------------------------------------------------
Original FY 1999 Amended FY 1999
costs costs
------------------------------------------------------------------------
ARA Expensed F&E Labor/Non-Labor.. $33,186,457 $13,082,745
Depreciation...................... $5,182,602 $5,622,672
Net change due to adjustment...... ................. ($19,663,642)
------------------------------------------------------------------------
[[Page 43698]]
Making such adjustments to the financial statements is a normal
part of the financial review process, whether the statements are those
of a private company or a public sector agency. These adjusted FY 1999
costs are the basis for the FAA's derivation and adjustment of its
Overflight Fees for the Final Rule. As this adjustment in the Final
Rule means that there have been overpayments under the Interim Final
Rule, the FAA will promptly provide credits and refunds pursuant to 49
CFR part 89.
27. Expenses in the Capital Investment Category
Several commenters suggest that the FAA should not have included
Airway Facilities (AF) Expensed F&E Labor/Non-Labor, ARA Expensed F&E
Labor/Non-Labor, and ATS RE&D Expensed Labor/Non-Labor in the Capital
Investment category. LTU comments that the FAA included many costs not
associated with the burden of servicing each flight (e.g., ARA RE&D
costs) and that many of these are unexplained.
FAA Response: The FAA disagrees. The full cost of a service should
include expenses incurred in that year, including the applicable
portions of capital costs that were expensed. In addition, the FASAB's
Statement of Federal Financial Accounting Standards (SFFAS) No. 4,
``Managerial Cost Accounting Concepts and Standards,'' states that
depreciation (current year portion of capitalized costs) should be
included as a part of full cost.
FASAB's SFFAS No. 6, ``Accounting for Property, Plant and
Equipment,'' states that costs for construction of assets not yet
complete should not be included in full cost. These costs should be
collected as ``work in process'' (WIP) and capitalized when the asset
is placed in service.
The FAA's cost accounting methodology calculates the full cost of
providing Enroute and Oceanic Services. The full cost does include
capitalized costs as applicable and as outlined by the appropriate
Federal Accounting Standards.
As noted in the discussion of the preceding comment (relating to
the expensing of costs that should have been capitalized), it was
determined in the course of the audit of FAA's financial statements for
FY 2000 that the FAA had over-expensed certain costs during FY 1999.
These particular costs should have been capitalized and depreciated
instead over periods of up to 20 years. The costs used by the FAA to
derive its Overflight Fees for the Final Rule reflect these
adjustments.
28. Air New Zealand, KPMG, Lufthansa, and LTU Ask the FAA To Explain
the ARA Expensed F&E Labor/Non-Labor Costs Under ``Capital Investment''
FAA Response: As noted above in the discussion of the two
immediately preceding comments, the FAA has adjusted its costs for FY
1999 under the ARA Expensed F&E Labor/Non-Labor category as a result of
the FY 2000 financial statement audit. The amended amount for the
Enroute Service is $421,196,901, and the amended amount for the Oceanic
Service is $13,082,745.
ARA Expensed F&E Labor/Non-Labor consists of projects that support
the modernization of the National Airspace System. Project codes have
been established in the CAS to capture the costs of these projects.
These projects generally represent ``ATS products.'' An ATS product
could be a piece of equipment or a capability used in the provision of
ATC services, or an enhancement to an existing system or capability.
Subject matter experts determined which of the four ATS Services each
project benefits, and the costs associated with each project were
assigned to the appropriate Service. In some cases, a project may
benefit more than one Service. In such instances, subject matter
experts familiar with these projects determine the appropriate
percentage split between the Services.
There are a total of approximately 2,100 line items for Enroute and
Oceanic Services combined. Examples of the types of projects included
in this cost element are the following:
For Enroute, examples include work on the Wide Area
Augmentation System for the Global Positioning System, Display System
Replacement, HOST Replacement, Y2K Date Change Program, LORAN-C, Long
Range Radar Replacement, and Voice Switching Control System (VSCS).
For Oceanic, examples include work on Oceanic Automation
Systems, ARTCC Building/Plant Improvement, VSCS for Houston, and Remote
Maintenance Monitoring.
The FAA has a complete list of these projects, and will make it
available upon request. Contact Randall Fiertz in FAA's Office of Cost
and Performance Management, (202) 267-7140, for further information.
29. The ATAC and KPMG Question the FAA's Assumption for Using Labor
Costs as the Basis for Allocating Non-Labor Costs. They Also Question
the FAA's Reliance on Staffing Standards To Allocate Certain Costs
FAA Response: The FAA disagrees that these assumptions are
improper. The Arthur Andersen Costing Methodology Report Addendum
(Docket item 98) addresses both (a) the use of labor costs to assign
non-labor costs and (b) the use of staffing standards to allocate
costs, stating as follows (see section 2, pages 4-5):
When designing the CAS, the FAA relied on the Federal Accounting
Standards Advisory Board's Statement of Federal Financial Accounting
Standard No. 4, Managerial Cost Accounting Concepts and Standards
for the Federal Government (FASAB 4). FASAB 4 discusses the
complexity of cost accounting processes to be employed by federal
agencies but does not specify the degree of complexity or
sophistication of any managerial cost accounting process. FASAB 4
instructs agencies to determine their own appropriate level of
detail or complexity based on several factors. Two of these factors,
key to the FAA's cost accounting design, include:
Relative precision desired and needed in cost information; and
Practicality of data collection and processing.
These two factors form the basis for the ``best available data''
concept adopted by the FAA. `Best available data' as defined by the
FAA refers to the use of data that is readily available from either
automated or non-automated sources, that represent the most current
and accurate source of data in any given business area. Often, the
FAA had choices as to what data to use as the basis for an
allocation. The FAA strived to choose the most accurate and readily
available data source. Arthur Andersen concurs with the design
decisions made based on both our public and private sector
experience and our assessment of the sources of information for use
in this phase of the CAS implementation. When faced with a decision
between one source that is not readily available and another that
is, FAA management made a determination as to the relative costs and
benefits to select the appropriate source. The FAA relied on this
approach, as reflected in the CM Report, to develop the following
cost assignments:
Allocating Airway Facilities (AF) non-labor costs and Air
Traffic (AT) and AF workers compensation claims to projects and
Service Delivery Points (SDPs) based on labor costs; and
Allocating AF labor costs to projects and SDPs based on staffing
standards.
The FAA's reason for allocating these costs to projects and
SDPs, at the current time, is to accomplish full costing of Air
Traffic Services (ATS) organization's services for Overflight Fee
purposes. In the future, new business drivers, such as cost and
performance management, may require these costs to be directly
assigned. Arthur Andersen concurs with this initial design decision
until direct tracing capabilities are available for the entire AF
work force. AF non-labor costs represent approximately 1% of total
Enroute costs. To directly assign AF non-labor costs the FAA would
have to modify its legacy accounting system (currently scheduled for
replacement in FY 2002) requiring an extensive system development
effort beyond the current
[[Page 43699]]
project's scope. In addition, this change would impose a major
process change on employees. Therefore, for the purposes of
determining Overflight Fees, the FAA deemed the burden of the
changes described above to outweigh any benefit that might be
derived given the relative size of the cost pool at issue. Arthur
Andersen agrees with the FAA's approach of deferring the
implementation of direct assignment techniques for this small pool
of costs.
As for workers compensation costs, AT generates the major share
of the workers compensation liability. ATS believes it is
reasonable, based on the nature of air traffic control work, that
labor costs, used as a proxy for headcount, is a reasonable
indicator for the accurate distribution of workers compensation
claims (i.e., the more employees an SDP has, the higher their
workers compensation bill). The FAA is working to improve this
assignment by using actual workers compensation claims as the basis,
an improvement planned for fiscal year 2001. Arthur Andersen concurs
with this initial effort and the need to routinely reexamine the
initial cost drivers.
In place of actual time recording, the FAA is relying on
staffing standards to assign AF labor costs to projects and SDPs.
This approach has been discussed with the IG. These discussions have
resulted in agreement that staffing standards represent the best
available data source for allocating these costs at the present
time. This agreement comes with the understanding that ATS
management works towards a more direct, time recording-based method
of assigning these costs (the FAA recently provided a report to the
IG outlining a plan to implement labor distribution agency-wide).
Arthur Andersen supports the continual refinement of the labor
reporting processes in use and planned by the FAA.
Since the December 1, 2000 issuance of the above-quoted Arthur
Andersen Addendum, the FAA has experienced some slippage in its plans
for handling Workers Compensation costs. The use of actual claims as
the basis for distributing those costs is no longer planned for
implementation in FY 2001. Instead, the FAA is continuing to examine
alternative ways to assign these costs, with actual claims being one of
the options under consideration.
30. Air New Zealand, Iberia Airlines, Japan Airlines, ATAC, KPMG, and
Others Ask for an Explanation of Why the FAA Used the Ratio of Oceanic
Sectors to Total Oceanic and Enroute Sectors To Allocate Certain
Maintenance Costs
FAA Response: The FAA used a three-step approach in allocating
maintenance costs to Oceanic:
First, costs associated with equipment dedicated solely to
the provision of Oceanic Service, e.g. ODAPS (Oceanic Display and
Planning System) and DOTS (Dynamic Oceanic Tracking System) are
assigned to the Oceanic Service.
Second, for equipment that is shared between the Enroute
and Oceanic Services, (e.g., building infrastructure and environmental
equipment), sector ratio percentages (the percentage of Oceanic sectors
in the total of Enroute plus Oceanic sectors) were applied as the
allocation basis.
Finally, no costs were included in Oceanic for equipment
such as radars, certain navigational aids, and other equipment that
provide no benefit to Oceanic users.
In the second step, where costs are shared between Enroute and
Oceanic, the sector ratio percentages are considered the most
appropriate basis to allocate maintenance costs. This determination was
made because, of the various alternative methods considered, sector
count appeared to most accurately reflect the actual workload of a
technician. This is because the ability to generate and maintain
sectors is a function of the number of ``suites'' of equipment
available at that location. The number of suites of equipment
correlates to the workload of a technician. The allocation percentages
thus derived for each Oceanic SDP are shown in the table below. These
percentages apply only to those programs shared between Enroute and
Oceanic.
------------------------------------------------------------------------
Basis
amount (AF
SDP costs)
(percent)
------------------------------------------------------------------------
New York ARTCC............................................. 17
Oakland ARTCC.............................................. 17
Houston ARTCC.............................................. 5
Anchorage ARTCC............................................ 14
------------------------------------------------------------------------
Three other bases were considered to allocate AF non-labor costs
from Enroute to Oceanic. The table below describes each option and the
reason why it was not used:
------------------------------------------------------------------------
------------------------------------------------------------------------
Aircraft Handled.......................... This measure does not have
any correlation to the
nature of an AF
technician's work (i.e.,
number of facilities
maintained).
F&E Funding............................... This measure is considered
inconsistent because
funding can vary
considerably by year and
has no correlation to the
nature of an AF
technician's work.
Work Distribution......................... AF Managers at specific
SDP's were queried as to
the distribution of
technicians' work between
Oceanic and Enroute
systems. This approach was
deemed unreliable (i.e.,
too subjective) and
therefore inadequate.
------------------------------------------------------------------------
31. The ATAC and KPMG Request a Discussion of the ATC Cost Centers Used
To Assign ATC Costs
KPMG comments that the FAA has provided no discussion of the
activities associated with each cost center that would permit
evaluation of the reliability of the cost assignments to the four ATS
Services. KPMG further states that the FAA has failed to provide
information on the total pool of costs associated with each cost
element, and the allocation of those cost elements across the four
Services.
FAA Response: For cost accounting purposes, the FAA is comprised of
more than 10,000 ``cost centers'' that designate the specific
organization to which each employee is assigned. Cost centers identify
organizations throughout the FAA, such as the FAA Administrator's
Office, staff offices such as Human Resources, Civil Rights, Public
Affairs, etc., as well as the operational LOBs such as Air Traffic
Services (ATS), Regulation and Certification, Civil Aviation Security,
etc. Since every organization within the FAA incurs costs, they are
referred to as cost centers. Every time an organization incurs costs,
its cost center code is identified with that cost in the cost
accounting system.
Air Traffic Services has, by far, the largest number of cost
centers within the agency. For example, each air route traffic control
center (ARTCC) has a unique cost center code that identifies it. Air
traffic controllers within each of the ARTCCs perform the activities
associated with providing Enroute and/or Oceanic ATC services. Cost
centers also uniquely identify other air traffic organizations that
provide Terminal and Flight Service Station Services. Other cost center
codes identify field maintenance organizations that are actively
engaged in ensuring that the equipment used to provide various services
such as navigation, communications, surveillance (radar), etc., are
maintained in working order. Cost centers identify the System Support
Centers and System Support Units (SSCs and SSUs) that perform the
maintenance activities as well as the System Management Offices (SMOs)
that manage each of the SSCs and SSUs.
Cost centers contribute to a better understanding of the FAA's
costs. For
[[Page 43700]]
example, through the use of cost centers, the FAA is able to identify
the organizations that perform flight inspections of the equipment used
to provide air traffic services. Cost centers also allow the FAA to
identify organizations outside of the Air Traffic Services organization
that provide support necessary for ATS to function. One example is the
Academy at the Mike Monroney Aeronautical Center in Oklahoma City. The
Academy develops and provides training to air traffic controllers and
the employees that maintain the equipment used to provide air traffic
services. In summary, cost centers are invaluable elements that allow
the FAA to identify every organization, and its associated costs,
throughout the agency.
As for the cost elements (i.e., line items) for Enroute and Oceanic
Services, the FY 1999 cost pools for each cost element are provided in
the ``Overflight Fee Development Report, as Amended'' for the Final
Rule. Each line item on page 6 of this report represents a cost
element. The FAA did not provide the total pool of costs for the other
two ATS Services, because the costs for Terminal and Flight Services
were not yet available by each cost element in 1999.
32. British Airways, ATAC, KPMG, and Others Request That the FAA
Provide Information Supporting the Apparent Presumption That All Labor
Costs in an SDP That Provides Enroute and/or Oceanic Services Are
Directly Related to the Provision of Such Services
FAA Response: The FAA used subject matter experts, who were part of
the team of individuals who developed the original CAS design and
methodology to cost out each service in CAS. These individuals
performed the analysis of facilities, including the assignment of labor
costs at those facilities, for each of the four ATS Services. All labor
costs at SDPs were assigned by these subject matter experts, based on
the function to which the costs contribute and the direct relationship
of each function to the provision of the Enroute and Oceanic Services.
The FAA will make available the documentation behind the assignment of
costs to SDPs and ATS Services upon request. Contact Randall Fiertz in
FAA's Office of Cost and Performance Management (202) 267-7140.
33. Commenters Request the FAA To Provide Adequate Information on the
Allocation of Telecommunications Costs
FAA Response: The Air Traffic Services (ATS) organization maintains
the Telecommunications Information Management System (TIMS) that tracks
each circuit to a facility (Center, Tower, radar, navigational device,
etc). Each facility has been assigned to one of the four Services.
Based on this information, the cost of each leased line is assigned to
a Service. The Costing Methodology Report (Docket item 6, Section
4.2.2.4, pages 28-29) includes an explanation of the process used to
assign these costs.
In addition to leased telecommunications costs, there are certain
non circuit-based telecommunications costs provided by contract support
in the Oceanic airspace. The cost of these items were determined and
assigned to the Oceanic Service based on actual invoices.
34. KPMG, Supported by Other Commenters, Requests the FAA To Provide
Historical Data Regarding Workers Compensation Claims To Determine the
Nature of Their Distribution Between the Services
FAA Response: The table below illustrates how the CAS allocated
FAA's historical Workers Compensation costs in FY 1998 and FY 1999. The
FAA began implementing the CAS in FY 1998; therefore, Workers
Compensation costs were not allocated among the four ATS Services prior
to that time. The Department of Labor (DOL) administers the Workers
Compensation program for Federal agencies, and reports the amount of
payments made on behalf of the FAA each fiscal year. The Office of
Management and Budget requires Federal agencies to report a current
year expense in the amount of the payments made each year by the DOL.
This practice is in accordance with generally accepted accounting
principles (accrual accounting) that requires the recognition of
liabilities, and the corresponding expense, in the period in which they
are incurred. Congress appropriates and makes the funds available to
pay the accrued liability in the second subsequent year after the
liability is recorded.
Workers' Compensation Costs
----------------------------------------------------------------------------------------------------------------
ATS service FY 1997 FY 1998 FY 1999
----------------------------------------------------------------------------------------------------------------
Enroute...................................... ................................. $28,700,281 $29,646,139
Oceanic...................................... CAS was not in use in FY 1997 572,090 659,104
Terminal & Flight Services................... ................................. 40,699,213 40,927,320
-------------------------------
Totals................................. ................................. 69,971,584 71,232,563
----------------------------------------------------------------------------------------------------------------
The FAA will provide additional information regarding the
statistical study to interested parties upon request. Contact Randall
Fiertz in the FAA's Office of Cost and Performance Management, (202)
267-7140.
35. KPMG, Supported by Other Commenters Including Air New Zealand, Asks
the FAA To Provide Sufficient Information To Determine the Validity of
the Statistical Study Used To Establish the Ratios of Enroute to
Oceanic On-Position Time
FAA Response: The FAA believes the statistical study to be valid.
As stated in the Costing Methodology Report Addendum (Docket item 98,
Section 4, page 7):
The FAA decided, subsequent to the release of the Costing
Methodology Report (CM), that additional detail was necessary to
more fully explain the treatment of certain cost pools with the CAS.
The pools include Oceanic Air Traffic labor and capital costs.
As described in the CM Report (see Section 4.3), to assign AT
labor costs between Enroute and Oceanic, the FAA conducted a
statistical analysis of controller sign-in/sign-out (SISO) data.
Arthur Andersen assisted the FAA in this statistical analysis to
confirm the validity of the sampling techniques. This analysis was
performed at the request of the DOT IG's office, which also reviewed
the methodology and final results. This data, captured at the
employee/controller level, represented the time each person spent
``on-position'' working either domestic enroute or oceanic air
traffic (a single controller may be
[[Page 43701]]
certified to work both environments). Data was collected at each of
the four Enroute Centers that provide Oceanic service for purposes
of the CAS (New York, Houston, Oakland, and Anchorage).
The sampling strategy was designed to estimate the average
Oceanic labor fraction of total controller labor at each Center to
within a relative error of 5%, with a 95% statistical
confidence. A sample size of 40 days was calculated, which meets the
FAA's relative error and confidence requirements. Forty random dates
were then selected between February 19th and September 6th, 1999.
Following the IG's review of the statistical analysis, the
resulting percentages were used in the CAS to assign a portion of
the Enroute labor cost to the Oceanic Service at each of the four
Enroute Centers that also provide Oceanic Service.
36. KPMG and Several Others Request the FAA To Provide Additional
Information on the Use of a Single Set of On-Position Time Ratios To
Allocate a Broad Spectrum of Costs Between the Enroute and Oceanic
Environments
FAA Response: The single set of on-position time was a random
sample intended to represent a full year. Labor makes up the vast
majority of the costs allocated in this manner. The Costing Methodology
Report (Docket item 6, Section 4.3, page 40) states:
For AT-related costs, historical Oceanic on-position time as a
percentage of total ARTCC on-position time was considered the most
appropriate basis. This is because this measure reflects the work
effort required to provide the Oceanic service. To determine
approximate Oceanic on-position time as a percentage of total on-
position time, a statistically valid analysis [as explained in the
previous response] was conducted on a sample of sign-in, sign-out
time records logged by controllers in the normal course of
performing their duties at each of the four Oceanic SDPs.
As indicated above in the FAA response to the comment that there
may have been an ``over-allocation'' of costs to the Oceanic cost pool,
the FAA believes it has used a reliable accounting methodology to
reasonably allocate costs between the Enroute and Oceanic environments.
To capture costs accurately in the CAS, the FAA performed a statistical
analysis (see the Arthur Andersen Costing Methodology Report Addendum;
Docket item 98, Section 4, page 7) to allocate labor costs between the
Enroute and Oceanic Services. Since different systems are used to
provide services in the Oceanic and Enroute environments, the task of
allocating all other costs between these two Services was fairly
straightforward. Where systems could be identified with provision of
Oceanic Services only, those costs were assigned directly to Oceanic.
Where systems could not be specifically identified with the provision
of Oceanic Services only, costs were allocated on bases that represent
the best available information. Labor data were used to allocate costs
between the Oceanic and Enroute environments only in cases where no
better information was available.
FASAB 4 states (in paragraph 124) that, ``In principle costs should
be assigned to outputs in one of the methods listed below in the order
of preference: (a) Directly tracing costs wherever economically
feasible; (b) assigning costs on a cause-and-effect basis; and (c)
allocating costs on a reasonable and consistent basis.'' It further
states (in paragraph 128) that, ``Direct cost tracing often minimizes
distortion and ensures accuracy in cost assignments. However, it can be
a relatively costly process. It should be applied only to items that
account for a substantial portion of the cost of an output and only
when it is economically feasible.'' The FAA uses labor statistics to
assign labor costs on a cause-and-effect basis. The FAA use of labor
statistics to assign costs other than labor costs was deemed
appropriate since these costs do not account for a substantial portion
of the cost of Overflight services. In addition, development of bases
to enable direct tracing was considered economically prohibitive.
37. KPMG, ATAC, and Other Commenters Request the FAA To Provide Further
Information on the Allocation of Capital Investment Costs Based on
Project or Program Coding, and the Assumptions Made in Making Such
Allocations
FAA Response: FAA subject matter experts, who are familiar with the
capital projects and the functions they are intended to support (e.g.,
Enroute surveillance, Terminal navigation, etc.), assigned each project
to the appropriate Service. This method of assigning costs is referred
to as ``direct tracing'' (see the Costing Methodology Report, Docket
item 6, Section 4.1, page 20) and is the most preferred method to
assign costs as described in FASAB 4. FASAB 4 indicates (in Paragraph
124) that, ``In principle costs should be assigned to outputs in one of
the methods listed below in the order of preference: Directly tracing
costs wherever economically feasible; Assigning costs on a cause-and-
effect basis; and Allocating costs on a reasonable and consistent
basis.''
38. KPMG, Supported by Other Commenters, Asks the FAA To Provide
Documentation on the Percentages Used To Allocate Certain Individual
Cost Elements, Such as Contract Maintenance
FAA Response: The FAA contracts-out the maintenance of several
large systems. These contracts span multiple years but are funded
yearly. Each contract is attributable to one and only one piece of
equipment or system. Each piece of equipment or system has already been
assigned to a Service (as described in the Costing Methodology Report,
Docket item 6, Section 4.2.2.7, page 30 and Appendix B, Section B.12,
page B-6). Percentages were then calculated to allocate actual costs
incurred to pay for these maintenance contracts to the Services. The
percentages were based on the anticipated funding of each contract. The
work papers supporting the derivation of these percentages may be
obtained upon request from Randall Fiertz in FAA's Office of Cost and
Performance Management, (202) 267-7140.
39. The ATAC Requests an Explanation of How the FAA Will Ensure That
Its Costing Methodology Is Consistent for All ATS Services and Other
Lines-of-Business Within the FAA
FAA Response: The Costing Methodology Report Addendum (Docket item
98) refers to how Terminal and FSS Services will be assigned costs in
the same manner as Enroute and Oceanic to ensure that costs are
assigned to the proper Service. Additional information regarding the
allocation of costs can be found in the Costing Methodology Report
(Docket item 6, Sections 4.2.1.1, 4.2.1.2, 4.2.5.1, and 4.2.5.4) and
the Costing Methodology Report Addendum (Docket item 98, Section 3,
paragraphs 3 to 5).
The FAA currently uses a consistent costing methodology in
allocating agency overhead costs. In so doing, the FAA determines each
LOB's direct cost and allocated overhead on the basis of each LOB's
direct cost to total FAA direct cost. This same methodology is used
within the ATS. The FAA determines the cost and allocated overhead for
each of the four ATS Services on the basis of each Service's cost to
total ATS cost. In the future, the FAA intends to use this methodology
to allocate agency overhead to each LOB as the CAS is implemented in
that LOB.
The costing methodology used for other LOB-specific costs (i.e.,
costs other than overhead) will likely be very different, since the
various LOBs and
[[Page 43702]]
Services are different (e.g., ATS versus Aircraft Certification
services). Costing methodologies for all services do not have to be the
same in CAS for the costs to be considered valid. The FAA is working to
develop allocation methodologies for its various services in ways that
respond to the specific manner in which each particular service is
provided.
40. Air New Zealand and Other Commenters Ask What Assets Have Been
Included in the Overflights Cost Base and What Were the Depreciation
Policies Adopted
FAA Response: The location of FAA's capitalization policy was
provided in the Costing Methodology Report Addendum, Section 4, page 7.
According to FASAB No. 10, items that are typically depreciated are
commonly referred to as Plant, Property, and Equipment, or PP&E. Based
on FAA policy, PP&E is defined as real property (land, buildings, and
other structures) and personal property (installed facilities
equipment, spare parts, aircraft and aircraft engines, administrative
information systems, and equipment furnished to others or Government
Furnished Property and Contractor Acquired Property. FAA policy also
requires depreciable items to have an estimated useful life of at least
two years and a unit cost in excess of $25,000.
41. Lufthansa, ATAC, KPMG, British Airways, and Other Commenters Claim
That the FAA Did Not Provide Sufficient Detail on the Overhead Costs
Removed From the Overflight Fee Calculations, or Explain What Types of
Costs Are Included in the Overhead Category
FAA Response: The FAA acknowledges that it needs to provide a
fuller explanation of the excluded overhead costs; that information is
provided in the two tables below. The CAS has the capability to
identify and track the source and target of overhead costs. While the
FAA has been able to link these costs directly to the specific cost
categories or functions of the Air Traffic System they support, the
agency has taken an extremely conservative approach in determining
``directly related'' costs by removing all overhead costs from the
Overflight Fee calculations in addition to excluding all Terminal and
Flight Service costs. The following tables show the extraction and
removal of overhead costs:
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[[Page 43703]]
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[[Page 43704]]
[GRAPHIC] [TIFF OMITTED] TR20AU01.003
BILLING CODE 8010-01-C
[[Page 43705]]
For information on the types of costs included in the Overhead
category, see Sections 4.2.4, 4.2.4.1, and 4.2.4.2 (pages 33-35) of the
Costing Methodology Report (Docket item 6).
42. Lufthansa States That the FAA Did Not Explain the ``Unidentified
F&E Projects'' That Are Part of Oceanic Costs
FAA Response: Unidentified F&E projects are projects that could be
attributed to the ATS LOB based on their project coding structure in
the CAS, but could not be attributed to any particular Service within
the ATS LOB. In most cases, the ``Unidentified'' projects were a result
of the FAA changing one or more of the known F&E project numbers to
indicate a change in the project(s)' capitalization status. In order to
account for these costs, the FAA developed the following methodology to
allocate these costs to Enroute, Flight Service, or Terminal Services.
Using two years of cost data (FY 1998 and 1999), the FAA computed the
total cost of identified F&E projects for these three Services. The
percentage of these projects' costs that were attributed to Enroute,
Flight Services, and Terminal was then computed. These percentages were
then applied to the total unidentified project cost to compute the
unidentified project cost to be attributed to each of those three ATS
Services. This method conforms to paragraph 124 of the Statement of
Federal Financial Accounting Standard #4 ``Managerial Cost Accounting
Standards,'' which states that such costs should be of allocated on a
reasonable and consistent basis.
None of the costs of the unidentified projects have been allocated
to the Oceanic Service. This is because the costs of only three types
of ``Capabilities'' (as described in the Costing Methodology Report;
Docket item 6, Section 2.2, page 13) are allocated to the Oceanic
Service: Mission Support, Infrastructure, and Communications. None of
the ``Unidentified'' projects are attributed to these Capabilities;
therefore, none of the associated costs are allocated to the Oceanic
Service.
The costs of these ``unidentified'' projects have very little
impact on this rulemaking. Approximately $13 million, from the total of
about $25 million of unidentified projects, were allocated to the
Enroute Service. Overflights account for only approximately 1.23% of
gross Enroute GCD miles. Therefore, the total ``Unidentified F&E Labor/
Non-Labor'' costs attributable to Overflights are estimated to be about
$160,000, which amounts to only about 2 cents per 100 nautical miles in
the Enroute environment.
43. Japan Airlines, Iberia Airlines, and Others Comment That FAA's FY
1999 Costs Have Not Been Revalidated
FAA Response: The FAA disagrees with this comment. The Costing
Methodology Report Addendum (Docket item 98, Section 2, paragraphs 1-3,
page 4) provides information on this topic. The Addendum points out
that the FAA's financial statements for FY 1999 were audited by the
Department of Transportation Office of Inspector General prior to the
FAA's publication of the Overflight Fee IFR in June 2000. The FAA
received an unqualified or ``clean'' audit opinion (meaning no
significant issues were identified) from the IG. The FAA believes that
this constitutes more than sufficient ``revalidation'' of its FY 1999
cost data. This FY 1999 cost data was then used by the FAA to derive
its Overflight Fees.
As noted previously in the Discussion of Comments section under the
comment, ``The FAA expensed costs that should have been capitalized,''
it was discovered subsequent to issuance of the Overflight Fee IFR that
certain FY 1999 costs that should have been capitalized and depreciated
were in fact mistakenly ``expensed'' by the FAA. The FY 1999 cost data
has been revised to correct these items, and the Overflight Fees, which
are derived from this cost data, have been recalculated. The result is
a reduction in the unit rate of the Overflight Fees (of approximately
10 percent for Enroute and approximately 20 percent for Oceanic,
compared to the Interim Final Rule) in this Final Rule. The FAA will
provide credits and refunds for this as detailed below.
44. Distribution of Costs Based on Staffing Standards
Japan Airlines and Iberia Airlines express concerns that the IG
determined that the CAS had caused the FAA to rely on unreasonable
proxies in allocating costs between Services. For example, the FAA
assigned FY 1998 maintenance labor and other (non-labor) costs to
Enroute and Oceanic Services based on labor standards rather than on an
actual distribution of costs. The IG found those standards to be
outdated and over-inflated.
FAA Response: The FAA disagrees with this comment. The FAA updates
staffing standards for new equipment on a continuous basis. However,
the FAA does acknowledge that it does not routinely update the staffing
standards for existing equipment. The fact that the FAA does not
routinely update staffing standards for existing equipment does not
render them unreliable. The FAA conducts a significant amount of on-
site research and analysis at the time its staffing standards are
initially developed, and therefore does not need to reexamine them
continuously.
When the IG reviewed the FAA's financial data in 1999, the IG
acknowledged the staffing standards as the best available data. The
Costing Methodology Report Addendum provides the following explanation
in response to this comment (Docket item 98, Section 2, page 5):
In place of actual time recording, the FAA is relying on
staffing standards to assign AF labor costs to projects and SDPs.
This approach has been discussed with the IG. These discussions have
resulted in agreement that staffing standards represent the best
available data source for allocating these costs at the present
time.
This agreement came with the understanding that the FAA would
update the staffing standards on a timely basis, and would work toward
a more direct, time recording-based method of assigning these costs.
The FAA recently provided a report to the IG outlining a plan to
implement labor distribution agency-wide. This plan is available on the
Internet at http://www.faa.gov/aba/html_performance/initiatives/ldr/files_doc/final_ldr_timeline_rpt.doc.
The FAA is working aggressively to implement this new Labor
Distribution System for the entire agency. This system will eventually
allow the FAA to capture the actual labor costs for all agency
services. Both Airway Facilities and Air Traffic controller workforces
are currently in an implementation status. The FAA expects to be
collecting actual time from these workforces by the end of FY 2002.
Additional information regarding the use of staffing standards is
provided in the Costing Methodology Report, Section 4.2.2.1 and Fig 4-
2.
45. Several Commenters, Including Air New Zealand, Lufthansa, Iberia
Airlines, Japan Airlines and Others, Request the FAA To Provide
Additional Information on One or More of the Following Items: The
Structure and Functioning of Its Air Traffic Control Centers, a
Breakdown and Explanation of Activities Performed by Each of Those
Centers, and the Number of People Working on Oceanic and Enroute
Services, Their Salaries and Positions, the Optimal Staffing Numbers,
and the Number of Hours They Work on Each Service
FAA Response: As explained in the Costing Methodology Report
(Docket item 6), all Air Route Traffic Control Centers (ARTCCs), or
SDPs, provide
[[Page 43706]]
Enroute Services. Of the 21 ARTCCs, there are four that provide Oceanic
Services for purposes of the CAS and this Rulemaking. The following
table shows which Centers provide only Enroute Services and which
Centers also provide Oceanic Services.
Since the FAA uses aggregate, actual end-of-year labor costs to
assign or allocate costs to the various ATS Services, it does not use
the detailed information requested on the number of people working on
Oceanic and Enroute Services, their salaries, positions, and optimal
staffing numbers. The FAA believes it has chosen an appropriate
methodology by using actual, end-of-year labor costs as the basis for
cost assignment or allocation. The following table provides a list of
SDPs, the type of services provided by each SDP, and actual AT and AF
labor costs for FY 1999 for each SDP:
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[GRAPHIC] [TIFF OMITTED] TR20AU01.004
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[[Page 43708]]
Functions Performed by ARTCCs for Purposes of the CAS and This
Rulemaking
Enroute Services: Generally refers to ATC and related services
provided to aircraft operating primarily under instrument flight rules
in controlled airspace between airport terminal areas. In some cases,
Enroute services may be provided to aircraft operating under visual
flight rules. Enroute services are also provided to overflights that
transit U.S.-controlled airspace. As shown above, 21 SDPs provide this
service. The typical SDP has responsibility for more than 120,000
square miles of airspace.
Oceanic Services: ATC and related services provided in airspace
where oceanic separation and procedures prescribed by ICAO are
available. These services (with a few exceptions) are defined by
specific designated Flight Information Region (FIR) boundaries and
generally begin just prior to the limits of the radar coverage.
Generally, within Oceanic FIR airspace, no radar service is available.
Therefore, oceanic air traffic separation standards (position reports
at selected time/geographic intervals) are used, rather than enroute
separation standards (position reports based on radar/transponder
activity--although, for some flights, such service is not practicable
or appropriate).
Assignment of Controller Positions to Services
Because of the cost allocation methodology used to allocate labor
costs, the FAA does not need the number of hours each employee works on
each ATC service. For SDPs that provide only Enroute Services, all
labor incurred at the SDP is attributed to Enroute. For SDPs that
provide both Enroute and Oceanic Services, AT labor is allocated based
on a percentage of actual on-position time worked by controllers (as
explained previously in the discussion of the KPMG comments asking the
FAA ``to provide sufficient information to determine the validity of
the statistical study used to establish the ratios of Enroute to
Oceanic on-position time'').
Other positions that are assigned at the SDP level are the
positions that provide ATC maintenance services (provided by the Airway
Facilities organization). As explained earlier, AF (ATC maintenance)
labor costs are assigned to facilities based on staffing standards.
Subject matter experts assign each facility to the Services based on
the functionality of each facility. For the four SDPs that provide
Oceanic Services, the FAA uses the ratio of Oceanic sectors to total
sectors to allocate maintenance costs.
46. Labor for Oceanic Services
The AAPA comments that labor charges for Oceanic Services primarily
reflect staffing in the four facilities located in Anchorage, Houston,
New York, and Oakland and claims that the FAA provides no justification
that these labor rates are identical in each facility.
FAA Response: The labor rates at each SDP are not identical. The
labor costs allocated to Oceanic Services reflect staffing and Oceanic
workload since on-position time was used as the basis. The Oceanic
labor costs are assigned to each SDP based on the actual labor costs
incurred at that particular SDP, and are not identical. Actual labor
costs for each of the four Oceanic SDPs are shown in the table
presented in the discussion of the preceding comment.
47. Use of a Weight-Based Formula To Determine Overflight Fees
The National Business Aircraft Association (NBAA) and the
International Business Aviation Council, Ltd. (IBAC) ask that the FAA
consider modifying its fee formula to account for aircraft weight, as
is done in other countries. NBAA notes, ``In addition to ICAO,
countries such as Canada, the United Kingdom, France, Germany, and
other European Union states, ATC facilities charge users for the
service provided. In determining the ATC charge, all of these countries
use weight as a basis for determining fees.''
On a similar note, the IBAC expresses its concern that the U.S.
does not use weight as a factor in the calculation of its Overflight
Fees, stating its concern that ``failure by the United States to do so
will encourage other States to do likewise, to the ultimate detriment
of the interests of U.S. operators operating internationally.''
FAA Response: The FAA generally agrees with these comments. Indeed,
as the NBAA and the IBAC point out, weight is widely used around the
world as a factor in the setting of fees for ATC services. The FAA is
statutorily constrained, however, from using weight, or any other
measure of value, in the derivation of its Overflight Fees. The
previously discussed requirement that the fees be ``directly related''
to the FAA's costs of providing the services has been interpreted by
the Court of Appeals in the Asiana case (the prior Overflight Fee
litigation) to preclude the use of any measure of value by the FAA in
setting its fees.
48. KPMG Comments That FAA's Consultant, Capital Economics, Not Only
Did Not Conclude That FAA's Fees Satisfied the Statutory Standard; It
Apparently Never Considered the Question
FAA Response: The FAA agrees. Although Capital Economics' review
(See the Capital Economics Report, ``A Review of FAA Overflight Fees,''
Docket item 99) touched on some aspects of the statute, the report was
not intended to address the requirements of the law authorizing the
Fees. Capital Economics focused its analysis on whether the fee
development methodology was reasonable and within the guidelines of
commonly accepted economic principles as applied in a practical, real-
world setting. The other principal findings of the Capital Economics
report are as follows:
The FAA's reliance on a mileage-based fee structure
complies with the requirement that the Overflight Fees be based on cost
rather than value,
Due to high metering costs of other alternative methods,
the mileage-based metric is most likely the cheapest way to assign
costs on an individual flight basis,
There is no better alternative allocation mechanism than
the mileage-based method, and
The fee structure is ``subsidy-free,'' which many
economists consider to be a desirable property.
The determination that these fees meet the statutory standard of
being ``directly related'' to the FAA's cost of providing or making
available the ATC and related services was made by the FAA and not by
Capital Economics.
49. KPMG States That Capital Economics Gives No Empirical Basis for Its
Assertion That Controller Time Is ``Largely (and Perhaps Completely)
Common'' to Overflights and Non-Overflights
KPMG further expresses the view that Capital Economics offers no
support from any air traffic control expert, either internal or
external to the FAA. Moreover, KPMG states that there is no information
in the Capital Economics report establishing that the firm is itself
qualified to render an opinion as to how air traffic controllers
perform their duties.
FAA Response: The Capital Economics report is based on discussions
with FAA experts regarding the structure and functioning of the FAA,
mainly the Air Traffic Services organization that provides ATC
services. Through these discussions, Capital Economics received
information
[[Page 43709]]
regarding, but not limited to, the services provided within each ATC
environment, the treatment of fixed and common costs, ATC services
provided to Overflights and non-Overflights, duties of air traffic
controllers, and the treatment of specific costs associated with this
rulemaking. Capital Economics also used information that is publicly
available. This includes a book, Fundamentals of Air Traffic Control
(M.S. Nolan, Fundamentals of Air Traffic Control. Second Edition,
Wodsworth, Belmont, Calif., 1994), information contained in the docket
of this rulemaking, the estimated stand-alone costs of Overflights
provided as Attachment 1 of the Capital Economics report (docket item
99), and the FAA CAS service definitions provided as Attachment 2 of
the same report. But ultimately any use of the Capital Economics report
and its conclusions was determined by the FAA in its exercise of agency
expertise in air traffic.
50. Joseph A. Beaudoin, on Behalf of the ATAC, Asserts, ``The
Controller Manpower Required To Service Overflights and Non-Overflights
Is Not `Common' ''
He states that in the Enroute environment, the FAA divides its Air
Route Traffic Control Centers (``Centers'') into low-altitude sectors,
high-altitude sectors, and ultra-high-altitude sectors. He states that
Overflights operate almost exclusively within the High-Altitude Sector,
or the Ultra-High-Altitude Sector, where one exists. He asserts that,
during any particular period of time, controllers normally will not be
simultaneously handling aircraft in both or all three Sectors. Thus,
Mr. Beaudoin states, ``there is a difference between the manpower
requirements of the two types of flights. The typical non-Overflight
requires far greater controller time than the typical overflight.''
KPMG, also on behalf of the ATAC, states, ``Of course, because both
overflights and non-overflights use the high and ultra-high altitude
sectors, it would be necessary to apportion controller time in those
sectors between the two types of flights. This could be done based on
the relative mileage flown by overflights vis-a-vis non-overflights in
the high altitude sectors, as that would provide a reasonable estimate
of the relative burden of the two types of flights on the controller
work force in those sectors.''
FAA Response: The FAA disagrees. The FAA has determined that the
costs incurred in servicing Overflights and non-Overflights are quite
similar for the following reasons:
The same ATS infrastructure is used to make services
available to both Overflights and to non-Overflights.
Overflights use many different altitudes where there are
many other non-Overflight aircraft. Many flights departing or landing
in the U.S. also reach such altitudes at some point during their
flight. Air Traffic Controllers working those sectors have to manage
non-Overflight and Overflight traffic just the same in providing safe
air transportation in U.S.-controlled airspace.
Controllers do not treat Overflights any differently than
non-Overflights. Overflights can be anywhere in the ATC system at any
given point requesting all ATC services to be available. The FAA
doesn't provide services to Overflights based on their altitudes. The
FAA does not in any way restrict or limit Overflights by altitude or by
the level of services they receive while transiting through U.S.-
controlled airspace. Also, the assertions of Mr. Beaudoin ignore the
full spectrum of Overflights.
The FAA acknowledges that although there may be a small
difference in the marginal cost of making services available to
Overflights and non-Overflights, this difference is negligible compared
to the significant fixed and common costs incurred in making ATC and
related services available to both Overflights and non-Overflights.
Also, each flight is different in the services it uses. It cannot be
said with certainty whether any given Overflight or non-Overflight will
cost more or less.
See the first comment, ``The cost of providing air traffic services
to Overflights versus non-Overflights'' for additional information on
the FAA's rationale for treating all flights the same in a particular
operational environment (i.e., either Enroute or Oceanic).
51. KPMG Disagrees With Capital Economics' Farm Analogy
KPMG says:
* * * this simple analogy is more analogous to the overflight
fee situation if one supposes that the farmer has two pastures--high
and low. A few sheep (overflights) graze in the high pasture, along
with some cows (non-overflights). The high pasture is sparsely
populated, however, and all the animals there are placid. As a
result the high pasture fence needs little repair. The low pastures
consist only of cows; it is heavily congested, and the cows there
are ornery and active. Consequently the lower fence needs constant
repair. It is clear that the farmer's mending costs must be
primarily assigned to the cows. The fact that some cows are also in
the upper pasture, and the same farmer does the mending of both
fences (and needs the same training to do so), does not alter this
conclusion.
FAA Response: The FAA disagrees. The FAA has acknowledged from the
beginning that the marginal cost of serving Overflights versus non-
Overflights may be slightly different. But the metering costs of
identifying any such differences in marginal costs would be substantial
for the very small number of Overflights compared to the total number
of flights in U.S.-controlled airspace. In addition, due to the
particular cost characteristics of providing Overflight service (as
outlined in the earlier comments on ``The cost of providing air traffic
services to Overflights versus non-Overflights''), it is the allocation
of the large fixed and common costs that make up most of the costs upon
which the Overflight Fees are based.
52. Based on the Declarations of Mr. Beaudoin and Mr. Jengo, KPMG
States That the Labor Costs That FAA Incurs To Provide ATC Services Are
Not ``Fixed''; Rather, They State That the Number of Controllers
``Varies Depending on the Volume of Aircraft Operating Within the
Particular Geographical Area or Sector, and the Nature of Those
Aircraft Operations'' (See Supplemental Declaration of Joseph Beaudoin,
Docket Item 107, Paragraph 10)
Thus, KPMG asserts, if there are a large number of aircraft
operating within a particular area, the FAA may need to assign
additional controllers to handle the flights. Mr. Beaudoin adds,
``Generally speaking more controllers are necessary to handle a given
number of flights in the lower-altitude sectors than are necessary to
handle the same number of flights in the higher-altitude areas.'' Mr.
Jengo similarly states that the ``number of controllers needed in a
given sector varies according to the volume of traffic in that sector
and the type of traffic.'' (See Declaration of Michael Jengo, Jr.,
Docket item 106.)
FAA Response: The FAA disagrees. The FAA has a set number of
controllers to provide ATC services nationwide. Every SDP has a set
number of controllers assigned to it to manage its workload. Every SDP
also mostly has a set amount of overtime, training, and other such
funding provided to it. These numbers do not change daily to manage an
additional Overflight, or a non-Overflight. Controllers are assigned to
sectors to manage all air traffic, not Overflights and non-Overflights
separately. Overflights can be anywhere, at any altitude, in the ATC
system at any given point in time. The FAA incurs a great deal of cost
by simply making
[[Page 43710]]
services available to Overflights. Also, controllers do not treat
Overflights any differently than non-Overflights. These factors support
the analysis by Capital Economics that the marginal cost of serving an
individual Overflight is nearly zero.
The FAA agrees with the Capital Economics analysis that the
marginal cost of serving an additional flight is very small. This
includes the labor costs involved in serving any particular additional
flight. The rationale for this position is outlined in the previously
cited discussion of the comment regarding ``The cost of providing air
traffic services to Overflights versus non-Overflights.''
53. KPMG Disagrees With Capital Economics' Conclusion That the Absolute
Difference Between the Costs of Servicing Overflights and Non-
Overflights Is Small Compared to the Large Fixed and Common Costs That
Must Be Allocated. KPMG Further Disagrees With Capital Economics' View
That the FAA Acted Appropriately in ``Ignoring'' the Cost Differences
Between Overflights and Non-Overflights
KPMG further states:
This argument is contrary to FAA's own data. According to the
FAA's Fee Development Report, on which the overflight fees are
based, `Field Labor' assigned to `Air Traffic Operations' accounts
for 37 percent of the $2.7 billion in total costs FAA incurs to
provide air traffic control services in the enroute environment, and
23 percent of the $101 million that FAA incurs in the oceanic
environment. (Fee Development Report at page 8, Table 1.) In total,
these controller costs amount to more than one billion dollars
annually. Air traffic control experts Beaudoin and Jengo have
submitted uncontradicted evidence that the per-hour controller
manpower devoted to an overflight is much less than that devoted to
a non-overflight.
FAA Response: The FAA disagrees. The KPMG comment simply restates
the FAA's labor costs. These FAA numbers do not show a difference
between the costs of providing services to Overflights versus non-
Overflights. The FAA agrees with Capital Economics that the marginal
cost of an Overflight is nearly zero, and the same is true of a non-
Overflight. The FAA already has responded to both the Beaudoin and
Jengo declarations, which do not characterize correctly the many types
of flights that transit U.S.-controlled airspace without either taking
off or landing in the United States (Overflights). The FAA's cost data
cited by KPMG does not show any differences between the costs of
providing services to Overflights versus non-Overflights, and the FAA's
fee development methodology is reasonable and consistent with the Act.
54. KPMG Complains That the ``Stand-Alone Cost Test'' Conducted by
Capital Economics Is Irrelevant Because It Does Not Establish That the
Fees Are ``Directly Related'' to Costs. KPMG Argues That the FAA Has
the Ability To Measure Actual Costs, and That Capital Economics' Use of
``Stand-Alone Costs'' As a Test for the FAA's Overflight Fees Simply
Has No Relevance Under the Actual Cost Standard
FAA Response: The FAA disagrees. The ``stand-alone cost'' test is
not a test of whether fees are directly related to costs. Capital
Economics included the ``stand-alone cost'' test in their analysis to
demonstrate that the fee structure is ``subsidy free.'' This means that
there are no cross-subsidies between Overflights and non-Overflights in
the fee structure. In fee development, this is widely considered to be
a desirable property by economists. Capital Economics conducted a
variety of analyses in examining whether the fees are within the
guidelines of commonly accepted economic principles as applied in a
practical, real-world setting. For additional information in response
to this comment, see the earlier comments, ``The definition of fees
``directly related'' to costs as used by the Act,'' and ``Whether
Overflight Fees are subsidizing other costs or services.''
55. KPMG Complains That the Arthur Andersen Addendum Does Not Attempt
To Rebut the Statement That the FAA Incurs Substantially Greater Costs
To Provide Air Traffic Services to a Typical Non-Overflight Than to a
Typical Overflight
Instead, KPMG complains that the Addendum offers only general
support for the FAA's use of ``best available data'' to make certain
cost allocations, and the FAA's decision to ``expense'' rather than
``capitalize'' certain costs. KPMG elaborates that the Arthur Andersen
Addendum asserts that FAA's decisions to expense rather than capitalize
certain cost items conform to ``the relevant accounting standards.''
However, KPMG asserts that the Andersen Addendum ignores the statutory
directive that each Overflight Fee must be ``directly related'' to the
FAA's costs of providing air traffic control services for that
Overflight.
FAA Response: The FAA agrees that the Arthur Andersen Addendum does
not address the costs of Overflights and the statutory directive that
the Fees must be ``directly related'' to the FAA's costs. Arthur
Andersen's role related to the Overflight Fees was limited to assisting
the FAA with development of a CAS that adheres to Federal accounting
standards. The FAA then used the CAS data to derive the Overflight
Fees.
The FAA, with Arthur Andersen's assistance, developed Enroute and
Oceanic cost pools. Overflight Fees were derived based on these cost
pools since Overflights use primarily Enroute and Oceanic Services. The
FAA attributed an appropriate portion of these costs to Overflights
based on miles flown in each (Enroute and Oceanic) environment. As
noted previously, under the comment, ``The cost of providing air
traffic services to Overflights versus non-Overflights,'' Capital
Economics concluded that the FAA's methodology is a reasonable economic
approach to setting fees when faced with the kind of cost
characteristics confronting the FAA. Thus, the FAA has complied with
the Act in establishing Overflight Fees that are directly related to
the agency's costs, as determined by the CAS. The purpose of both the
original Arthur Andersen Costing Methodology Report (Docket item 6) and
the subsequent Addendum (Docket item 98) is to explain the FAA's
decisions and methodology in assigning and allocating costs in the CAS.
56. Transparency of Fee Development Process and Data
According to a significant number of commenters, the FAA did not
provide sufficient information to allow for a transparent process in
charging Overflight Fees, and to allow interested parties to determine
whether the Fees are ``directly related'' to FAA's costs.
In its later comments, KPMG points out that the Arthur Andersen
Addendum states that allocations in CAS were made using the ``best
available data'', but that the FAA almost never discloses the nature of
the data available to it. KPMG complains that they and other commenters
have no way of judging what information was available to the FAA when
critical decisions were made, and therefore are unable to assess
whether the ``best available data'' were in fact used.
FAA Response: The FAA has provided substantial evidence of its
decisions herein, as well as throughout this rulemaking process, and
believes it has been fully transparent in its Overflight Fee
rulemaking. The FAA is required to clearly explain its reasoning in
this rulemaking but not to obtain the users' agreement. Ultimately it
is up to the agency, pursuant to Congress' direction in 49 U.S.C.
45301(b)(1)(A) and 49 U.S.C. 46110(c) to determine
[[Page 43711]]
what costs are in fact ``directly related'' for the purposes of
Overflight Fees.
In addition, as explained more fully under the previous comment on
``lack of consultation,'' the FAA intends to pursue further contacts
with the affected parties that will allow the FAA and the interested
parties to have a dialogue regarding issues related to Overflight Fees
to eliminate any remaining issue of transparency. The FAA hopes that,
by taking this action, it will alleviate many concerns raised on the
Interim Final Rule and continue to provide an opportunity to resolve
issues in the future. The FAA intends to establish an Aviation
Rulemaking Committee for Overflight Fees, which will be implemented
shortly after issuance of the Final Rule, and will further reconfirm
the transparent process by which the FAA establishes its Overflight
Fees.
57. IATA Requests Additional Information With This Rulemaking. IATA Is
Providing the FAA With Standard Performance & Productivity Indicators
(PPI) Forms To Fill Out, as a Normal Practice With Other Air Navigation
Service Providers
FAA Response: The FAA has not completed the IATA forms as they are
beyond the scope of this rulemaking. The FAA is not charging fees for
providing, or making available, air navigation services to all users.
These Fees apply only to Overflights. The FAA will be available to work
with IATA in the future to determine how their information needs could
be accommodated.
The Inspector General's Assessment of Cost Accounting
On February 28, 2001, the Department of Transportation's Office of
Inspector General (IG) issued a report (titled, ``Status Assessment of
FAA's Cost Accounting System and Practices,'' Report No. FI-2001-023;
Overflight Fee Docket No. FAA-00-7018, item 111) assessing the FAA's
Cost Accounting System (CAS). This report was prepared pursuant to
requirements of the Wendell H. Ford Aviation Investment and Reform Act
for the 21st Century (AIR-21), which requires the IG to conduct an
annual assessment of whether the FAA's methods for calculating and
assigning costs to specific users are appropriate, reasonable, and
understandable. The purpose of the IG report was to describe the status
of CAS implementation, and to present the IG's findings to date in
eight specific assessment areas required by AIR-21. The IG identifies
several CAS-related issues in its assessment report. Because certain of
these issues, as well as some criticisms of the CAS contained in the
report, could be construed to have applicability to Overflight Fees,
the FAA addresses the report below, and explains that the points raised
in the IG report do not affect this rule.
As clarified in FAA's May 17, 2001, response to the report (Docket
item 115), and in the IG's subsequent reply of June 4, 2001, to the FAA
(Docket item 116), the central focus of the IG assessment was not on
this rule but, rather, on the overall progress being made by the FAA in
implementing the CAS on a phased basis throughout the agency. The
report recommendations are aimed at accelerating the CAS implementation
schedule, adding resources to assure the new implementation dates are
met, and achieving efficiencies in the operation of the CAS.
The IG issued a separate audit report in December 1999 (titled,
``Cost and Flight Data for Aircraft Overflights,'' report # FE-2000-
024; Docket item 10) for the explicit purpose of reviewing the
implementation of the CAS within the Air Traffic Services (ATS) Line of
Business (LOB), and the use of CAS data and aircraft flight activity
data for the derivation of Overflight Fees. The FAA concurred with the
IG findings and addressed the issues identified in that report prior to
publication of the current Interim Final Rule on June 6, 2000. The FAA
is using the same FY 1999 cost data for the Final Rule that were used
for the Interim Final Rule, along with some accounting adjustments that
result in reductions of approximately 10 percent in the Enroute fee and
approximately 20 percent in the Oceanic fee.
The current IG assessment makes the following general statements
regarding the CAS:
``The FAA's current cost accounting system, while
capable of calculating cost agency-wide, will not produce accurate
and reliable results for specific activities and services.'' (at 2,
para 5).
``The cost accounting system will not be effective
until the labor distribution system is operational.'' (at 8, para
4).
``* * * the cost accounting system will not be
effective and credible without an adequate labor distribution
system.'' (at 4, para 1).
``The cost accounting system should address the needs
of FAA stakeholders such as the Congress, the aviation industry, and
the taxpayers. If FAA is to become an effective results-oriented
organization, the cost accounting system must produce cost
information that satisfies the needs of external parties as well as
FAA management.'' (at 11, para 3).
These statements in the IG report can easily be seen as affecting
the basis of the FAA's Overflight Fees. Various references to the CAS
as ``unreliable,'' ``inadequate,'' ``inaccurate,'' or ``not credible''
apply to specific issues within the CAS, and represent generalized
opinions. For example, not having a detailed time reporting system in
place at the employee level (Labor Distribution Reporting, or LDR) for
certain ATS labor categories does not render the entire CAS unreliable
or inadequate. The FAA is currently developing the LDR system to obtain
actual labor costs directly from each employee, so that costs can soon
be assigned to appropriate services.
The CAS has been under development within the FAA for several years
now. It is being implemented on a phased basis throughout the agency,
starting with the ATS LOBs. The FAA has stated repeatedly that, like
all cost accounting systems, the FAA's CAS is an evolving and
developing system, and that certain data elements, such as the LDR,
will be improved and refined as implementation proceeds. In the
meantime, as the CAS evolves, there are other ways, consistent with
accepted accounting principles and practices, to reasonably allocate
labor costs based on current capabilities. The FAA directly assigned
much of the labor data; but where it could not, it used other methods
as allowed under Federal Accounting Standards. For example, the FAA
used a labor distribution system for the Research and Acquisitions
organization and staffing standards for maintenance labor. In each
instance, the FAA used the best available data to make such
allocations. The IG, in fact, relied on such data in performing the
fiscal year (FY) 1999 financial statement audit, and did not propose
any adjustments to the financial statements related to the presentation
of these costs.
Specific issues raised by the IG report are addressed as follows:
IG Statement: The IG report states, ``FAA's current cost accounting
system, while capable of calculating cost agency wide, will not produce
accurate and reliable results for specific activities and services. For
example, FAA's actual cost for air traffic controller and airways
facilities maintenance labor, estimated at $3.4 billion for FY 2001,
cannot be tracked to specific activities and services, which would
preclude FAA from developing potentially useful information such as the
cost of a particular air traffic control or maintenance shift.'' (at 2,
para 5). Further, the IG states, ``If FAA ever needs the actual cost of
specific activities, and services, such as communication efforts
related to En
[[Page 43712]]
Route and Oceanic services, the cost accounting system must be modified
to accumulate cost at this level of detail. The system has not been
designed to provide this type of information.'' (at 18, para 1).
FAA Response: This issue does not in any way affect the integrity
of the CAS data for the costs upon which Overflight Fees are based. The
IG concludes that the current CAS, while capable of calculating costs
agency-wide, will not produce accurate and reliable results for
specific ``activities and services'' at a level of granularity that the
IG considers to be appropriate.
The FAA has defined the overall services provided by the ATS LOB as
Enroute, Oceanic, Terminal, and Flight Services. While the CAS is
designed to distribute the total costs of the ATS LOB among these four
``Services,'' it is not designed to determine the cost of a maintenance
shift or an individual radio communication--which are actually
individual activities within an overall Service. This is analogous to
the case of an aircraft manufacturer, who may know the cost of
installing an entire landing gear assembly for a particular aircraft
but does not know the cost of installing one individual part.
Similarly, while the FAA knows the cost of Enroute and Oceanic Services
for the purposes of Overflight Fees, the CAS does not provide the costs
of specific, individual activities.
The FAA uses the total cost of Enroute and Oceanic Services and the
total miles flown in each ATC environment to derive unit rates for its
Overflight Fees. The ATC and related services made available to all
flights within each ATC environment are highly similar and are
primarily characterized by the significant shared costs involved in the
provision of such services. Therefore, the FAA charges the same unit
rate to all Overflights within the Enroute environment and a single
(lower) unit rate to all Overflights within the Oceanic environment.
The IG report states that the FAA should consider designing the CAS
to provide useful management information, such as the cost of a
particular air traffic control shift or an activity within a Service,
such as the specific costs for providing communications as a stand-
alone function. The FAA addressed this comment in its response (Docket
item 115) to this report. The FAA said that the CAS is a tool designed
to provide an understanding of the costs of providing ATC and related
services at specified Service Delivery Points. When FAA began
discussing system design of the CAS, careful consideration was given to
what would be required of the system. In the process of determining the
requirements of the CAS, including its use for Overflight Fees, things
like the cost of a particular air traffic control shift and the cost of
communications were carefully considered, but rejected, as they were
too detailed to define and would have added a great deal of unnecessary
complexity to the developing system--one that the IG's report already
cites as being too complex. In addition, as stated earlier, this level
of detail is not necessary for the derivation of Overflight Fees.
IG Statement: The IG finds that, ``FAA's cost accounting system
does not track actual labor cost of activities and services for its Air
Traffic Services line of business. The cost accounting system will not
be effective until the labor distribution system is operational. For
example, FAA was unable to accurately report more than $424 million of
actual air traffic controller and airway facilities maintenance labor
and related cost by activities and services. Controller labor cost was
assigned based on limited summary data for a 2- to 3-day period, and
airway facilities labor cost was assigned and estimated based on
outdated labor standards.'' (at 8, para 4).
The IG further states, ``Since FAA labor cost is more than half its
total cost, the cost accounting system will not be effective and
credible without an adequate labor distribution system.'' (at 4, para
1).
FAA Response: The IG report noted, ``FAA initially planned to use
only 2 or 3 days of data and outdated maintenance standards to
distribute $424 million of air traffic controller and maintenance
technician labor and related costs between En Route and Oceanic
services.'' As stated in the FAA's response to the IG report (Docket
item 115), ``We agreed with the Office of the Inspector General's
concern that the 2-3 day sample was not of sufficient size to
distribute costs between the enroute and oceanic services when the
issue was first raised by the IG in December 1999. FAA subsequently
improved its costing methodology by using a 40-day, statistically
valid, sample of actual sign-in/sign-off data at each oceanic facility
to further allocate $25M of air traffic controller labor cost (out of
the $1.2 billion of directly assigned air traffic labor).''
Accordingly, the labor data used in FY 1999 for CAS was based on the
40-day sample, not the 2-3 day sample. The IG accepted this revised
approach, noting in the audit report, ``Cost and Flight Data for
Aircraft Overflights (see Docket item 10, page 6) that it ``should
result in a more accurate representation of air traffic controller
labor costs by activity and service.'' The FAA used this FY 1999 data
to derive its Overflight Fees. Once the FAA's LDR system is
implemented, the agency will no longer need to use such sampling. But
for now, the FAA has determined that the accounting approach taken is
sufficient for determining the costs used to derive Overflight Fees.
The FAA used staffing standards to allocate $219M of actual
maintenance payroll to pieces of equipment in the Enroute and Oceanic
Services. We note that the IG report contains references to ``outdated
maintenance standards'' and to ``outdated labor standards'' in the
sections on Labor Costs, and a similar reference under Assessment Area
5 on Internal Controls. The FAA is concerned that these references
could lead to an erroneous conclusion. While the FAA has not routinely
updated its staffing standards for existing equipment, this does not
mean that the standards are therefore unreliable. FAA conducts a
significant amount of on-site research and analysis at the time its
staffing standards are initially developed, and does not believe they
need to be revisited every year or two to remain valid. The FAA has
discussed this topic at length with the IG, with the resulting
agreement that the current staffing standards represent the best
available data source for allocating AF labor costs at the present
time.
The IG specifically stated in its December 1999 report (Docket item
10, page 7), ``While FAA's labor standards currently provide the best
available data for assigning the airway facilities maintenance costs to
services, the revised standards should improve the accuracy of these
costs.
The equipment inventory will be updated and revised standards will
be estimated based on existing technology, which should improve the
accuracy of labor estimates. However, for the long term, a labor
distribution system or work order system would provide a better and
more appropriate method of accounting for maintenance labor.'' Thus
while the FAA is working on improving this data, these labor costs used
as the basis for Overflight Fees are adequate for this rulemaking.
Based on a recent decision by the FAA to track actual labor, the
agency is working aggressively to implement its new Labor Distribution
System for the entire agency. This system should allow the FAA to
capture actual labor costs for all agency services. Both Airway
Facilities and Air Traffic workforces are currently in an
implementation status. The FAA expects to collect actual time from
these workforces by the end of FY 2002. As noted in the rule, the FAA
[[Page 43713]]
expects to revise the rule in future years to reflect improvements such
as this in the CAS.
IG Statement: The IG report states:
``FAA's cost accounting system does not properly
collect costs associated with facilities and equipment projects
within its Research and Acquisitions line of business. FAA
improperly combined production overhead cost and general and
administrative cost into one overhead cost pool. As a result, about
$63 million annually would not have been properly added to
facilities and equipment values had we not informed FAA of this
problem.'' (at 4, para 3).
``We have not audited the overhead bases in all of
FAA's lines of business; however, we found that the overhead cost in
the Research and Acquisitions line of business was allocated to
projects using inappropriate allocation basis. (at 4, para 4)''
``For example, during the first quarter of FY 2000, the FAA
allocated over $1 million to project 11270101, one of the Wide Area
Augmentation System [satellite navigation system] projects, when it
should have allocated only about $59,000 if the correct base for
allocating overhead cost had been used.'' (at 10, para 2).
FAA Response: The FAA agreed with the IG that it should have more
accurately allocated overhead costs to the Research and Acquisition
LOB. The FAA has taken appropriate steps to ensure that its CAS will
track these costs more accurately in the future. However, since the FY
1999 cost basis for calculating Overflight Fees does not include
overhead costs, the net impact of these adjustments would have resulted
in slightly higher costs and fees for Overflights. Based on the IG's
information, the FAA made the necessary accounting adjustment, and
implemented procedures to ensure proper accounting treatment on a
continuing basis in the future.
IG Statement: The IG concludes that the ``FAA's systems for
tracking assets are not reliable, resulting in a material internal
control weakness. (at 15, para 2)'' ``For example, in our FY 1998
audit, in a test of 117 items, we found 4 items valued at $50 million
that should be removed from property records, one of which was a
building that had been demolished 10 years earlier.'' (at 15, para 3).
FAA Response: This issue, while appropriate to raise within the
context of an assessment of the CAS overall, is not relevant to the
calculation of the current Overflight Fees. The FAA fixed these
problems between FY 1998 and FY 1999, resulting in an unqualified audit
opinion (meaning no significant issues were identified) for FY 1999.
For this reason, the FAA chose not to use its FY 1998 cost data and
waited instead for its FY 1999 costs as a basis for both the Interim
Final Rule and the Final Rule for Overflight Fees. To further improve
this data, the FAA is implementing an automated fixed asset valuation
system that will be used as the basis for the FY 2001 audit. This
system is being implemented to further streamline the depreciation
process and increase management controls.
IG Statement: The IG reports, ``Our audit of the design of Research
and Acquisitions'' cost accounting system included an evaluation of the
results produced by the pilot labor distribution system. Because FAA
does not have an adequate system of policies, procedures, practices, or
internal controls established to detect or prevent errors in assigning
costs, we found that about 36 percent of the first quarter FY 2000
labor cost, or $16 million, could not be tracked to specific projects,
activities and services. Our audit disclosed significant labor cost
reported as `no project.' The `no project' cost could not be identified
with specific projects by the Research and Acquisitions cost accounting
system, which uses data from the pilot labor distribution system. FAA
plans to resolve the no project problem by June 2001.'' (at 9, para 2).
The IG says, ``Internal controls over timekeeping were weak. FAA
personnel charged their labor cost to incorrect projects. For example,
employees charged about $245,000 in labor cost to a project for the
first quarter of FY 2000 although the project was completed in FY
1997.'' (at 9, para 3).
FAA Response: As the IG states, this was a pilot project intended
to test the new labor distribution system, which provides the FAA with
actual labor costs to be allocated to services. The FAA acknowledges
that there were inaccuracies in data collection. This pilot project was
a test to detect such procedural problems and take steps to fix them
before implementing the system agency-wide. As stated in the report,
the FAA is addressing the problems identified in the IG report. The
current target date for resolving these concerns is February 2002.
In any event, the issue of some costs having been assigned to ``no
project'' has little, if any, effect on the current Overflight Fees.
These inaccuracies would have benefited Overflights, since all of the
``no project'' costs were allocated as overhead costs. The Overflight
Fees do not include overhead costs. Therefore, correcting this problem
would have resulted in slightly higher fees. As indicated earlier, the
FAA will continue to improve future CAS cost allocations.
In sum, after thorough and careful consideration and analysis of
the recent IG report on the CAS, the FAA has determined that the report
has no substantive effect on this rulemaking.
Discussion of the Final Rule
This Final Rule completes the statutory task given to the FAA by
Congress in 1996. Changes to the Final Rule from the Interim Final Rule
are minimal and clarifying, except for the fee rates, where accounting
adjustments have resulted in lower fees. As stated in the Interim Final
Rule, for the purpose of this rulemaking, U.S.-controlled airspace
includes all U.S. airspace either directly owned by the United States
or allocated to the United States by the International Civil Aviation
Organization (ICAO) or by other countries. This can further be defined
in general as Enroute and Oceanic airspace. Enroute airspace is
generally defined, for the purpose of this rulemaking, as airspace
where primarily radar-based air traffic services are available. Oceanic
airspace is generally defined, for the purpose of this rulemaking, as
airspace where primarily procedural air traffic services are available.
(Some Enroute services are also provided in certain oceanic areas near
islands such as Bermuda and The Bahamas.) It is acknowledged that this
division of airspace does not perfectly reflect all types of airspace,
but is a simplification to allow for reasonable costs in tracking and
billing users, as well as for the assignment of costs under the CAS. A
description of the U.S.-controlled airspace by latitude and longitude
has been placed in the public docket for this rulemaking (Docket item
5).
The Final Rule remains the same as the Interim Final Rule with the
exception of a reduction in the fees attributable to accounting
adjustments, better billing and collection cost estimates, and
clarification of the language of certain sections of the rule. Upon
further review of the FY 1999 financial statements, the FAA determined
that it had expensed certain costs that should have been capitalized
and depreciated over a number of years. This caused expenses to be
overstated and depreciation costs to be understated. The net impact has
been a reduction in FY 1999 Enroute costs of some $242 million and a
reduction in Oceanic costs of some $20 million. The specifics of these
adjustments are explained in the previous Discussion of Comments
section under the comment ``The FAA expensed costs that should have
been capitalized.'' Also, billing and collection costs were reduced by
approximately 17 percent, based on more than 8 months of actual
[[Page 43714]]
operational experience under the Interim Final Rule. This also is
discussed previously. The net result of these cost adjustments is a
reduction of approximately 10-percent in Enroute fees and approximately
20-percent in Oceanic fees. The new rates are $33.72 per 100 miles
flown in Enroute airspace, and $15.94 per 100 miles flown in Oceanic
airspace.
Effective upon publication of this Final Rule, the FAA will
implement the updated fees. The FAA will recalculate previous bills
under the Interim Final Rule and provide credits or refunds, as
appropriate, to users under 49 CFR part 89. The rule does not apply to
military and civil aircraft operated by the U.S. Government or by a
foreign government, or to Canada-to-Canada flights.
Aviation Rulemaking Committee for Overflight Fees
As explained in the Discussion of Comments section under ``Lack of
consultation,'' the FAA intends to establish an Aviation Rulemaking
Committee for Overflight Fees. The FAA anticipates publishing a Notice
in the Federal Register within the next 90 days announcing details of
this Committee. The purpose will be to provide a forum for information
sharing between the FAA, the users, and the public on matters relating
to the fees and to discuss future Overflight Fee rulemaking.
Canada-to-Canada Operations
Canada-to-Canada operations, as previously discussed, are defined
for this rulemaking (hereafter ``Canada-to-Canada'') as flights
conducted by any aircraft of any nationality that take off from and
land in Canada without an intermediate stop outside of Canada that
operate in U.S.-controlled airspace. Users are defined as operators of
aircraft flights that neither depart from nor land in the United
States.
Currently, many flights between two points in Canada transit U.S.-
controlled airspace because of air traffic coordination between the
United States and Canada. Routing through U.S.-controlled airspace by
U.S. or Canadian ATC occurs because it is either the shortest route or
it offers the most favorable flight conditions. This frequent and
variable routing is done without regard to the border between Canada
and the United States.
As stated in the Interim Final Rule, the FAA has a long-standing
ATC relationship with the Canadian ATC authority known as NAV CANADA
beginning with an exchange of notes between the U.S. and Canadian
governments in 1963. The FAA has determined that assessing fees on
Canada-to-Canada flights would be inconsistent with 49 U.S.C. 106(l),
40103, and 40105; and the FAA's agreements with Canada or its agent NAV
CANADA (the most recent of which can be found in the docket, item 102).
This determination gives maximum effect to all applicable statutes and
agreements. Accordingly, the total potential annual billings of
overflights are $43.2 million, but expected annual billings are
approximately $33.5 million (the difference being attributed to the
FAA's agreements with NAV CANADA). These totals reflect a reduction in
fees from the Interim Final Rule of approximately 10 percent in Enroute
airspace and 20 percent in Oceanic airspace. As discussed previously,
the cost of fees not charged is being borne by the FAA.
The FAA has recently learned that NAV CANADA has sent invoices for
enroute services covered by the agreement described above. These bills
were accompanied by a letter from NAV CANADA that stated, ``Effective
June 1, 2001, the NAV CANADA enroute charge will apply to flights
between two points in the U.S. entering and exiting airspace controlled
by NAV CANADA below 49 deg.N, east of 95 deg.W by turbojet aircraft in
commercial service with maximum take-off weight (MTOW) of 20 metric
tonnes or more.'' The FAA is currently considering the effect of this
action on its agreement with NAV CANADA.
The Overflight Fee
The Fees for users (i.e., operators of flights meeting the
definition of an Overflight) is calculated using the Great Circle
Distance (GCD) for each segment of U.S.-controlled airspace that users
transit, as follows:
Rij = (DOij x CO) + (DEij x CE)
Where
Rij= the fee charged to aircraft flying between entry
point i and exit point j,
DOij= total GCD traveled in each segment of U.S.-
controlled Oceanic airspace expressed in hundreds of nautical miles
for aircraft flying between entry point i and exit point j for each
segment in Oceanic airspace,
CO = $15.94 per 100 nautical miles flown in Oceanic airspace,
DEij = total GCD traveled in each segment of U.S.-
controlled Enroute airspace expressed in hundreds of nautical miles
for aircraft flying between entry point i and exit point j for each
segment in Enroute airspace,
CE = $33.72 per 100 nautical miles flown in Enroute airspace.
This formula is based on entry and exit data available for individual
flights in U.S.-controlled airspace. If actual data are not available,
the FAA will use best available FAA flight data based on GCD within
each type of airspace transited.
The fees have been derived in a logical and reasonable manner, and
are directly related to the costs of the FAA services provided to
Overflights. Also, the FAA has determined that the $250-per-month
exemption, which was established in the Interim Final Rule, is still
appropriate for the reasons detailed in that document. Therefore, no
fee will be assessed unless the cumulative charges exceed $250 per
calendar month, based on Greenwich Mean Time (GMT), by any particular
user. The FAA intends to review this Final Rule at least once every 2
years and will issue an NPRM as needed.
The following table illustrates the fee schedule and its
application to hypothetical flights.
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Fee Collection Process and Enforcement
The FAA has established and maintains data from several sources,
including but not limited to, flight plans and radar/radio data that
identify the point of entry and exit, aircraft registration number, and
the type of aircraft for all aircraft entering U.S.-controlled
airspace. Information is extracted from the database and used, along
with the fee formula, to compute each fee. The fee includes a charge to
cover the cost of obtaining and processing the flight data, as well as
the cost of billing and collection.
Under the Interim Final Rule, the FAA has been billing by sending a
monthly statement to users pursuant to 49 CFR, part 89. Affected
commercial users have been requested to designate and submit to the FAA
the name and address of a U.S. agent for billing. Users not providing a
billing address are billed at the address of record of the aircraft
owner as maintained in the country where the aircraft is registered. If
the FAA cannot identify a user, the registered owner of the aircraft is
billed. This process will continue unchanged.
As provided in Sec. 187.15(d), monthly remittance of fees of $1,000
or more are to be paid by electronic funds transfer. Monthly
remittances of less than $1,000 may be paid by electronic funds
transfer, check, money order, credit card, or draft. All payments must
be in U.S. currency.
Invoices that become delinquent will be charged administrative
charges and interest and will be collected according to 49 CFR, part
89. The FAA intends to pursue vigorously all delinquent balances to the
extent provided by law. As noted above, the FAA will recalculate all
bills under the Interim Final Rule and will give credits or refunds, as
appropriate, for overpayment.
If any adjustments are necessary in the fees billed or collected,
the FAA will follow the procedures in 49 CFR part 89 to settle debts of
users. This includes issuing credits and refunds to users as
appropriate and authorized by law.
Justification for Immediate Adoption
The Administrative Procedure Act (APA), 5 U.S.C. 553 et. seq.,
requires that prior to the issuance of a final rule, an agency will
give notice to the public and seek comment on a proposed rule. Also,
when a rule is adopted immediately, justification is required under the
APA. On June 6, 2000, the FAA published the Interim Final Rule without
public notice, pursuant to specific Congressional authority (the Act,
49 U.S.C. 45301(b)(2)), which in itself has been recognized by the
courts as a specific exception to the APA. At that time, the FAA sought
comments, which are addressed in this document. Congress directed that
after the FAA has obtained public comments, it should then issue a
Final Rule. This Final Rule is issued, without further notice or
request for comments, with immediate adoption because this action
reduces fees and collection charges. No additional notice or request
for comment is required by 49 U.S.C. 45301 or by the APA, since the
only change in the rule is an administrative reduction of fees. To
delay adoption would merely defer the reduction of the fees, and
thereby increase the burden on the users. Furthermore, in light of the
express direction from Congress, notice and comment would be
inappropriate and not in the public interest.
Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (44 U.S.C. 3507(d)), the information collection requirements
associated with this Final Rule were submitted to the Office of
Management and Budget (OMB) for review and approval. The OMB control
number associated with this collection is Number 2120-0618. There are
no new requirements for the information collection associated with this
Final Rule. Under the IFR, an estimated 300 to 600 aircraft operators
were requested to provide the FAA the name, the address, and phone
number of any operator obtaining Overflight services. This was a one-
time collection unless the user needed to change any of the information
provided to the FAA.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid OMB control number.
International Compatibility
In keeping with U.S. obligations under the Convention on
International Civil Aviation, it is FAA policy to comply with ICAO
Standards and Recommended Practices to the maximum extent practicable.
The FAA has reviewed the corresponding ICAO Standards and Recommended
Practices and has identified no differences with these regulations.
Economic Evaluation Summary
Proposed changes to Federal regulations must undergo several
economic analyses. First, Executive Order 12866 directs each Federal
agency to propose or adopt a regulation only if the agency makes a
reasoned determination that the benefits of the intended regulation
justify its costs. Second, the Regulatory Flexibility Act of 1980
requires agencies to analyze the economic impact of regulatory changes
on small entities. Third, the Trade Agreements Act (19 U.S.C. section
2531-2533) prohibits agencies from setting standards that create
unnecessary obstacles to the foreign commerce of the United States. In
developing U.S. standards, this Trade Act requires agencies to consider
international standards. Where appropriate, agencies are directed to
use those international standards as the basis of U.S. standards. And
fourth, the Unfunded Mandates Reform Act of 1995 requires agencies to
prepare a written assessment of the costs, benefits and other effects
of proposed or final rules. This requirement applies only to rules that
include a Federal mandate on State, local or tribal governments or the
private sector, likely to result in a total expenditure of $100 million
or more in any one year (adjusted for inflation).
In conducting these analyses, the FAA has determined that this
rule: (1) has benefits which do justify its costs, is a ``significant
regulatory action'' as defined in the Executive Order, and is
``significant'' as defined in DOT's Regulatory Policies and Procedures;
(2) will not have a significant impact on a substantial number of small
entities; (3) reduces barriers to international trade; and (4) does not
impose an unfunded mandate on State, local, or tribal governments, or
on the private sector. The FAA has placed these analyses in the docket
(as part of the Regulatory Evaluation accompanying this Final Rule) and
summarized them below.
Several benefits will be realized from the imposition of these
fees. The fees establish a mechanism whereby the users pay for the cost
of resources they use. These revenues (up to $50 million) will be made
available to fund the Essential Air Service (EAS) program, as directed
by Congress (49 U.S.C. 41742). For these reasons, charging Overflight
Fees is expected to result in a more efficient allocation of scarce
public resources. The more efficient allocation of resources will
benefit the public at large because more resources will become
available for other services demanded by the public and because EAS
will be funded with fewer tax dollars.
The effect of the rule will be to collect the cost of providing and
making available certain ATC services from the users of the services.
The FAA estimates that the annual cost of billing and collections
associated with this rule is $1.46 million. This includes a one-time
development cost of $1.47 million
[[Page 43717]]
(which is being amortized over 2 years beginning with the
implementation of the Interim Final Rule (IFR)) and an annual operating
cost of approximately $725,000. This is a reduction from the IFR
billing and collections costs.
The cost of billing and collections is expected to be reviewed at
least once every 2 years and user fee rates will be subject to
adjustment to reflect the current costs of providing Overflight
services. The next review is expected no later than 2 years from the
date of publication of the Final Rule.
Regulatory Flexibility Determination
The Regulatory Flexibility Act of 1980 (RFA) establishes ``as a
principle of regulatory issuance that agencies shall endeavor,
consistent with the objective of the rule and of applicable statutes,
to fit regulatory and informational requirements to the scale of the
business, organizations, and governmental jurisdictions subject to
regulation.'' To achieve that principle, the Act requires agencies to
solicit and consider flexible regulatory proposals and to explain the
rationale for their actions. The RFA covers a wide-range of small
entities, including small businesses, not-for-profit organizations and
small governmental jurisdictions.
Agencies must perform a review to determine whether a proposed or
final rule will have a significant economic impact on a substantial
number of small entities. If the determination is that it will, the
agency must prepare a regulatory flexibility analysis as described in
the RFA.
However, if an agency determines that a proposed or final rule is
not expected to have a significant economic impact on a substantial
number of small entities, section 605(b) of the 1980 act provides that
the head of the agency may so certify and an regulatory flexibility
analysis is not required. The certification must include a statement
providing the factual basis for this determination, and the reasoning
should be clear.
The Overflight Fees primarily affect foreign users. Since the RFA
applies to domestic entities and does not apply to foreign entities,
the FAA certifies that this rule will not have a significant economic
impact on a substantial number of domestic small entities. In addition,
the FAA believes that the effect of the Final Rule on small domestic
operators will be negligible.
International Trade Impact Assessment
The Trade Agreement Act of 1979 prohibits Federal agencies from
engaging in any standards or related activities that create unnecessary
obstacles to the foreign commerce of the United States. Legitimate
domestic objectives, such as safety, are not considered unnecessary
obstacles. The statute also requires consideration of international
standards and where appropriate, that they be the basis for U.S.
standards. In addition, consistent with the Administration's belief in
the general superiority and desirability of free trade, it is the
policy of the Administration to remove or diminish to the extent
feasible, barriers to international trade, including both barriers
affecting the export of American goods and services to foreign
countries and barriers affecting the import of foreign goods and
services into the United States.
In accordance with the above statute and policy, the FAA has
assessed the potential effect of this final rule. The Final Rule will
primarily affect foreign users, generally commercial users. Most
commercial aircraft are designed to operate more efficiently at
altitudes above 18,000 feet. All operations at altitudes at or above
18,000 feet controlled by the United States must use ATC. The FAA
believes that it is highly unlikely that foreign commercial users will
alter their behavior to avoid using ATC and related services (although
there are some questions about foreign non-commercial users). In
addition, to some extent, commercial users are able to pass the
Overflight Fees on to their passengers and cargo customers.
The Final Rule may have a favorable competitive impact on U.S.
commercial operators. Prior to the implementation of the June 6, 2000,
Overflight Fee IFR, U.S. commercial operators were at a possible
comparative disadvantage with foreign counterparts when users (U.S. and
foreign) paid user fees to transverse other countries' airspace while
foreign users did not have to pay a fee to transverse U.S.-controlled
airspace. The Final Rule could enhance the competitiveness of domestic
commercial operators in international markets.
Unfunded Mandates Assessment
The Unfunded Mandates Reform Act of 1995, enacted as Pub. L. 104-4
on March 22, 1995, is intended, among other things, to curb the
practice of imposing unfunded Federal mandates on State, local, and
tribal governments.
Title II of the Unfunded Mandates Reform Act of 1995 requires each
Federal agency to prepare a written statement assessing the effects of
any Federal mandate in a proposed or final agency rule that may result
in a $100 million or more expenditure (adjusted annually for inflation)
in any one year by State, local, and tribal governments, in the
aggregate, or by the private sector.
This Final Rule does not contain such a mandate. Therefore, the
requirements of Title II of the Unfunded Mandates Reform Act of 1995 do
not apply.
Executive Order 13132, Federalism
The FAA has analyzed this Final Rule under the principles and
criteria of Executive Order 13132, Federalism. We determined that this
action will not have a substantial direct effect on the States, or the
relationship between the national Government and the States, or on the
distribution of power and responsibilities among the various levels of
government. Therefore, we determined that this Final Rule does not have
federalism implications.
Environmental Analysis
FAA Order 1050.1D defines FAA actions that may be categorically
excluded from preparation of a National Environmental Policy Act
environmental assessment or environmental impact statement. In
accordance with FAA Order 1050.1D, appendix 4, paragraph 4(j), this
rulemaking action qualifies for a categorical exclusion.
Energy Impact Determination
The energy impact of the Final Rule has been assessed in accordance
with the Energy Policy and Conservation Act (EPCA), Pub.L. 94-163, and
FAA Order 1053.1. It has been determined that the Final Rule is not a
major regulatory action under the provisions of the EPCA.
List of Subjects in 14 CFR Part 187
Administrative practice and procedure, and Air transportation.
The Amendment
In consideration of the foregoing, the Federal Aviation
Administration amends part 187 of title 14, Code of Federal Regulations
as follows:
PART 187--FEES
1. The authority citation for part 187 continues to read as
follows:
Authority: 31 U.S.C. 9701, 49 U.S.C. 106(g), 49 U.S.C.
106(l)(6), 40104-40105, 40109, 40113-40114, 44702.
2. In Sec. 187.1, revise the last two sentences to read as follows:
Sec. 187.1 Scope.
* * * Appendix A to this part prescribes the methodology for
computation of fees for certification services performed outside the
United States. Appendix B to this part
[[Page 43718]]
prescribes the fees for certain aircraft flights that transit U.S.-
controlled airspace.
3. In Sec. 187.15, paragraph (d) is revised to read as follows:
Sec. 187.15 Payment of fees.
* * * * *
(d) The fees described in appendix B of this part are payable to
the Federal Aviation Administration in U.S. currency. Remittance of
fees of $1,000 or more are to be paid by electronic funds transfer.
Remittance of amounts less than $1,000 may be paid by electronic funds
transfer, check, money order, credit card, or draft.
4. In part 187, Appendix B is revised to read as follows:
Appendix B--Fees for FAA Services for Certain Flights
(a) Applicability. Except as provided in paragraphs (b) and (c)
of this appendix, this appendix applies to any person who conducts a
flight through U.S.-controlled airspace that does not include a
landing or takeoff in the United States. U.S.-controlled airspace is
defined as all U.S. airspace either directly owned by the United
States or allocated to the United States by the International Civil
Aviation Organization (ICAO) or by other countries. This is further
defined, for this section only, as Enroute and Oceanic airspace.
Enroute airspace is defined, for this section only, as airspace
where primarily radar-based air traffic services are provided.
Oceanic airspace is defined, for this section only, as airspace
where primarily procedural air traffic services are provided.
(b) Governmental flights. This appendix does not apply to any
military or civilian flight operated by the United States Government
or by any foreign government.
(c) Canada-to-Canada flights. This appendix will not apply to
any operator of a flight that takes off and lands in Canada, without
an intermediate stop outside Canada, that operates in U.S.-
controlled airspace.
(d) Services. Persons covered by paragraph (a) of this appendix
must pay a fee for the FAA's rendering or providing certain
services, including but not limited to the following:
(1) Air traffic management.
(2) Communications.
(3) Navigation.
(4) Radar surveillance, including separation services.
(5) Flight information services.
(6) Procedural control.
(7) Emergency services and training.
(e) Methodology for the computation of fees.
(1) For the services listed in paragraph (d) of this appendix,
the fee is computed based on the distance flown in either enroute or
oceanic airspace (U.S.-controlled airspace.) Distance flown is based
on the great circle distance (GCD) for the point of entry and the
point of exit of U.S.-controlled airspace based on FAA flight data.
Fees are assessed using the methodology presented in paragraph
(e)(2) of this appendix. Where actual entry and exit points are not
available, the best available FAA flight data will be used to
calculate the entry and exit points.
(2) A User (operator of an overflight) is assessed a fee for
each 100 nautical miles (or portion thereof) flown in each segment
and type of U.S.-controlled airspace. Separate calculations are made
for transiting Enroute and Oceanic airspace. The total fee charged
for an Overflight between any entry and exit points is equal to the
sum of these two charges. This relationship is summarized as:
Rij = $15.94*DOij + $33.72*DEij,
Where
Rij = the fee charged to aircraft flying between entry
point i and exit point j,
DOij= total great circle distance traveled in each
segment of U.S.-controlled oceanic airspace expressed in hundreds of
nautical miles for aircraft flying between entry point i and exit
point j for each segment of oceanic airspace.
DEij = total great circle distance traveled in each
segment of U.S.-controlled enroute airspace expressed in hundreds of
nautical miles for aircraft flying between entry point i and exit
point j for each segment of enroute airspace.
(f) Billing and payment procedures.
(1) Billing. The FAA will send an invoice to each user that is
covered by this appendix when fees are owed to the FAA. If the FAA
cannot identify the user, then an invoice will be sent to the
registered owner. No invoice will be sent unless the monthly (based
on Greenwich Mean Time) fees for service equal or exceed $250. Users
will be billed at the address of record in the country where the
aircraft is registered, unless a billing address is otherwise
provided.
(2) Payment. Payment must be made by one of the methods
described in Sec. 187.15(d).
(g) Review of rule. The rule prescribed in this appendix will be
reviewed at least once every 2 years and adjusted to reflect the
current costs of the services covered by this appendix.
Issued in Washington, DC, on August 13, 2001.
Jane F. Garvey,
Administrator.
[FR Doc. 01-20691 Filed 8-17-01; 8:45 am]
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