Aviation and Airport Development Law : Aviation Lawyer & Attorney : Chevalier Allen & Lichman Law Firm : Airport Development, Environmental Law

 

The Federal Aviation Administration has officially rescinded its controversial plan to enact mandatory slot auctions on LaGuardia, JFK, and Newark airports.  See 74 Fed. Reg. 52,132 (Oct. 9, 2009) (LaGuardia) and 74 Fed. Reg. 52,134 (Oct. 9, 2009) (JFK and Newark). 

Both the final rule "Congestion Management Rule for LaGuardia Airport" and "Congestion Management Rule for John F. Kennedy International Airport and Newark liberty International Airport" were published in the Federal Register on October 10, 2008 (73 Fed.Reg. 60544 and 60574).  These final rules established procedures to address congestion in the New York City area by assigning slots at the airports, assigning to existing operators the majority of slots at the airports, and creating a market by annually auctioning off a limited number of slots in each of the first five years of the rule.

The rules have been the subject of litigation and much controversy ever since the Bush Administration first proposed them.  The D.C. Circuit ruled last year that the slot auctions could not take place pending the outcome of the litigation.  They have also been the subject of two Law Review articles:  Benjamin D. Williams's Comment, Playing the Slots: The FAA Gambles with Its Controversial Congestion Management Plan for New York's Busiest Airports, 74 J. Air L. & Com. 437 (2009), offers a detailed discussion of the law and policy implications of the FAA's proposed slot auction rule; and Professor Michael Levine's article Airport Congestion: When Theory Meets Reality, 26 Yale J. on Reg. 37 (2009) which presents an improved proposal for slot auctions--one which accounts for market realities and provides airlines holding slots to see the full opportunity costs of retaining (and possibly hoarding) their slots

Then the administration changed and on May 14, 2009, the FAA published a notice proposing to rescind the 2008 final rules citing the impact of the Omnibus Appropriations Act on the rules and the state of the economy in general.  And for those reasons, the FAA states that it "has decided to rescind the 2008 final rule effective immediately."

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FAA Issues Notice of Order to Show Cause Regarding Extension of Limitation of Arrivals at JFK and Newark Airports The FAA, on June 5, 2009, issued two Notices of Order to Show Cause requesting "the views of interested persons on the FAA's tentative determination to extend through October 30, 2010, the January 15, 2008, order limiting the number of...

 

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The FAA, on June 5, 2009, issued two Notices of Order to Show Cause requesting "the views of interested persons on the FAA's tentative determination to extend through October 30, 2010, the January 15, 2008, order limiting the number of scheduled aircraft arrivals at John F. Kennedy International Airport [and Newark Liberty International Airport] during peak hours."

In the Notices, the FAA recites the events that have occurred since it instituted the January, 2008, Order, which include that current proposed rule to rescind its rule regarding slot auctions at both of the airports (74 Fed.Reg. 22714 (May 14, 2009); see also, "FAA Proposes Rescission of Congestion Management Rules for JFK, LaGuardia and Newark," posted May 14, 2009).  As result, the FAA states that it does not believe that it will have an "effective final rule" by the time the January, 2008, Order expires.  Without an extension and without an "effective final rule," the FAA believes that there will be a return to the "congestion-related delays that precipitated the voluntary schedule reductions and adjustments reflected in the January 2008 order."

This extension, then, the FAA claims, is necessary to prevent a recurrence of over-scheduling at the two airports between the date that the January, 2008 Order is slated to expire (October 24, 2009) and the effective date of the the replacement rule.  The Notice extends the January, 2008, Order until October 30, 2010.

To submit comments:

• Electronically:  go to http://regulations.gov and search for docket number FAA-2007-29320 or click here for the comment submission form.
• U.S> Mail:  send comments to Docket Operations, U.S. Department of Transportation, M-30, Room W12-140, 1200 New Jersey Avenue SE, Washington, D.C. 20590-0001
• Fax:  fax to (202) 493-2251.

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The Federal Aviation Administration today proposed to rescind the congestion management rules for JFK, LaGuardia and Newark that would have created auctions for slots at those airports.  (Click here for the JFK and Newark proposal, click here for the LaGuardia proposal)  Those rules were ardently opposed by the airlines as well as by the Port Authority of New York and New Jersey.  These proposed rules would rescind the previous rules regarding the slot auctions, although it would not rescind the order limiting scheduled operations at the airports to 81 operations per hour.  That order remains in place until October, 2009.

Although the FAA admits that the Congestion Management Rules was "highly controversial," it does not admit that its position with respect to the FAA's intangible property rights to the slots was necessarily wrong.  The FAA states that a series of events led to its decision to rescind the rules.  First, in December, 2008, the United States Court of Appeals for the District of Columbia Circuit issued an order staying the rule. Then, the Omnibus Appropriations Act, 2009, passed on March 11, 2009, contained a provision denying any funds to implement the auctions. Those two setbacks coupled with the souring economy, the FAA realized that "the halt in funding for this fiscal year makes it impossible for the rule to have the 10-year life originally contemplated, even without considering the challenging and widespread change in current economic conditions that led to the adoption of the American Recovery and Reinvestment Act of 2009."  Thus:

 

Because of the complexity of the issues, the uncertainty caused by the Omnibus Appropriations Act, and the possible impact of the significantly changed economic circumstances on the slot auction program, the FAA believes it would be better to rescind the rule rather than propose to extend it.  Rescission would also eliminate the potential for wasting resources of all parties in the pending litigation.

 

Put off for another day, however, is the issue of whether government licenses are property.  The proposed rules simply state that the FAA is "in the process of considering its options with regard to managing congestion at the airport[s] in ways that provide a means for carriers to either commence or expand operations at the airport[s], thereby introducing more competition and service options to benefit the traveling public."  Thus, slot auctions may be off the table for the time being - at least until the the funding restriction of the Omnibus Appropriations Act expires on September 30, 2009 - but the FAA has not yet totally abandoned the idea.

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In a gutsy move that is sure to draw the ire of Congressional leaders as well as the Air Transport Association, the FAA announced last Friday, October 10, 2008, that it had promulgated two "congestion management" rules:  one for LaGuardia Airport, and the other for JFK and Newark Airports.  In these rules, the FAA stated that it would proceed with its auctions of slots at the airports despite the GAO Report indicating that it was unlawful to do so. (See, GAO Declares FAA Does Not Have Legal Authority to Auction Slots).

The Rule for JFK and Newark and the Rule for Newark, which both become effective December 9, 2008, establish procedures to address "congestion in the New York City area by assigning slots" at the three airports in a way that the FAA believes will allow "carriers to respond to market forces to drive efficient airline behavior."  The JFK/EWR Rule extends the caps on the operation at the two airports, assigns to existing operators the majority of slots at the airports, while the LGA Rule grandfathers the majority of operations at the airport.  The FAA claims that both Rules will develop a "robust" secondary market by annually auctioning off a limited number of slots in each of the first five years of this rule.  The FAA states that the proceeds of the auction will be used to mitigate congestion and delay in the New York City area.  Finally, the Rule also contains provisions for minimum usage, capping unscheduled operations, and withdrawal for operational need.  Leases obtained in the first auction will start on October 25, 2009.

Most of the Federal Register notice announcing the promulgation of the Rules is spent justifying the Rules in the face of the GAO's report that concluded that the FAA did not have the authority to auction the slots.  The FAA concludes that "the issues involved represent novel legal issues upon which reasonable poeple, and agencies, acting in good faith, have disagreed.  The FAA disagrees with the GAO conclusions and has decided to proceed with the adoption of this final rule."

An analysis of the legal statements will be forthcoming in future blogs.

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In 1968, Garrett Hardin, a professor of Human Ecology at University of California at Santa Barbara, wrote an influential article for the journal Science that described a dilemma in which multiple individuals acting independently in their own self-interest can ultimately destroy a shared resource even where it is clear that it is not in anyone’s long term interest for this to happen.  Prof. Hardin titled this dilemma and his article the “Tragedy of the Commons.”  The current situation at this country’s busiest airports, a shared resource, is a graphic example of the Tragedy of the Commons.

In Prof. Hardin’s article, the central theme is that herders share a common parcel of land, i.e., the commons, on which they are all entitled to let their cattle graze.  It is in each herder’s interest to put as many cattle as possible onto the commons, even if it is damaged as a result.  The herder receives all of the benefits from the additional cattle, but damage to the commons is shared by the entire group.  If all the herders make this individually rational decision, however, the commons is destroyed.

A parallel can be drawn to the sttructure of the United States air transportation system with respect to congestion management.  It is in the each airline’s interest to schedule as many flights as possible during the busiest time of day, even if those flights are substantially delayed as a result thereby overloading the airspace system and the airport, taxing customers’ patience, and damaging the airline’s reputation.  Each of the airlines receives benefits from the additional flights, but the damage to the airport, the airspace system and the airlines is shared by the entire group. 

In this scenario, cooperation among the airlines does not lead to tangible benefits.  Aside from the legal restrictions of anti-trust laws, this is the result of a “prisoner’s dilemma.”  The prisoner’s dilemma is:

• when two prisoners are told that if they cooperate and testify against the other prisoner, they will go free. 
• If one of them cooperates and testifies, and the other does not, then the non-testifying prisoner receives a harsh sentence. 
• If both cooperate and testify, they both will receive a average sentence.  If they both refuse to testify, they both will receive a very light sentence. 

The outcome is that it is in the interest of each of the prisoners to cooperate and testify against the other, since the worse that could happen is that he would receive an average sentence, whereas the best outcome would be he would be set free.

Such is the case with the airlines and overscheduling during peak hours.  Although the airlines would benefit if all airlines did not overschedule during peak hours, the risk that another airline would schedule too many flights to obtain a larger market share is too great.  Moreover, since the damage created by overscheduling is shared, the rational behavior for the airline would be to schedule as many flights as possible before the damage gets too great.  The possibility is for the airlines to support enhancing capacity at the airports (i.e., enlarging the “commons”), but this increases the cost to the parties other than airlines.  Witness the surfeit of litigation surrounding the expansion of O’Hare and the East Coast Airspace Redesign.

In most cases, the Tragedy of Commons leads to an increase in government intervention.  Since it is in the airlines’ rational best interest to schedule additional flights, someone needs to regulate their behavior for the best interests of the community.  Thus, slot restrictions (i.e., limiting the number of “cattle” allowed on the commons and when they are allowed) would seem to make sense to resolve the problem.  However, this solution is not one that is preferable to the airlines, since the government is deciding the highest and best use of the airports and mandating the result irrespective of the outcomes the airlines desire and economic benefits or losses. (for the purposes of this post, I put aside the legal and philosophical issue of who “owns” the slots).  There are, however, two possible solutions to the problem that can be derived from economic theory and from solutions to the Tragedy of the Commons.

First, a possible solution is the application of the Coase Theorem, which is well-known to lawyers through its application in United States v. Carroll Towing Co, 159 F.2d 169 (2nd Cir. 1947), where Judge Learned Hand decided that tort liability could be assigned using economic analysis.  At its most basic, the Coase Theorem states that the individual who can make the highest and best use of a resource will pay the most for it.  It was used in the 1950s when the government was deciding how to regulate radio frequencies so that radio stations did not overlap.  The conclusion was to auction the radio frequencies, since the individual or company who thought that they could make the most profit from the particular frequency would incur the highest transaction cost. 

Similarly, slot auctions where the slots for arrivals and departures are auctioned off for the peak hours at the busiest airports would seem to be a solution that would resolve the Tragedy of the Commons.  Airlines would have to take a careful look at their needs and desires to assess properly the value that they would place on any particular slot.  This method of resource allocation is not favored by the airlines because they would end up paying for a resource that they currently get for free.  However, the price for the slot would be determined by the market, i.e., if the airline places a high degree of value on a particular slot, then it will end up paying for it.  On the contrary, the airline that can make its business plan work using slots that either cost less or are not during the peak hours, will pay less.  The Coase Theorem as applied to airports, may result in larger aircraft being flown during the peak hours, if that is what the market can bear.

Second, Prof. Hardin proposed in his article, which addressed overpopulation, that the solution to the problem is “mutual coercion, mutually agreed upon” and result in the “relinquishing of the freedom to breed.”  The “freedom to breed” in the airport context is the ability of the airlines to schedule flights ad infinitum during peak hours at the busiest airports.  Thus, the relinquishment of the freedom to breed would be a cap on the number of arrivals and departures during the peak hours.  This would be determined on the basis of the airport’s capacity, throughput and safety as well as the air traffic controller’s workload.  Then it would be up to the airlines to divvy up the arrivals and departures amongst themselves.  In this way, the airlines would avoid slot auctions and slot restrictions, but would have to cooperate among themselves to coerce each other to behave in a manner that supports their mutual good, rather than just the good of a single airline.  This also resolves the prisoner’s dilemma issue, since studies have shown that in “iterative prisoner’s dilemma” cases, i.e., where the “game” is conducted in a series, cooperative behavior is rewarded where there is penalty assessed for non-cooperative behavior.  Thus, so long as the government provides the stick if the airlines do not cooperate, then the result would be the most beneficial.  In addition, this solution has the advantage of more limited governmental involvement, since it is only setting the cap based on its values (safety and capacity), but getting in the business of actually scheduling flights and deciding who can fly when.

This article is not intended to offer an in-depth exhaustive survey into the problems surrounding congestion management, but merely to place the problem into a context for discussion recognizing the basic principles of human behavior and economics.

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In a rather odd, unusual statement, the FAA issued on July 31, 2008, a "Record of Decision and Written Re-Evaluation of the New York\New Jersey\Philadelphia Metropolitan Area Airspace Redesign Final Environmental Impact Statement."  In response to several requests for supplemental EIS to deal with the congestion management orders for JFK, LaGuardia and Newark, the FAA prepared the "Written-Re-Evaluation" "to consider whether these Orders Limiting Scheduled Operations and the new rates and charges amendments, either affected the purpose and need for the Airspace Redesign project, or altered the reported environmental impacts."  To no one's surprise, the FAA concluded that there is no "significant new information warranting preparation of a new or supplemental EIS for the Airspace Redesign project."  Since this strange document, coming 11 months after the initial Record of Decision and 29 days before the Petitioners' Brief in the Airspace Redesign litigation is due, is a "Record of Decision," anyone objecting to the ROD may file a Petition for Review within sixty days of July 31, 2008.

What remains to be seen is what effect this document will have on the on-going litigation, the GAO report (which was due out July 31, 2008, but probably will not be issued until the end of August), and the increasing political pressure that is being put on the FAA to reconsider the entire project.

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