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Legal Issues Relating to Airports Promoting Competition (2019)

Chapter: VI. LEGAL ISSUES RELATING TO PROMOTING FBO COMPETITION

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Suggested Citation:"VI. LEGAL ISSUES RELATING TO PROMOTING FBO COMPETITION." National Academies of Sciences, Engineering, and Medicine. 2019. Legal Issues Relating to Airports Promoting Competition. Washington, DC: The National Academies Press. doi: 10.17226/25479.
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Suggested Citation:"VI. LEGAL ISSUES RELATING TO PROMOTING FBO COMPETITION." National Academies of Sciences, Engineering, and Medicine. 2019. Legal Issues Relating to Airports Promoting Competition. Washington, DC: The National Academies Press. doi: 10.17226/25479.
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Suggested Citation:"VI. LEGAL ISSUES RELATING TO PROMOTING FBO COMPETITION." National Academies of Sciences, Engineering, and Medicine. 2019. Legal Issues Relating to Airports Promoting Competition. Washington, DC: The National Academies Press. doi: 10.17226/25479.
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Suggested Citation:"VI. LEGAL ISSUES RELATING TO PROMOTING FBO COMPETITION." National Academies of Sciences, Engineering, and Medicine. 2019. Legal Issues Relating to Airports Promoting Competition. Washington, DC: The National Academies Press. doi: 10.17226/25479.
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Suggested Citation:"VI. LEGAL ISSUES RELATING TO PROMOTING FBO COMPETITION." National Academies of Sciences, Engineering, and Medicine. 2019. Legal Issues Relating to Airports Promoting Competition. Washington, DC: The National Academies Press. doi: 10.17226/25479.
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Suggested Citation:"VI. LEGAL ISSUES RELATING TO PROMOTING FBO COMPETITION." National Academies of Sciences, Engineering, and Medicine. 2019. Legal Issues Relating to Airports Promoting Competition. Washington, DC: The National Academies Press. doi: 10.17226/25479.
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Revised November 2019 ACRP LRD 37 27 • In Requests for Proposals, require fuel pricing policies in agreement/leases; and • Require fuel price adjustments or imposed profit limits in local laws or ordinances.280 This section details several of these tools in the airport spon- sor’s toolbox and their attendant legal considerations. A. Rates and Charges The costs associated with operating at an airport that are attributable to the airport/owner’s agreement with the FBO presents an almost unlimited set of variables. Each air- port presents its own set of challenges and opportunities with respect to how to best (and profitably) serve aeronautical users. As mentioned elsewhere herein, due to the fact that agreements with FBOs are aeronautical in nature, sponsors need not get market rent from FBOs and may instead fashion arrangements that are tailored to the airport’s and FBO’s particular needs, in- terests and financial circumstances. Numerous factors impact how financial arrangements are made between an FBO and an airport operator as to how the operator will be paid in exchange for the FBO’s operation. These arrangements may be as simple as the FBO merely paying ground rent to the airport (most often in situations where the FBO may have solely paid for the construction of facilities in exchange for a long-term rent of airport property) to revenue sharing structures whereby the FBO and the airport share in FBO-generated profits. A myriad of variations of payment structures are possible and the specifics depend upon many factors such as the air- port’s access to capital, its risk tolerance and how much control/ involvement it seeks to maintain over FBO operations on an on- going basis. These specifics are beyond the scope of this report. However, the financial arrangements are similar to those used by airports in structuring economic development projects and airport sponsors should consult other ACRP projects for insight and guidance.281 B. Minimum Standards Grant Assurance 22 requires that all aeronautical service providers be granted access to the airport on reasonable terms and without unjust discrimination.282 The FAA recommends— but does not require—that airport sponsors implement this re- quirement in part through developing “minimum standards.”283 Minimum standards set forward the conditions under which 280 Id. 281 See, e.g., ACRP 03-39, Generating Revenue from Commercial Development On or Adjacent to Airports; ACRP 01-15, Assessing and Implementing Innovative Revenue Strategies—A Guide for Airports; ACRP 09-03, Permitted Airport Involvement in Economic Develop- ment Efforts. 282 Grant Assurance 22. 283 See, FAA AC 150/5190-7, supra note 58; FAA Order 5190.6B, supra note 56 at Ch.10; Carey v. Afton-Lincoln Cnty. Mun. Airport Joint Powers Bd., FAA Docket No. 16-06-06, 2007 WL 430630, *26 (Jan 19, 2007). outcome of the litigation in the federal court system.279 As of the date of this publication, this litigation was continuing at the District Court level. Given the ongoing nature of this dispute, it is too early to tell what its outcome will be. However, it does underline the tricky nature of ensuring effective competition at airports. VI. LEGAL ISSUES RELATING TO PROMOTING FBO COMPETITION In the FBO context, “competition” may be approached dif- ferently depending on the size of the airport and its role in the national system. While all sponsors are generally concerned with whether fuel prices and the cost of other services meet the needs of its users, the means of correcting any competitive deficiency may vary. For airports with abundant and robust commercial activity, adequate competition may mean having (or at least potentially having) more than two or more FBOs on the field. Much smaller general aviation airports with lower levels of activity may only be able to realistically support one FBO. The relevant marketplace in those instances may be re- gional, and the issue whether there are sufficient viable alterna- tives at other airports for the purchase of fuel to check an other- wise monopolistic tendency. In December 2017, the FAA issued a guidance document entitled, “Q&As – FBO Industry Consolidation and Pricing Practices.” The Q&As recognize that airport sponsors have an increased interest (and, perhaps, arguably an obligation) in monitoring the competitive opportunities for FBOs in light of the “continuing consolidation of the FBO industry, the post-9/11 security demands placed on the airport and FBO, the lack of traffic volume to support FBOs, and airport sponsors’ need to operate self-sustaining enterprises.” The Q&As do not establish any new interpretations of sponsors’ grant assurance obligations, but rather suggest a range of tools that sponsors concerned about high pricing may use to address competitive deficiencies: • Consider the relevant sections of the FAA Rates and Charges Policy to the situation at the airport with re- gards to setting fees, rates, and charges; • Establish different classes of FBOs with different levels of service, that may include ancillary and support services; • Take over FBO services to address a shortcoming; • Establish self-service fueling; • Clarify the scope and detail of the right to self-service operations; • Adjust rules, regulations, leases, and minimum stan- dards and review periodically; • Publicly disclose rates and charges for airport access and service; • Retain exclusive control over ramp areas; • Outline and address restrictions on exclusive leasing of Federally funded infrastructure, such as ramps; 279 In re Compliance with Federal Obligations by the City of Dallas, FAA Docket No. 16-15-10, Notice of Withdrawal and Dismissal With- out Prejudice (Apr. 4, 2018).

28 ACRP LRD 37 Revised November 2019 of providing such facilities is too high, or there is insufficient de- velopable land at the airport to establish them. Accordingly, if an airport wishes to address current or future competition issues, consideration should be given to how land will be made avail- able for new service providers. There is a critical distinction, however, between minimum standards that act as a de facto limitation on potential, compet- ing aeronautical service providers, and those that are intended to protect the existing service providers from competition. The FAA cautions that “[a]ny use of minimum standards to protect the interests of an exclusive business operation may be inter- preted as the grant of an exclusive right and a potential violation of the airport sponsor’s grant assurances and the FAA’s policy on exclusive rights.”286 Sponsors should be wary of efforts by ex- isting aeronautical providers to ratchet up minimum standards after substantial investment; minimum standards are intended to ensure “a safe, efficient and adequate level of operation and services is offered to the public,”287 not to protect an incumbents’ competitive position. FAA encourages sponsors to “provide for periodic reviews of the minimum standards to ensure that the standards con- tinue to be reasonable,” but strongly cautions sponsors not to engage in constant juggling of their minimum standards to the benefit (or detriment) of particular operators.288 Indeed, mini- mum standards can, and should, “be modified to reflect the airport’s desire to learn from experience and to be watchful for improvements in the way it does business in order to protect the public interest.”289 To avoid setting the minimum standards at inappropriate levels, however, the standards “should be updated to reflect current conditions that exist at the airport and not those that existed in the past.” And, to ensure revised minimum standards have the greatest possible support from existing aero- nautical users, the FAA strongly encourages sponsors to notify and involve incumbents in the process.290 The FAA has heard many cases addressing allegations that a sponsor has increased minimum standards in order to shut out potential competitors;291 however, the agency has not had a specific occasion to consider whether a sponsor may reduce minimum standards to allow for more competition at an air- port. Particularly where a sponsor can demonstrate that lowered minimum standards will not compromise the safety or quality of aeronautical services provided, it is unlikely that the FAA dis- courage sponsors’ efforts to open an airport to additional com- petition. The FAA has generally recognized sponsors’ proprie- tary interest in fostering competition and has permitted actions directed toward enhancing opportunities for competition, even 286 Id. at 3. 287 Id. 288 FAA AC 150/5190-7, ¶ 1.2.e. at 4-5. 289 SPA Rental, LLC v. Somerset-Pulaski Cnty. Airport, FAA Docket No. 16-13-02, Director’s Determination, at 21 (Sept. 1, 2015). 290 FAA AC 150/5190-7. 291 See, e.g., Carey v. Afton, 2007 WL 430630 at *26; Platinum Avia- tion and Platinum Jet Ctr. BMI v. Bloomington-Normal Airport Auth., FAA Docket No. 16-06-09, Director’s Determination at 8 (June 4, 2007). aeronautical service providers are permitted to supply goods and services at a public-use airport. With respect to FBOs, minimum standards outline what an airport sponsor wants an FBO to be: how big its physical footprint must be, what services amenities must be available to pilots and passengers, and what ancillary services must be available within the confines of the FBO property. Minimum standards are typically published as a standalone document and incorporated by reference into commercial leases or operating permits at the airport. In this way, spon- sors may point to an objective set of criteria in making deci- sions about the terms of access for different sorts of aeronautical service providers, as well as provide prospective providers with a clear understanding of the conditions they will be required to meet. The FAA will not generally countenance allegations of unjust discrimination against a sponsor where the sponsors has: (1) Applied minimum standards consistently to all providers of aeronautical services; (2) Imposed conditions that ensure safe and efficient operation of the airport in accordance with FAA rules, regulations, and guidance; (3) Ensured standards are reasonable, not unjustly dis- criminatory, attainable, uniformly applied and reason- ably protect the investment of providers of aeronautical services to meet minimum standards from competition not making a similar investment; (4) Ensured standards are relevant to the activity to which they apply; and (5) Ensured standards provide the opportunity for new- comers who meet the minimum standards to offer their aeronautical services within the market demand for such services.284 Minimum standards are an effective tool in managing airport development and protecting the sponsors against allegations of unjust discrimination. However, because they are effectively the filter through which new aeronautical service providers must pass to operate at an airport, their development and periodic reevaluation are critical to ensuring adequate competition. On the one hand, setting minimum standards too low runs the risk of allowing unqualified or uncommitted aeronautical service providers to compete alongside more established enti- ties that have made substantial investments in the airport. The sponsor must ensure that minimum standards “reasonably pro- tect the investment of providers of aeronautical services to meet minimum standards from competition not making a similar investment.”285 It is also critical that minimum standards are not too high. A significant amount of space is often needed to provide top- rate FBO services. Large hangars, ramp areas, and parking lots require substantial amounts of land. Minimum standards gen- erally set the floors for these types of facilities and may act as a significant barrier to the entry of an additional FBO if the cost 284 FAA AC 150/5190-7, supra note 58 at 4. 285 Id.

Revised November 2019 ACRP LRD 37 29 The LGA FBOs were required to provide most traditional FBO services, but were prohibited from selling jet fuel295 or ser- vicing aircraft over a specified maximum certified gross takeoff weight.296 In order to support the County’s goal of enhancing light general aviation services and facilitating the entry of LGA FBOs, the County also used PFC revenue to construct facilities that would be used by the LGA FBOs. The County also offered the successful bidders lease agreements that were tied to a per- centage of their gross profits, rather than a fixed market rent. One of the larger FBOs at the airport filed a formal complaint against the County, claiming that this arrangement— particularly after the County authorized the LGA FBOs to begin selling jet fuel—constituted unjust discrimination. However, the FAA dis- agreed. Because the LGA FBOs were restricted from servicing all types of aircraft and were required to provide certain light gen- eral aviation services that were optional for larger FBOs, the two types of FBO were not similarly situated, and the grant assurance did not compel the County to treat them the same. Other unique features of an airport and its competitive landscape may justify treating two otherwise similarly situated FBOs or operators differently. For example, the desirability of one operator’s location on the airfield, the degree of their capital investment, the type of lease (i.e., whether the operator is leasing only ground or existing facilities, and whether additional im- provements revert to the sponsor at the expiration of the agree- ment), all may justify disparate treatment.297 It is important to be aware of these distinctions when trying to attract competing aeronautical service provides and the flexibility they may afford the sponsor. D. Unbundling of FBO Services Traditionally, when one thinks of an FBO, a “full-service” FBO comes to mind for most of the U.S. aviation industry. Historically, airport users expect FBOs to provide a wide ar- ray of services, ranging from into-aircraft fueling, full aircraft repair and maintenance and substantial square footage of both hangar and support (lounge, rest areas, etc.) facilities. At some airports, depending upon the level of demand, providing all of these services may present a financial and practical challenge for the FBO. If this is a challenge for the existing FBO, having minimum standards that incorporate all of these services and amenities, for an FBO examining the feasibility of competing with the existing FBO, the challenges may be insurmountable. At other airports, however, having an FBO occupy so many aeronautical service categories may create a situation whereby competition is low or non- existent. In such situations, prices may be higher than may otherwise exist elsewhere or service levels may suffer. Thus, many airports are reconsidering whether the FBO should be the all-in-one aeronautical service provider. 295 The County later permitted the LGA FBOs to provide jet fuel, which prompted, in large part, the Part 16 complaint discussed herein. 296 41 N. 73 W., FAA Docket No. 16-07-13. 297 B. Molar, Understanding FAA Grant Assurance Obliga- tions Volume 1: Guidebook, ACRP Web-Only Document 44, at 13 (2017). when they technically discriminate against incumbent service providers.292 And, the FAA has clearly indicated that “no grant assurance protects an aeronautical service provider from more effective competition.”293 C. Multiple Classes of FBO As the discussion above indicates, it is important to make sure that minimum standards are set at levels appropriate to ensure a competitive marketplace at the airport. There are, however, more structural modifications that may be made to minimum standards to address deficiencies in the quality or availability of aeronautical services at the airport. Minimum standards are effective because they assist the airport sponsor in ensuring that similarly situated aeronautical service providers are subject to similar terms and obligations (i.e., the bedrock principal of avoiding unjust discrimination). Implicit in this function, minimum standards also draw lines between aeronautical service providers that are similarly situ- ated, and those that are not. To take an obvious example, most minimum standards would describe aircraft maintenance oper- ators and flight schools as two distinct types of service provider, and subject them to two different sets of minimum standards. One may be required to construct and maintain a large hangar, while the other may not. This is permissible from a compliance standpoint for the very reason that that the entities are not simi- larly situated. Some airports, in attempting to enhance the services offered to the light general aviation sector (typically, piston-powered aircraft with maximum gross takeoff weights below 12,500 pounds), have further distinguished among FBOs by creating different tiers of FBO. Indeed, the FAA notes that tiering may be an effective means of modifying minimum standards when it is difficult to address the needs of both existing and future aeronautical businesses: “a tiered set of minimum standards be developed to address the same type of aeronautical activity but differ significantly in scale and investment (i.e., an FBO building large hangars and serving high performance aircraft and a sec- ond FBO building and only T-hangars and serving only smaller general aviation aircraft).”294 In the case of Westchester County, New York, for example, the County undertook to enhance the services available to light general aviation users of the airport. Although the County al- ready had multiple FBOs on the field, their clientele, and thus their services, catered more to the larger business jets that fre- quented the airport. Accordingly, the County issued a request for proposals for what it called “light general aviation (LGA) FBOs.” 292 See, e.g., Corporate Jets, Inc. v. City of Scottsdale, 2002 FAA LEXIS 169 (2002) (finding sponsor may exclude incumbent from an RFP to promote additional competition at the airport). 293 41 N. 73 W., Inc v. County of Westchester, New York, FAA Docket No. 16-07-13 (Sept. 18, 2009). 294 FAA AC 150/5190.7, supra note 58 ¶1.2(g)(1).

30 ACRP LRD 37 Revised November 2019 the airport sponsor to provide the aeronautical service, or situ- ations where the revenue potential is so significant that the air- port sponsor chooses to perform the aeronautical activity itself in order to become more financially self-sustaining.”300 Before considering providing FBO service itself, the airport sponsor should also closely examine its existing agreement with FBOs and other aeronautical service providers already on the field. In some cases, the sponsors have in the past undertaken contractual promises not to compete with aeronautical service providers, or otherwise limited their ability to offer proprietary services.301 Similarly, airport sponsors must ensure that they possess sufficient legal authority under state or local law to op- erate as an FBO, and whether state or local law imposes any substantive restrictions on pertinent pricing policies or profits. Other legal considerations regarding proprietary aeronauti- cal services vary significantly depending on whether the spon- sor will offer such services as the exclusive provider thereof and intend to keep it that way (i.e., exclude other private entities from competing), or is willing to compete with new or existing aeronautical service providers at the airport. As discussed above, Grant Assurance 23 generally prohibits an airport sponsor from granting an exclusive right to provide aeronautical services. However, this obligation does not apply to services that are provided by the airport sponsor.302 This so- called “proprietary exclusive right” allows the airport sponsor to be the sole provider of FBO services (or individual aeronautical services, such as fueling or de-icing) at the airport. However, “[i]f the airport sponsor opts to provide an aeronautical service exclusively, it must use its own employees and resources.”303 In other words, the sponsor may not declare itself the exclusive provider of an aeronautical service, but then contract with a third party to provide those services on its behalf.304 The requirement to exercise a sponsor’s proprietary exclusive right with its own employees and equipment is often more sig- nificant than it may first seem. A sponsor may not, for example, organize a public limited liability corporation to provide aero- nautical services at the airport which is separate and apart from the sponsor itself. Similarly, the sponsor may not allow resale of its products. For example, the sponsor could not maintain a proprietary exclusive right by requiring tenants to purchase all fuel from the sponsor, but then allowing those tenants to resell the fuel or perform into-wing delivery thereof to aircraft opera- 300 FAA AC 150/5190-6, supra note 17 ¶ 1.3(b)(1). 301 In some cases, restrictions on proprietary activity may implicate Grant Assurance 5. Sponsors should therefore carefully scrutinize such provisions to determine whether they impinge upon the sponsors’ abil- ity to comply with its grant assurance obligations, including the require- ment to provide access to the airport on reasonable terms and without unjust discrimination and to avoid granting an exclusive right. Where Grant Assurance 5 is implicated, sponsors may consider exercising their rights under a subordination clause or else renegotiating the offending provision at the next opportunity. 302 FAA AC 150/5190-6 ¶ 1.3(b)(1). 303 Id. 304 Id. Given the changing demands of aeronautical users and the increasing challenges for service providers, more and more air- ports are examining “unbundling” what was always a one-stop- shopping proposition. The concept of a SASO has been around for a long time.298 However, airports and generally, FBOs, have sought to have as many services provided under the FBO um- brella as possible. By separating out some core services, FBOs may benefit by focusing on front line aircraft servicing and op- portunities may be created for small businesses that may only provide one service (such as aircraft repair). The truly controversial issue is whether it is advisable to unbundle fuel from the core FBO services in order to foster competition in that arena. FBOs argue that fuel is the source of the vast majority of their income at most airports and by allow ing others to provide fueling (or even to allow self-fueling for AvGas (100LL)) would be risking their on-going viability. However, in appropriate circumstances (i.e., high demand for fuel, extraordinarily high fuel prices, exhaustion of efforts by the airport to address such high fuel prices via Grant Assurance- based contractual provisions), such unbundling of fueling may be appropriate. Again, the analysis, issues and econometrics vary based upon an individual airport’s circumstances. Airports should carefully conduct an analysis of the demand for the subject aeronautical services and the impact of the injection of additional sources upon the competitive landscape prior to making any definitive decisions in this arena. E. Proprietary (Exclusive) Services Where a sponsor’s efforts to encourage a private FBO to offer its products and service at more competitive prices, or attract competitors to the marketplace, are unsuccessful, some spon- sors have elected to provide these services themselves. Whether an airport should enter the marketplace to provide FBO services is a complex business proposition requiring con- sideration of many factors, most of which are beyond the scope of this research document.299 An airport sponsor generally has substantially different profit motives from a private FBO and may therefore be able to offer products and services at cost or close to it. At the same time, however, a sponsor-operated FBO may be unable to leverage the same economies of scale as larger network FBOs and, depending on local conditions, it may be more difficult to recruit and retain qualified personnel. Where a sponsor would compete directly with existing service providers on the field, the sponsor should carefully evaluate the potential impact of its entry as a competitor on the local marketplace, just as it would in considering whether to solicit interest from a sec- ond FBO, as discussed above. The FAA notes that proprietary services may make most sense where “the revenue potential is insufficient to attract private enterprises and it is necessary for 298 See, e.g., FAA AC 150/5190-7, supra note 58 at 6. 299 The many considerations in choosing an airport-operated FBO model among several models are comprehensively discussed in L. Kramer, Airport Operator Options for Delivery of FBO Ser- vices, (Airport Cooperative Research Program Synthesis 86, 2018).

Revised November 2019 ACRP LRD 37 31 Federal obligations,” provided such losses are neither 312 Rather, it is only when an airport sponsor’s losses begin to impact its ob- ligations toward the rest of the airport, such as the maintenance of the airfield or snow removal activities, that such losses could jeopardize a sponsor’s grant assurance compliance.313 Whether the sponsor offers aeronautical services as a com- petitor or pursuant to its proprietary exclusive rights, it is im- portant to recognize that its revenues are “airport revenues,” and therefore subject to Grant Assurance 25. “Thus, any profits real- ized by a sponsor-owned FBO are, in turn, realized by all airport users, including competitors . . . .”314 Similarly, sponsor-operated FBOs should not establish rates and charges for those services that would generate revenue surpluses that exceed the amounts to be used for the airport system and for other pur poses for which airport revenues may be spent, including reasonable reserves and other funds to facilitate financing or to cover contingencies.315 F. Requests for Proposals The initial instinct of many airport sponsors facing an uncom- petitive environment at their airports is to simply issue an RFP for the desired competition. While this can be a useful tool, taking affirmative steps to bring a competitor to the airport is not always in the sponsor’s (or other airport stake holders’) best interest. Indeed, one of the most important legal points regarding competition between FBOs or other aeronautical service pro- viders at the airport is that it is not, strictly speaking, required. The FAA has long recognized that, at many airports, the market will naturally select a single entity to provide most or all aero- nautical services. The FAA also recognizes that a single, success- ful entity may expand, including to the point that it occupies all available space at the airport. Neither scenario, in and of itself, is a violation of the prohibition against granting an exclusive right. Instead, a grant assurance violation may lie only where the sponsor has unreasonably denied an otherwise qualified entity an opportunity to enter the marketplace.316 Thus, before embarking on an RFP, the sponsor should care- fully consider what the local market is likely to support (i.e., reasons may exist as to only one FBO is present on the airfield). While competition between service providers is generally desir- able, competition for its own sake can be a risky proposition. The sponsor must assess whether the introduction of another market participant on certain terms could have a detrimental ef- fect on existing on-airport businesses.317 Proceeding to issue an 312 Chattanooga at 48. 313 Id. at 48, note 33. 314 Id. at 48. 315 Id. (quoting Policy Concerning the Use of Airport Revenues, 64 Fed. Reg. 7,696, 7,721 (Feb. 16, 1999)). 316 FAA Order 5190.6B, supra note 56 at 8.9.b., 8-10. 317 The converse of this proposition is not true: the FAA does not per- mit airport sponsors to deny qualified users an opportunity to provide aeronautical services on the basis that the sponsor does not believe the market will support it. Instead, the FAA views a private entity’s desire to provide service, notwithstanding their investment and other risks, as de facto evidence that the market may support the desired service. tors.305 And, although it may be relatively common for private FBOs to subcontract for the provision of certain discrete ser- vices, such as flight training or aircraft maintenance, an airport sponsor could not, in so doing, maintain a proprietary exclusive right to provide these services. It is also critical to observe that the proprietary right to be the exclusive commercial provider of services does not free the sponsor of its obligation to permit self-service, including self-fueling.306 An airport proprietor may impose reasonable self-service standards that enhance the safety and efficiency of the airport.307 However, the FAA has held it “impermissible for an airport sponsor to enact overly restrictive requirements on self-fueling in an attempt to divert self-fuelers to the airport’s own proprietary exclusive fueling operation.”308 If the sponsor does not intend to be the exclusive provider of aeronautical services (or, importantly, fails to observe the above limitations on the exercise of a proprietary exclusive right), then it must provide such services on same terms and condi- tions that would apply to any other commercial operator (e.g., the airport’s minimum standards).309 In such cases, the sponsor “must exhibit extreme caution to ensure that it is not providing its FBO an unacceptable effective exclusive right at the airport by granting its FBO any powers, privileges, or other rights while excluding another FBO from enjoying a similar power, privilege or other right.”310 Within these parameters, however, a competing sponsor- owned FBO retains a unique opportunity to compete. For example, because an airport sponsor has markedly different financial obligations with respect to the airport overall than that of an ordinary commercial tenant, “an airport sponsor is not obligated to impose an identical fee and rental structure upon itself ” for the provision of aeronautical services.311 Similarly, an airport sponsor may legitimately determine to run its FBO at a loss. “The fact that an airport sponsor-owned FBO fails to make a profit, in itself, does not constitute a violation of the sponsor’s 305 Jet 1 Center, Inc. v. Naples Airport Auth., FAA Docket No. 16-04- 03, Director’s Determination (Jan. 4, 2005). (“It is not sufficient that the Authority used its own employees to provide the fuel to the tenant ini- tially. To maintain its proprietary exclusive, the Authority must provide the fuel to the end-users using the Authority’s employees.”). 306 The permissible bounds of self-service activity are outside the scope of this digest, but are detailed in the Airport Compliance Manual at Chapter 11, and discussed at length in D. Prather, The Right to Self Fuel, (Airport Cooperative Research Program Legal Research Digest 8, 2008). 307 Airborne Flying Serv., Inc. v. City of Hot Springs, FAA Docket No. 16-07-06, Final Agency Decision (May 2, 2008). 308 Scott Aviation v. DuPage Airport Auth., FAA Docket No. 16-00- 19, Director’s Determination (July 19, 2002). 309 Grant Assurance ¶ 22.g; TAC Air v. Chattanooga Metro. Airport Auth., FAA Docket No. 16-11-08, Director’s Determination (Oct. 4, 2013) (“[W]hen the sponsor owns an FBO and hires a third party to operate its FBO, the FBO must ‘provide the same level of service’ required of other FBOs, as required by Grant Assurance 22(g).”). 310 Id. at 46. 311 Id.

32 ACRP LRD 37 Revised November 2019 G. Controlling Prices or Quality of Service An airport sponsor’s Grant Assurances play an important role in lease and access agreements between an airport sponsor and an FBO. Grant Assurance 5, which requires that the spon- sor maintain adequate control over its operations, and Grant Assurance 22, that requires that aeronautical services be pro- vided in on reasonable terms and without unjust discrimina- tion, are critical in this area. The importance of these safeguards in the aeronautical ser- vice provider arena is evidenced by the inclusion of specific lan- guage that is required to be included in agreements with FBO within the Grant Assurances: * * * In any agreement, contract, lease, or other arrangement under which a right or privilege at the airport is granted to any person, firm, or corporation to conduct or to engage in any aeronautical activity for furnishing services to the public at the airport, the sponsor will insert and enforce provisions requiring the contractor to 1. furnish said services on a reasonable, and not unjustly discrimi- natory, basis to all users thereof, and 2. charge reasonable, and not unjustly discriminatory, prices for each unit or service, provided that the contractor may be allowed to make reasonable and nondiscriminatory discounts, rebates, or other similar types of price reductions to volume purchases * * *323 When included in agreements between the sponsor and the FBO, the above provisions can act as a check upon unreasonable or anti-competitive practices. Other clauses within the FBO agreement are prudent and justified under Grant Assurance 5 as well (such as reserving sponsor approval of any change in service or requiring spe- cific standards be maintained (which are subject to review in the sponsor’s sole discretion). However, as discussed above, the pricing provision have the focus of much attention recently. Agreements with FBOs are also the mechanism through which airport sponsors establish that an FBO does not have an exclusive right to offer a particular service at the airport, in ac- cordance with the airport sponsor’s federal funding obligations. Competitive fuel prices are a common source of conflict affect ing considerations of accessibility on airports. While every airport sponsor wants lower fuel costs in order to promote ac- cess and use of the airport, fuel prices must be adequate to allow FBOs, to remain profitable. Complaints about fuel prices are growing more and more common and factors such as consolida- tion among large FBO companies and the economic challenges of single FBO operators at smaller airports have heightened the awareness of such issues. The range of pricing for fuel and services can vary greatly depending on the particulars of the airport. As a general rule, larger airports may have more leverage in dictating the terms of service, which could result in higher fuel prices. Fixed costs at larger airports in the form of Minimum Annual Guarantees (MAGs), security, insurance, ground leases, and labor costs are 323 Grant Assurance 22(b). RFP and award a new lease without solid, reliable, and practical data points from which to assess current and future needs could lead the sponsor into creating a situation whereby the financial stability of all FBOs is threatened. In some cases, utilization of existing contractual mechanisms and leveraging the grant as- surance obligations discussed herein may present a more “surgi- cal” solution to the sponsor’s concerns. Assuming an RFP is appropriate, it is important that a sponsor review its minimum standards and other governing documents prior to issuance.318 The sponsor may also consider updating its master plan if it has not recently done so. Where an RFP is utilized, it must be structured to ensure that responsive proposals will, in fact, satisfy the sponsor’s pol- icy objectives, and that the sponsor’s discretion in not unduly limited. The FAA affords sponsors considerable discretion in conducting competitive solicitations for new aeronautical ser- vice providers, and its review in such cases has generally been limited to whether entities were given a full and fair opportunity to compete in the solicitation. The FAA has also expressly recog- nized RFPs as a unique tool to remedy competitive deficiencies, and therefore allows sponsors to exclude incumbents from par- ticipation, at least where the stated goal of the RFP is to increase competition.319 A recent RFP conducted at the John Wayne-Orange County Airport (SNA) provides an illustrative example. There, Signa- ture and Atlantic were incumbent FBOs, creating a “duopoly of sorts” that resulted in fuel prices 20 percent above market rates.320 After Signature’s lease expired, SNA issued a Request for Qualifications (RFQ) when other operators expressed inter- est, which prominently noted the sponsor’s overriding interest in ensuring that the pricing policies of the selected FBO would contribute to lower fuel prices and requested proposer’s fuel price estimates. Although Signature’s proposal scored high- est, the sponsor selected both another incumbent and a new operator—Atlantic and ACI Jet—in order to break up the exist- ing duopoly and further suppress the price of aviation fuels. The FAA summarily dismissed Signature’s claim that select- ing a lower scoring proposal was a violation of Grant Assur- ance 22. The FAA held the sponsor had a “right and responsi- bility to consider pricing in FBO selection,” and was unwilling to “ second-guess [sponsor’s] analysis of pricing or the weight it accorded the pricing information provided by the bidders.” 321 “It was well within the County’s discretion to choose a new ap- plicant that would provide specific services or pricing that the County deem[ed] desirable.”322 318 FAA AC 150/5190-7, supra note 58 at 5. 319 FAA Order 5190.6B, at 8.7.b.2 320 Kerry Lynch, Orange County to Replace Signature with ACI Jet at SNA, Business Jet Traveler (Jan. 2017), https://www.bjtonline.com/ business-jet-news/orange-county-to-replace-signature-with-aci-jet-at-sna. 321 Signature Flight Servs. Corp. v. Cty. of Orange, FAA Docket No. 16-17-02, Director’s Determination, at 6 (July 21, 2017). 322 Id.

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The TRB' Airport Cooperative Research Program's ACRP LRD 37: Legal Issues Relating to Airports Promoting Competition explores permissible means and methods of encouraging and accommodating competition at U.S. airports. It discusses the history of how competition has been addressed by government and airports and provides the context of the concentration of air carriers and fixed-base operators (FBOs), the accommodation of air carriers with differing business models, and avoiding the grant of exclusive rights when aeronautical service providers merge.

Competition among airlines and FBOs at U.S. airports presents a myriad of issues for the airport sponsor, its executives and for local elected officials—all of whom themselves often face multidimensional challenges and needs. U.S. airports, and especially those which have used federal airport improvement funds, operate within a unique atmosphere.

Congress, through the enactment of airport funding legislation, created a broad and general framework within which airport sponsors must operate. Much of this general framework has been supplemented by United States Department of Transportation / Federal Aviation Administration and provides airport sponsors with some further guidelines within which airports must operate. This framework/guidance, however, relies largely upon general standards such as dealing with airlines and FBOs in a “reasonable” and “not unjustly discriminatory” manner. Given this fact, the resolution of competition issues at any particular airport is necessarily highly dependent upon the locally derived factual context and, therefore, requires locally derived solutions.

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