Notice on Petition for Waiver of the Terms of the Order Limiting Scheduled Operations at LaGuardia Airport, 26322-26343 [2010-10978]

Agencies

• DEPARTMENT OF TRANSPORTATION
• Federal Aviation Administration (faa)
• Federal Aviation Administration

[Federal Register Volume 75, Number 90 (Tuesday, May 11, 2010)]
[Notices]
[Pages 26322-26343]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-10978]


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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration (FAA)

[Docket No. FAA-2010-0109]


Notice on Petition for Waiver of the Terms of the Order Limiting 
Scheduled Operations at LaGuardia Airport

ACTION: Grant of petition with conditions.

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SUMMARY: The Secretary and the FAA are granting, subject to conditions, 
the joint waiver request of Delta Air Lines and US Airways from the 
prohibition on purchasing operating authorizations (``slots'' or ``slot 
interests'') at LaGuardia Airport (LGA). The grant permits the carriers 
to consummate a transaction in which Delta would transfer 42 pairs of 
slot interests to US Airways at Ronald Reagan Washington National 
Airport (DCA), international route authorities to S[atilde]o Paulo and 
Tokyo; and terminal space at the Marine Air Terminal at LGA. US Airways 
would transfer 125 pairs of slot interests to Delta at LGA, and would 
lease an additional 15 pairs of LGA slot interests with a purchase 
option, together with terminal space in LGA's Terminal C. The grant is 
subject to the conditions that the carriers dispose of 14 pairs of slot 
interests at DCA and 20 pairs of slot interests at LGA to eligible new 
entrant and limited incumbent carriers, pursuant to procedures set out 
in this Notice, and achieve a mutually satisfactory agreement regarding 
gates and associated facilities with any such purchaser.
    If you wish to review the background documents or comments received 
in this proceeding, you may go to https://www.regulations.gov at any 
time and follow the online instructions for accessing the electronic 
docket. You may also go to the U.S. Department of Transportation's 
Docket Operations in Room W12-140 on the ground floor of the West 
Building at 1200 New Jersey Avenue, SE., Washington, DC between 9 a.m. 
and 5 p.m. Monday through Friday, except Federal holidays.

DATES: The waiver is effective upon Delta and US Airways satisfying the 
conditions required by this Notice. On February 9, 2010, the FAA issued 
the Notice of petition for waiver and solicited comments through March 
22, in this Docket, on the grant of the petition with conditions. (75 
FR 7306, Feb. 18, 2010). On March 30, 2010, the FAA reopened the 
comment period and solicited rebuttal comments through April 5, 2010. 
(75 FR 16574, Apr. 1, 2010).

FOR FURTHER INFORMATION CONTACT: Rebecca MacPherson, Assistant Chief 
Counsel for Regulations, by telephone at (202) 267-3073 or by 
electronic mail at Rebecca.macpherson@faa.gov; or Jonathan Moss, Deputy 
Assistant General Counsel for Operations, by telephone at (202) 366-
4710 or by electronic mail at jonathan.moss@dot.gov.

SUPPLEMENTARY INFORMATION:

The Proposed Transaction and the Waiver Request

    In the Wendell H. Ford Aviation Investment and Reform Act for the 
21st Century (AIR-21), Public Law 106-181 (2000), Congress required a 
phase out and termination of the High Density Rule (HDR) \1\ at LGA by 
January 1, 2007.\2\ Congress expressly retained the FAA's authority for 
``safety and the movement of air traffic.'' \3\ The FAA eliminated the 
terms of the HDR applicable at LGA; however, the demand for flights at 
LGA and resultant severe congestion prompted the FAA to re-impose 
quotas by means of an order published in 2006 and subsequently amended 
(``LGA Order'' or ``Order'').\4\ The LGA Order, issued under the FAA's 
authority to regulate the use of navigable airspace,\5\ assigned to the 
incumbent carriers at LGA their slot interest holdings and authorized 
them to lease or trade authorizations for any consideration for the 
duration of the Order. The Order, originally scheduled to expire 
October 24, 2009, was extended through October 29, 2011. The Order does 
not allow for the purchase or sale of slot interests at LGA, and the

[[Page 26323]]

only way for a carrier to purchase or sell such interests is therefore 
through obtaining a waiver of the Order. The FAA is authorized to grant 
waivers when it determines that ``the exemption is in the public 
interest.'' 49 U.S.C. 40109.
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    \1\ The HDR is codified at 14 C.F.R. Part 93, Subparts K and S.
    \2\ 49 U.S.C. 41715(a)(2).
    \3\ 49 U.S.C. 41715(b)(1).
    \4\ Operating Limitations at New York LaGuardia Airport, 71 FR 
77,854 (Dec. 27, 2006); 72 FR 63,224 (Nov. 8, 2007) (transfer, 
minimum usage, and withdrawal amendments); 72 FR 48,428 (Aug. 19, 
2008) (reducing the reservations available for unscheduled 
operations); 74 FR 845 (Jan. 8, 2009) (extending the expiration date 
through Oct. 24, 2009); 74 FR 2,646 (Jan. 15, 2009) (reducing the 
peak-hour cap on scheduled operations to 71); 74 FR 51,653 (Oct. 7, 
2009) (extending the expiration date through Oct. 29, 2011).
    \5\ 49 U.S.C. 40103(b) directs the FAA to develop plans and 
policy for the use of the navigable airspace and, by order or rule, 
to regulate the use of the airspace as necessary to ensure its 
efficient use.
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    In addition to limitations on the number of operations, both 
airports also are subject to ``perimeter rules'' that prohibit nonstop 
flights to and from airports beyond an established perimeter. DCA's, at 
1,250 miles, is set by Federal statute.\6\ The perimeter rule at LGA 
was imposed by the Port Authority of New York and New Jersey.\7\ 
Banning flights to cities more than 1,500 miles away, the Rule was 
imposed in 1984 in an effort to ease ground congestion at the airport.
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    \6\ 49 U.S.C. 49109. Slot exemptions specifically authorized by 
Congress have allowed 24 slots to be used for beyond-perimeter 
nonstop operations, with US Airways holding 6 for service to Phoenix 
and 2 for Las Vegas, and Delta holding 2 for Salt Lake City. 49 
U.S.C. 41718.
    \7\ The United States Court of Appeals for the Second Circuit 
upheld the right of the Port Authority of New York and New Jersey, 
as airport proprietor, to adopt perimeter rule under the 
circumstances at the time. Western Air Lines v. Port Authority of 
N.Y. and N.J., 817 F.2d 222 (2d Cir. 1987).
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    Two air carriers, Delta and US Airways, have proposed an exchange 
of slot interests at these two airports. This exchange, which could 
potentially impact as many as 182 round-trip operations at the two 
airports,\8\ would qualify as a purchase under both the Order and the 
HDR.\9\ The carriers consider the slot interest exchanges to be part of 
an integrated transaction because the sale of US Airways' slot 
interests to Delta at LGA is conditional upon the purchase by US 
Airways of Delta's slot interests at DCA.
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    \8\ The transaction affects almost 10% of the total number (832) 
of DCA slots and more than 20% of the total number (1147) of LGA 
slots.
    \9\ 14 CFR 93.221.
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FAA's Tentative Determination

    On February 9, 2010, we issued a Notice for publication in the 
Federal Register that we had received from US Airways and Delta a 
petition for waiver of the LGA Order, and tentatively approved the 
proposed transaction subject to certain conditions.\10\ In 
conditionally approving the transaction, we stated our tentative 
determination that, while the proposed transaction had a number of 
benefits, a grant of the waiver in its entirety would result in a 
substantial increase in market concentration that would harm consumers. 
The public interest would best be served, we tentatively found, by 
creating new and/or additional competition at the airports to 
counterbalance that harm, specifically through divestiture of 14 pairs 
of slot interests at DCA and 20 pairs of slot interests at LGA to new 
entrant and limited incumbent carriers. We proposed the divestiture of 
two slot-pair bundles at DCA with Bundle A containing 8 pairs and 
Bundle B containing 6 pairs; and four slot-pair bundles at LaGuardia, 
with Bundle A containing 8 pairs and Bundles B-D containing 4 pairs per 
bundle.
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    \10\ 75 FR 7308 (Feb. 18, 2010).
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    In the Notice, we noted that if the proposed transaction were 
approved as presented, it would lead to significantly increased 
concentration at DCA for US Airways and at LGA for Delta. Based on 
their February 2010 schedules, US Airways would raise its share of 
departures at DCA from 47 to 58%, with its share of slots (including 
regional affiliates) increasing from 44 to 54%. This increase would 
make it three times the size of its closest competitor (American 
Airlines). At LGA, Delta (with its affiliates) would ascend to a 
dominant position, raising its share of departures from 26 to 51% and 
its share of slots from 24 to 49%. Delta would become two and one-half 
times the size of its closest competitor (also American), and LGA would 
transition from an airport with three competing carriers of similar 
size to one having a single dominant carrier.
    The Notice stated concern that due to a dominance of this 
magnitude, other incumbent carriers would be limited in exerting 
competitive pressures and disciplining fares. This concern was further 
compounded by the fact that low-cost carriers (``LCCs'')--which create 
the most competitive impact by the ability to dramatically lower fares 
and increase the volume of passengers in a market--had only a limited 
presence at DCA and LGA. Together, they have only 3.3% of slot interest 
holdings at DCA, and 6.8% at LGA.\11\
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    \11\ Following the issuance of the Notice, JetBlue received 
eight slot pairs at DCA from American Airlines in a temporary slot 
transfer that will expire October 29, 2011. JetBlue announced on 
April 28, 2010 that it planned to initiate service using those slot 
pairs beginning November 1, 2010. Including these temporary slots, 
LCCs will have 5.2% of the slot interests at DCA.
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    Another concern raised in the Notice was that, if the proposed 
transaction were approved as submitted, more markets would be served on 
a monopoly or dominant basis. In a number of instances either US 
Airways or Delta would depart a market in which they both compete, 
leaving the other in a monopoly position. In others, where only one of 
the two currently compete, the serving carrier would depart the market 
and the other would enter it, assuming a monopoly or dominant position 
in which it would have even greater pricing power by virtue of its 
increased concentration at DCA or LGA. We tentatively concluded that 
the transaction would produce higher fares for consumers in certain 
domestic markets, as the fewer the number of carriers competing in a 
market the more likely it is that the fares will be higher. Moreover, 
our analysis of US Airways' and Delta's fares at DCA and LGA showed 
that they tended to charge higher fares when they operate monopoly or 
dominant routes from those airports.\12\
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    \12\ DOT calculated that, at DCA, US Airways charged on average 
124% of the Standard Industry Fare Level (SIFL), a cost-based index 
that the Department has used historically to assist in its 
evaluation of pricing. However, in markets where it held a 95 to 
100% share of nonstop departures, US Airways charged substantially 
more. Delta, having a less strong position at LGA than US Airways at 
DCA, tends to price more competitively, averaging only 89% of the 
index figures with its current slot interest holdings. However, we 
anticipate that Delta's increased market share after the transaction 
would permit it to increase the percent of SIFL associated with its 
service at LGA. In comparison, at Washington Dulles International 
Airport (IAD), the average of all carriers' fares vs. SIFL is 77%, 
and at Thurgood Marshall Baltimore-Washington Airport (BWI) the 
figure is 65%. The fares of the largest carrier at IAD, United 
Airlines, average 90% of SIFL, while those of the largest carrier at 
BWI, Southwest Airlines, average 65%. At Newark Liberty 
International (EWR), the average of all carriers' fares vs. SIFL is 
71%, and at JFK the figure is 57%. The fares of the largest carrier 
at EWR, Continental Airlines, average 71% of SIFL, while those of 
the largest carrier at JFK, JetBlue, average 57%. The NYC/Washington 
airports that have the largest proportion of low-cost carriers 
consistently provide lower fares. A further discussion of our SIFL 
methodology appears below.
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    We also considered whether the three airports in the New York area, 
and the three in the Washington area, effectively disciplined fares at 
one another, such that if fares are perceived to be rising too high at 
one airport, the harm would be mitigated by consumers simply shifting 
to the other two. In analyzing both overlap and all markets at the 
airports, we found that yields (i.e., revenue per passenger mile) were 
substantially different among the airports.\13\ The average yield in 
all markets at BWI is 48% less than DCA, and the average yield in all 
markets at Dulles is 37% less than DCA. Similarly, the average yield at 
JFK is 28% less than at LGA, and Newark is 9% less than at LGA. We 
reasoned that if the airports were effective economic substitutes for 
all passengers, the yield spreads would not differ so significantly.
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    \13\ Specifically, yield at DCA is 27 cents per mile, vs. 17 
cents at Dulles and 14 cents at BWI, while yield at LGA is 20.5 
cents per mile, vs. 18.7 cents at EWR and 14.7 cents at JFK.
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    We also found that these differences in the level of yields at area 
airports

[[Page 26324]]

tended to correlate with the level of low cost carrier operations. 
Thus, passengers paid more for nonstop service of equivalent distance 
at DCA and LGA than at alternative airports that have sizable LCC 
competition. For example, for trips out to 1000 miles, passengers at 
LGA pay 23% more on average than those at JFK ($147 vs. $120 each way). 
Passengers at DCA pay 64% on average more than those at BWI ($184 vs. 
$113 each way).
    We also noted that Delta and US Airways were not committed to any 
markets for defined periods, and were free to discontinue those that 
were being proposed as part of the transaction and initiate routes 
elsewhere. We expressed concern that, given their added slot holdings, 
they could use those to target smaller competitors, for example by 
increasing their roundtrips in competitive markets and ``sandwiching'' 
competitor flights. The competitive harm, we feared, would occur not 
just at the city-pair level, but at the network or airport level as 
well, particularly given the finding that the other area airports did 
not serve as effective substitutes for each other.
    These concerns--the combination of increased airport concentration, 
the increase in the number of monopoly or dominant markets in which 
increased pricing power could be exercised, and the potential for use 
of transferred slot interests in an anticompetitive manner--led us to 
propose that a relatively limited number of slots be divested as a 
condition for approving the transaction. At DCA, we proposed that 14 
pairs be divested, to new entrant or limited incumbent carriers--enough 
to initiate and/or increase service in one large market or multiple 
smaller markets. At LGA, we proposed a divestiture of 20 pairs to such 
carriers, in combinations that would allow new competition in three or 
four new markets. We reasoned that the relatively modest divestitures 
would allow the parties to realize almost all of their purported 
benefits, while limiting the increase in concentration at the airports 
and providing opportunities for greater competition.\14\
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    \14\ US Airways and Delta also filed a notification and report 
with the Antitrust Division of the Department of Justice (DOJ) under 
the Hart-Scott-Rodino Act, 15 U.S.C. 18a (HSR). Under the HSR 
process, DOJ reviews the transaction to determine whether it would 
substantially lessen competition or have other significant 
anticompetitive effects. Documents relevant to the HSR review were 
submitted to DOJ by the carriers, with access provided also to DOT, 
which independently assists DOJ in its analysis of the transaction. 
DOJ is continuing its review under HSR and has participated with 
comments in support of the Department's tentative determination in 
this proceeding.
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    We also tentatively determined that the divestitures be made to 
U.S. or Canadian air carriers having fewer than five percent of the 
total slot holdings at the airport in question.\15\ This approach was 
designed to exclude carriers that already offer a level of service 
sufficient to affect pricing in the market, and include both limited 
incumbents that with few slots were most vulnerable to anticompetitive 
strategies, and new entrants that could bring the prospects of 
increased efficiencies and capacity, as well as vigorous price 
competition to the markets.
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    \15\ To ensure the integrity of the 5% proposal, we also 
tentatively determined that carriers eligible to receive divested 
slots not code share with any carrier that has 5% or more slot 
holdings, and are not subsidiaries, either partially or wholly-
owned, of a company whose combined slot interest holdings are equal 
to or greater than 5% at LGA and/or DCA. Carriers that would not 
qualify include those who are involved in a code-share relationship 
at DCA/LGA with carrier(s) that also would not qualify as of the 
date of the Notice.
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    We also proposed that the proceeds of the divestiture sales be 
collected and retained by the divesting carriers; that the divesting 
carriers be required to take their actions within a 60-day period; that 
carriers purchasing the slot interests be precluded from re-selling or 
leasing them to carriers that were ineligible to participate as 
purchasers in the divestiture proceeding; that the slot interests be 
sold in identified ``bundles'' (with specific times we indicated) so as 
to enable the purchasers of the slots to operate competitive service 
with them with times spread across the day. We also solicited comments 
on the specific means by which the carriers might sell the slot 
interests, noting such options as through private sales after FAA-
monitored outreach efforts; through a blind, cash-only, process over an 
FAA Web site; and through an FAA Web site-based outreach process that 
allowed the carriers to negotiate the consideration and terms of sale 
with eligible purchasers.
    The Notice invited interested parties to submit their comments by 
March 22, 2010, to the docket management office at DOT, identifying 
them by docket number FAA 2010-0109. The comments that were received 
are summarized in Appendix A.\16\
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    \16\ We have also placed in the docket a number of other letters 
the Department received in connection with the Delta-US Airways 
proposal, which were generated before the docket was established. 
These were typically general letters of support for the proposal.
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US Airways-Delta Divestiture Counterproposal

    On March 22, in their comments, US Airways and Delta stated that, 
as they were ``mindful of the concerns expressed by FAA'' and desiring 
of a solution that would permit them to move forward, they had entered 
into provisional divestiture agreements with four carriers that were 
eligible under the terms of the Notice for 15 slot pairs at LGA and 4.5 
slot pairs at DCA. The 15 slot pairs at LGA would be transferred, five 
each, to AirTran Airways, Inc., Spirit Airlines, Inc., and WestJet, 
Inc. over periods of up to 28 months; the 4.5 pairs at DCA would be 
transferred to JetBlue Airways, Inc. The carriers added that these more 
limited divestitures, ``while diminishing the benefits of the 
transaction,'' would preserve enough of the benefits to permit them to 
go forward. As explained in their joint filing with the new entrant/
limited incumbent carriers to which they would divest slots under their 
counterproposal: (1) At DCA, JetBlue would acquire 4.5 pairs of slots 
(JetBlue intends otherwise to add one off-peak hour slot to complete a 
5-roundtrip service pattern); (2) at LGA, AirTran, Spirit, and WestJet 
would acquire 5 pairs of slots each, respectively, for a total of 15 
pairs; (3) in all cases, the acquisition would be conditioned on FAA's 
grant of the LGA Waiver request; (4) the JetBlue transfer would take 
place relatively soon, but Delta would continue service with the slots 
under a lease from JetBlue for a period; (5) the AirTran and Spirit 
transactions would occur over a 24-month period at dates of their 
choosing; and (6) the WestJet transaction would occur at a date of its 
choosing within 28 months, and WestJet and Delta will be negotiating 
other commercial arrangements as well.
    The Joint Applicants also stated that if the FAA grants the waiver 
subject to the proposed divestiture conditions, they would not 
consummate the transaction, and reserved the right to seek judicial 
review.
    Given the issues raised by the Joint Applicants' counterproposal, 
the FAA determined that it was in the public interest to reopen the 
comment period through April 5. The rebuttal and supplemental comments 
are also summarized in Appendix A. We grant all motions for leave to 
file late comments, and all comments to date were accepted into the 
docket.

Statutory Authority To Grant Waiver Subject to Slot Interest 
Divestitures

    The FAA and the Secretary have authority to grant the requested 
waiver of the LaGuardia Order, and to grant the waiver subject to 
certain conditions.\17\

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The FAA is authorized to grant an exemption when the Administrator 
determines the ``exemption is in the public interest.'' 49 U.S.C. 
40109. The Administrator may ``modify or revoke an assignment [of the 
use of airspace]'' when required in the public interest. 49 U.S.C. 
40103(b)(1). Courts have upheld the conditions an agency may place on 
its approval of a transaction to meet public interest standards.\18\
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    \17\ Petition for Waiver of the Terms of the Order Limiting 
Scheduled Operations at LaGuardia Airport, 75 FR 7306 at 7307 (Feb. 
18, 2010). The LaGuardia Order was issued under the FAA's authority 
to ``develop plans and policy for the use of the navigable airspace 
and assign by regulation or order the use of the airspace necessary 
to ensure the safety of aircraft and the efficient use of 
airspace.'' 49 U.S.C. 40103(b)(1). Operating Limitations at New York 
LaGuardia Airport, 71 FR 77,854 (Dec. 27, 2006); 72 FR 63,224 (Nov. 
8, 2007) (transfer, minimum usage, and withdrawal amendments); 72 FR 
48,428 (Aug. 19, 2008) (reducing the reservations available for 
unscheduled operations); 74 FR 845 (Jan. 8, 2009) (extending the 
expiration date through Oct. 24, 2009); 74 FR 2,646 (Jan. 15, 2009) 
(reducing the peak-hour cap on scheduled operations to 71); 74 FR 
51,653 (Oct. 7, 2009) (extending the expiration date through Oct. 
29, 2011).
    \18\ See South Dakota v. Dole, 483 U.S. 203, 208 (1987) (``The 
Federal Government may establish and impose reasonable conditions 
relevant to Federal interest * * * and to the over-all objectives 
thereto''); N.Y. Cent. Sec. Corp. v. United States, 287 U.S. 12 
(1932) (upholding Interstate Commerce Commission order approving the 
acquisition of the ``Big Four'' railroad companies by N.Y. Central 
upon the condition that it also acquire short line railroads on 
certain terms).
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    Further, our consideration of Delta's and US Airways' request to 
waive the terms of the LaGuardia Order complies with and carriers out 
AIR-21's mandate to instill competition at slot-controlled airports and 
doing so in conjunction with considering the Secretary's Section 
40101(a)'s pro-competitive public interest factors.\19\ Congress did 
not exclude the Administrator from considering the ``public interest'' 
to include factors beyond ``safety,'' ``national defense'' and 
``security.'' Rather, Congress expressly directed the Administrator to 
consider those matters ``among others.'' Accordingly, as we articulated 
in our February Notice, it is rational for the FAA to consider, as 
being in the ``public interest,'' ``other factors'' including the 
fostering of competition in the context of the slot program. The 
``public interest'' includes policies furthering airline competition, 
as provided in 49 U.S.C. 40101(a)(4), (6), (9), (10), (12)-(13) and 
(d). These goals have been public policy since at least the time of 
adoption of the Airline Deregulation Act of 1978, Public Law 95-504 (92 
Stat. 1705), and they include (among others) maximizing reliance on 
competitive market forces; avoiding unreasonable industry concentration 
and excessive market domination; and encouraging entry into air 
transportation markets by new carriers.\20\
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    \19\ Neither the Joint Applicants nor other carriers arguing 
against the waiver conditions cite any cases prohibiting the FAA or 
the Secretary from considering competitive goals in the public 
interest. N.Y., op cit., upheld an agency's public interest 
conditions to an acquisition, despite the industry's opposition to 
the conditions. That decision affirmed the Interstate Commerce 
Commission's conditions to the New York railroad's acquisition of 
the ``Big Four'' railroads on the asserted ``burdensome'' condition 
of acquiring the short-lines. Similarly, our conditions to the 
waiver are intended to promote the public interest by fostering and 
promoting competition in the airline industry and to benefit the 
traveling public.
    The fact that the Supreme Court vacated a National Highway 
Traffic Safety Administration rescission of its ``passive 
restraint'' rule on the grounds that NHTSA relied on a factor 
Congress had not intended it to consider has no bearing on the fact 
that the FAA may legitimately consider public interest factors in 
carrying out the slot program. Motor Vehicle Mfrs. Ass'n of U.S., 
Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 44 (1983).
    \20\ Reliance on United States v. Oberle, 136 F.3d 1414, 1423-34 
(10th Cir. 1998), for the proposition that Congress should have 
included pro-competitive factors in Section 40101(d), is misplaced. 
That case held the Government did not need to reach a burden-of-
proof level of ``beyond a reasonable doubt'' in applying the ``three 
strikes'' enhanced sentencing statute.
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The FAA Consistently Exercises Its Slot Allocation Authority in a Pro-
Competitive Fashion

    None of the commenters dispute the fact that the FAA has the 
authority to limit flight operations at congested airports and to 
distribute and allocate landing and takeoff reservations (slot 
interests) to designated air carriers at controlled airports. The FAA 
holds this power due to its authority to manage and control the 
``efficient use of airspace,'' to assign the use of airspace and to 
modify or revoke such an assignment in the public interest. 49 U.S.C. 
40103(b)(1).
    Managing slot allocations is a subset of controlling the navigable 
airspace; and courts are clear that the FAA may consider pro-
competitive policies in carrying out its powers to manage the efficient 
use of navigable airspace. In Northwest Airlines, Inc. v. Goldschmidt, 
645 F.2d 1309, 1315-16, 1318 (8th Cir. 1981), the Court found that the 
FAA may allocate slots, divest them from incumbent carriers and 
reallocate them to requesting new entrants, mindful of the pro-
competitive policy of the Airline Deregulation Act of 1978. That case 
analyzed the FAA's reallocation of slots under the HDR, 14 CFR part 93, 
subpart K. At the time, the HDR limited flight operations at congested 
airports in order to reduce landing and takeoff delays and permitted 
airline scheduling committees to allocate the slots among interested 
carriers. (The committees operated under antitrust immunity, granted by 
the then-operative Civil Aeronautics Board.) When the scheduling 
committee refused to provide slots to a new entrant at Washington 
National Airport, the allocation process broke down and the FAA 
attempted to resolve the distribution process by requiring incumbent 
carriers to yield slots or move slot times to new entrants.
    The United States Court of Appeals for the Eighth Circuit rejected 
arguments that the HDR was limited to safety functions only and that 
the operative statute (Section 40103) did not authorize slot allocation 
by the FAA. The holding in that case--that the power to manage the 
efficient use of airspace comprises the power to allocate slots and 
that the FAA may validly divest slots, in consideration of the pro-
competitive policy of the Airline Deregulation Act--should suffice to 
resolve concerns about our statutory authority to condition a waiver of 
a slot transfer transaction on a divestiture of slot interests to 
foster a competitive environment.\21\
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    \21\ See Eileen M. Gleimer, Slot Regulation at High Density 
Airports: How Did We Get Here and Where Are We Going?, 61 J. Air L. 
& Com. 877, 883, fn. 25 (1996), stating that the court determined 
the action was within the agency's statutory authority and ``was 
consistent with the pro-competitive policies of the Airline 
Deregulation Act.''
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    The FAA also relied in large part on the Airline Deregulation Act's 
pro-competition policies when it issued the ``Buy-Sell'' amendment to 
the HDR. The Buy-Sell Rule provided a secondary market in slots and 
imposed a minimum utilization requirement and an administrative lottery 
mechanism giving preference to new entrants.\22\ The Buy-Sell Rule, 14 
CFR part 93, subpart S, High Density Traffic Airports; Slot Allocation 
and Transfer Methods, 50 FR 52,180 (Dec. 20, 1985). The preamble 
specifically stated that the rule relies on the FAA's ``statutory 
responsibilities including the need to place maximum reliance on market 
forces'' in allocating slots. 50 FR at 52,182.\23\ That regulation 
opened up a secondary market for slot interests by permitting holders 
to buy or

[[Page 26326]]

sell slots for any consideration from or to any person.\24\
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    \22\ In creating an administrative mechanism to lottery new and 
withdrawn slots with a preference for new entrants, the Buy-Sell 
Rule was informed by the Airline Deregulation Act to expressly give 
``special consideration'' to new entrants. 50 FR at 52185.
    \23\ The Buy-Sell Rule's major objective was to achieve the 
policy goals of the Airline Deregulation Act, that is, to maximize 
competition at the congested airports, by giving new entrant 
carriers an opportunity to purchase slots:
    [T]he ability to buy and sell slots also removes existing 
artificial barriers to entry into high density airport markets. The 
elimination of barriers to entry is essential for the optimal 
operation of a competitive market. The rule accomplishes this by 
placing new entrants in the same position as incumbent carriers 
desiring additional slots. 50 FR at 52186.
    \24\ Were we unable to consider pro-competitive factors in 
implementing our authority over navigable airspace, it is very 
likely we would not have issued the Buy-Sell Rule in the first 
place. In that event, it would not have been possible for the 
petitioners to seek approval for the transaction before us. The 
Airline Deregulation Act, which ``replaced the old form of 
regulation with a new economic regime that relied heavily on free-
market mechanisms,'' (Delta Air Lines, Inc. v. C.A.B., 674 F.2d 1, 3 
(D.C. Cir. 1982) spawned new entrant airlines clamoring to enter the 
highly-regulated slot-constrained airports.
    In this regard, we note, as does the U.S. Department of Justice 
in its comments in this docket, that the petitioners' arguments 
about lack of FAA authority over pro-competitive slot divestitures 
are in stark contrast with their previous assertions that the FAA 
has the authority to re-implement the Buy-Sell provision at 
LaGuardia and that this provision ``has worked to promote new entry 
and enhance competition at `capped airports' for more than two 
decades.'' Comments of Delta Air Lines at 3, Docket No. FAA-2006-
25755 (July 14, 2009), Reply Comments of the United States 
Department of Justice, Public Version, at 12.
---------------------------------------------------------------------------

    The following year, the FAA further carried out an administrative 
mechanism giving a preference to new entrants at slot-controlled 
airports by implementing a ``reverse lottery'' withdrawing up to 5% of 
slots from incumbent carriers and reallocating them to new entrant and 
limited incumbent carriers. Special Slot Withdrawal and Reallocation 
Procedures, 51 FR 8632 (Mar. 12, 1986). The FAA considered pro-
competitive public interest factors in justifying the preferential 
nature of the lottery by noting that there had been ``very little 
opportunity for new entry by air carriers'' at the HDR-controlled 
airports and that providing ``immediate access'' for them would ``serve 
the pro-competitive principles of the Airline Deregulation Act.'' 51 FR 
at 8633, 8635.
    The FAA has consistently relied on pro-competitive policy goals in 
carrying out its slot programs. For example, in 1992, the FAA amended 
the Buy-Sell Rule to expand protections and treatment afforded to new 
entrant and limited incumbent carriers at airports regulated by the 
HDR, explaining that the amendments ``enhance competition by affording 
new entrant and limited incumbent carriers greater access.'' High 
Density Traffic Airports; Slot Allocation and Transfer Methods, 57 FR 
37,308 at 37,309 (Aug. 18, 1992). During 2000, when instituting the 
phase-out of the HDR at LaGuardia, the FAA issued a notice of intent to 
conduct a lottery of the AIR-21 slot exemptions granted at LaGuardia, 
specifically identifying new entrant and limited incumbent carriers to 
be eligible for the lottery. Further, the temporary ``slot'' regulation 
at O'Hare International Airport applied pro-competitive policies from 
the Airline Deregulation Act in granting preferential treatment to new 
entrant and limited incumbent airlines in assigning new or withdrawn 
slot interests. Congestion and Delay Reduction Rule at Chicago O'Hare 
International Airport, 14 CFR part 93, subpart B; 14 CFR 93.30.
    The FAA has the authority to consider pro-competitive factors under 
several statutory sources, notably Sections 40101(d) (as described 
above), 40103(b) (authorizing the FAA to manage the ``efficient'' use 
of airspace),\25\ 40103(e) (directing the FAA to prohibit the exclusive 
use of air navigation facilities),\26\ and 47107(d) (requiring the FAA 
to carry out its airport and airway program in a manner fostering 
competition).\27\ It is appropriate for the FAA to use these tools in 
response to the request before us, to approve a significant slot 
interest transaction that would affect the competitive structure of the 
aviation industry at two important, slot-controlled airports. By 
conditioning the waiver on slot divestitures, the FAA is carrying out 
Congressional intent to ensure the provision of opportunities for 
competition in the slot program.\28\
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    \25\ In the context of the slot program, ensuring the 
``efficient'' use of airspace means making productive use of the 
slots including operating larger aircraft with lower costs and 
offering lower fares to consumers, resulting in more passengers per 
flight. New entrant and limited incumbent carriers typically use 
larger aircraft and offer lower fares and ``would most likely be 
more efficient, from a consumer benefit standpoint.'' See Department 
of Justice Reply Comment at 6-7.
    \26\ Without the slot divestiture conditions, the transaction 
would lead to significantly increased airline concentration at DCA 
and LGA; the carriers would increase the number of markets they 
serve on a monopoly or dominant basis and charge premium airfares, 
thus negating the purpose of the prohibition on exclusive rights at 
Federally-assisted facilities. See 40 U.S.A.G. 71 (1941), stating 
that the purpose of the provision is to ``promote and encourage 
competition in civil aeronautics.''
    \27\ Congress directed the FAA to ensure that each airport and 
airway program be carried out ``consistently'' with Section 40101(a) 
to ``foster competition, prevent unfair methods of competition in 
air transportation [and] prevent unjust and discriminatory 
practices.'' 49 U.S.C. 47101(d).
    \28\ Some commenters assert that 49 U.S.C. 40113(a) and 
46105(a), by referring to ``aviation safety duties and powers,'' 
limit the Administrator's administrative powers to those involving 
safety only. Reading the ``aviation safety duties and powers'' 
clause, however, to authorize the Administrator to take action over 
not only ``aviation safety duties'' but also over the 
Administrator's other, more extensive ``powers'' conforms to the 
text of the statutory provision before it was recodified without 
substantive change: ``The Administrator shall be responsible for the 
exercise of all powers and the discharge of all duties of the 
Administration.'' 49 U.S.C. 1341(a). It does not divest the 
Administrator of pro-competitive, public interest policy 
considerations. See, the recodification of Title 49, Public Law 103-
272 (1994), H.R. Rep. 103-180 at 262 (1993). ``The purpose of H.R. 
1758 is to restate in comprehensive form, without substantive 
change, certain permanent and general laws related to 
transportation.''
---------------------------------------------------------------------------

    Furthermore, we disagree with the argument made by some commenters 
that the FAA regulations in 14 CFR part 11 allow the FAA to consider 
only safety matters in deciding whether or not to grant an exemption or 
waiver request. The FAA regulations require the applicant for a waiver 
to address, in addition to safety concerns, why the request ``would be 
in the public interest, that is, how it would benefit the public as a 
whole'' and to provide any additional information supporting the 
request. 14 CFR 11.81(d), (g). As indicated in the body of this Notice, 
we do not find that petitioners satisfied the ``public interest'' 
concern showing how the transaction--without our proposed divestiture 
remedy--would benefit the public as a whole.
    Moreover, in a situation such as this, where two major domestic 
airlines seek the approval of a dramatic market shift with significant 
economic and competitive impact on the aviation industry and the 
traveling public, the Administrator does not act without input and 
guidance from the Secretary. As the head of the Department, the 
Secretary has broad oversight of significant FAA decisions.\29\ In 
evaluating the waiver request, the Secretary considers the public 
interest in furthering airline competition, as provided in 49 U.S.C. 
40101(a)(4), (6), (9), (10), (12) and (13). The waiver of the LGA Order 
on the conditions set forth in this Notice carries out the 
Congressional intent of AIR-21 to allow for new airline entry, to 
increase competition, and lower inflated prices at the slot-controlled 
airports.\30\ The Secretary has previously conditioned air carrier 
route transfers and grants of antitrust immunity on the divestiture of 
slots and/or other assets for the purposes of ensuring competitive 
opportunities for other airlines.\31\ Accordingly, the Secretary (i) 
has the authority to waive the terms of the LaGuardia Order to further 
the Secretary's public interest goal of maximizing airline competition, 
among other things; and (ii) may condition the waiver on carriers 
taking specific actions that foster competition at slot-controlled 
airports.
---------------------------------------------------------------------------

    \29\ See 49 U.S.C. 102 and 106.
    \30\ 49 U.S.C. 41715(a)(2) directs the Secretary to terminate 
the HDR at LGA as of January 1, 2007. See H. Rept. 106-167 (106th 
Cong., 1st Sess. 1999) at 37-42.
    \31\ 75 FR 7306 at 7308.

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[[Page 26327]]

The Slot Divestiture Conditions Do Not Violate Other Laws or 
Regulations

    Continental in its comments claims that our slot divestiture 
conditions constitute unauthorized market-based pricing and an 
unauthorized withdrawal of slots under the LaGuardia Order and the HDR. 
Continental's concerns reflect a misunderstanding of our action. For 
purposes of the requested waiver, we are not asserting any FAA right to 
collect monies by monetizing slot interests through an auction. Rather, 
in responding to a request for a waiver from the LaGuardia Order 
prohibition on a permanent transfer of slots, we simply are 
conditioning the waiver on a divestiture of some of the slot interests 
to new entrant and limited incumbent carriers. Those slot interests 
would not be divested to the FAA; they would be sold by the respective 
petitioning carriers to eligible purchasers and the petitioning 
carriers would retain the proceeds of the sales. Nor are we 
affirmatively withdrawing slot interests. Consequently, the provisions 
in the LGA Order and the HDR governing withdrawals of slots by the FAA 
are inapplicable to our action.\32\
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    \32\ Continental referred to Verizon Communications v. Law 
Offices of Curtis V. Trinko, 540 U.S. 398, 407-08 (2004) for the 
proposition that our action ``compelling'' US Airways and Delta to 
divest their slot interests may undermine their incentives to invest 
in beneficial infrastructure. We repeat that we are not, however, 
directing a slot divestiture. Rather, we are granting a waiver 
request, which is subject to a finding that it is in the public 
interest, subject to pro-competitive remedies. The two regulatory 
actions are of a different nature.
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    We also do not accept the comments of the Joint Applicants, 
Continental or United, that the Department of Justice, not the 
Secretary (or FAA), is the sole source of competition authority over 
slot transactions. While DOJ has the authority under Section 7 of the 
Clayton Act to reject anticompetitive transactions, that does not 
remove DOT's responsibility to carry out its programs consistently with 
the pro-competitive public interest criteria contained in Section 
40101(a)(4), (6), (9), (10), (12) and (13). In considering the 
petitioners' waiver request in the public interest, the DOT is not 
asserting antitrust jurisdiction or implementing Clayton Act authority. 
Neither the FAA nor the Secretary is exercising the former ``Section 
408'' authority over airline transactions. Petitioners are ignoring the 
fact that they petitioned the FAA for a waiver from a validly issued 
Order that prohibits permanent slot interest transfers at LaGuardia. 
The FAA is considering the waiver, not exercising antitrust authority 
nor intruding on the Department of Justice's jurisdiction.\33\ As the 
DOJ indicated in its reply comments, the FAA's proposed decision ``does 
not usurp'' the DOJ's investigative authority under Section 7 of the 
Clayton Act (at p. 13). See Bowman Transp. Inc. v. Arkansas-Best 
Freight System, Inc., 419 U.S. 281, 298-99 (1974) (``A policy in favor 
of competition embodied in the laws has application in a variety of 
economic affairs.'')
---------------------------------------------------------------------------

    \33\ Continental claims that we have not proven that the 
carriers' practices would rise to a Sherman Act Section 2 offense; 
we are not invoking or attempting to enforce antitrust laws. Rather, 
we are asserting our authority to protect the traveling public by 
fostering competition in the context of the requested waiver.
---------------------------------------------------------------------------

    Conditioning the waiver on slot interest divestitures is 
consistent--and does not interfere--with the competitive structure of 
the airline industry, or the statutory policy goal of ``placing maximum 
reliance on competitive market forces,'' as asserted by United and some 
other commenters. The conditions mitigate the competitive burdens of 
the transaction and ensure that the transaction will not result in 
undue industry concentration, the impediment of new entry, or otherwise 
disadvantage the traveling public. The policy goals direct us not only 
to place ``maximum'' reliance on competitive market forces but also to 
rely on ``actual and potential competition'' to avoid ``unreasonable 
industry concentration,'' and to encourage ``entry into transportation 
markets by new and existing air carriers.'' Section 40101(a)(6), (10), 
(12). Our action on the waiver request responds aptly to these policy 
directives.\34\
---------------------------------------------------------------------------

    \34\ United overstates the import of our waiver condition when 
it asserts that we are re-regulating the industry contrary to the 
Congressional directive in the Airline Deregulation Act. Conditions 
at slot-constrained airports are not reflective of a free, 
competitive market. The fact is that the FAA placed limits on flight 
operations that may be carried out at LGA and DCA due to congestion 
in the airspace; in the context of those flight limits, only certain 
airlines may operate at designated times. These airports thus are 
regulated by the Government and are in a different position than the 
vast majority of the other airports that are not slot-controlled. 
The FAA, in this instance, actually is instilling the opportunity 
for more competition at DCA and LGA, in reliance on the Airline 
Deregulation Act. By placing these conditions on the waiver grant, 
the FAA also is protecting against exclusive rights at the airports 
under 49 U.S.C. 40103(e) and is fostering competition at the 
Federally-assisted LGA and DCA. 49 U.S.C. 47107(d).
---------------------------------------------------------------------------

    Our slot divestiture conditions do not withdraw slot exemption 
service authorized under 49 U.S.C. 41714(c), 41716(b), 41718. We do not 
mandate the divestitures of any slot exemptions that US Airways or 
Delta may hold.
    We also are not bound to allocate the divested slots without 
charge, as Spirit prefers. The slot exemptions provisions directing the 
Secretary to grant slot exemptions from the HDR to new entrant and 
limited incumbent carriers under specified provisions are not 
applicable here. The FAA is under no statutory obligation to have the 
divested slot interests allocated to eligible carriers free of charge. 
Although Spirit as noted in its comments is concerned that it may lose 
out in any attempt to purchase slot interests due to its relatively 
small share of revenues compared to that of the other eligible 
carriers, a sale of the slot interests allows the petitioners to 
maximize the value of their slot interests as originally intended as 
part of the larger transaction. 75 FR at 7311.

The Slot Divestiture Conditions Are Not ``Takings''

    The petitioners claim we cannot legitimately require the slot 
divestitures because that constitutes taking without just compensation. 
We do not agree with this assertion. As we indicated in the Notice, the 
FAA has the authority to condition the grant of a waiver.\35\ See also, 
South Dakota v. Dole, 483 U.S. 203, 208 (1987) (``The Federal 
Government may establish and impose reasonable conditions relevant to 
Federal interest * * * and to the over-all objectives thereto.''). The 
FAA expressly has the power to modify assignments of use of navigable 
airspace when in the ``public interest'' and to grant waivers only in 
the ``public interest.'' As we discuss above, it is in the public 
interest for us to condition the waiver request of the transfer of 167 
slot pairs on the divestiture of certain slots to carriers with no or 
little presence at the constrained airports. This condition produces 
efficiencies, fosters competition, prevents unreasonable industry 
concentration, and protects the traveling public.
---------------------------------------------------------------------------

    \35\ 75 FR at 7307, citing Starr v. Federal Aviation 
Administration, 589 F.2d 307, 311 (7th Cir. 1978).
---------------------------------------------------------------------------

    In any event, the takings claim is inapposite because slot 
interests are not property subject to the takings clause. Slot 
interests are subject to pervasive Federal encumbrances that limit any 
air carrier's property right or interest associated with them.\36\ The 
HDR provides that ``[s]lots do not represent a property right but 
represent an operating privilege subject to absolute FAA control.'' 14 
CFR 93.223(a). Accordingly, any ``proprietary interest''

[[Page 26328]]

claimed by an air carrier in a slot is subject to the encumbrances 
placed on those slots by FAA regulation.\37\ The Department, as we 
pointed out in the February Notice, has conditioned international 
aviation route transfers and antitrust immunity grants on divestitures 
of slots or route certificates in the past, and, because these are not 
``property,'' they do not constitute Fifth Amendment compensable 
takings.\38\ A carrier's interest in slots is subject to extensive FAA 
regulation and Congressional direction.\39\
---------------------------------------------------------------------------

    \36\ In the context of an air carrier's bankruptcy proceeding, 
it has been held that the FAA's control over slots substantially 
encumber a carrier's property interest: ``A carrier possesses a 
proprietary right in allocated slots, [ ] limited as to the superior 
rights of the FAA.'' In re Gull Air, Inc. 890 F.2d 1255, 1260 (1st 
Cir. 1989).
    \37\ See 14 CFR 93.211-229. At DCA, where slots are subject to 
the HDR, these encumbrances include, for example, the ability to 
withdraw slots for essential air services, operational needs, and 
non-use. 14 CFR 93.219, 93.223 & 93.227. At LaGuardia, slot 
interests are subject to the terms of the Order which grants only a 
temporary interest in the slots to carriers, providing for only 
leases or temporary transfers through the duration of the Order. 71 
FR 77,854 at 77,860, as amended 74 FR 51,653 (Oct. 7, 2009). They 
are subject to the terms of the January 2009 Order on voluntary 
retirements. 74 FR 2646 (Jan. 15, 2009). Also, slot interests at 
LaGuardia are subject to minimum utilization requirements. 71 FR 
77,854 at 77,860.
    \38\ See discussion of DOT Orders requiring such divestitures in 
the public interest. 75 FR 7306 at 7308.
    \39\ The Port Authority of New York and New Jersey commented 
that slot interests are licenses, not Federal property. We need not 
address, in this Notice, the Port Authority's arguments in this 
regard.
---------------------------------------------------------------------------

    There is no definitive judicial holding that slots are ``property'' 
subject to the Takings Clause.\40\ In any event, a slot interest is 
substantially fettered and encumbered by FAA requirements, as explained 
above, and therefore a holder does not have the attributes of an 
unfettered right to ``use the property, receive income produced by it, 
and to exclude others from it'' as a tenant by entirety does under 
Michigan State law. United States v. Craft, 535 U.S. 274, 282 (2002). 
Rather, a carrier's use of a slot interest is subject to FAA minimum 
utilization requirements and any right to ``exclude others'' is subject 
to FAA operational control, withdrawal rights, and congressional 
directives.
---------------------------------------------------------------------------

    \40\ The United States Court of Appeals for the First Circuit 
held that it ``need not decide [whether slots constituted part of a 
bankrupt carrier's estate].'' In re Gull Air, 890 F.2d 1255, 1261, 
1262 fn. 8. Unlike the situation in Ruckleshaus v. Monsanto, 467 
U.S. 986, 1002-1003 (1984), where the Court determined that 
intangible property (a trade secret) exhibited characteristics of 
more tangible forms of property, slots lack many of those 
characteristics. For example, there is no state law recognizing a 
slot interest as a property right, as was the case in Monsanto. 
Additionally, unlike the cases relied on in Monsanto, a slot 
interest does not convert the carrier to the position of a creditor, 
such as a mechanic's lien does to a contractor, in Armstrong v. 
United States, 364 U.S. 40 (1960); or a mortgage to a bank 
mortgagee, in Louisville Joint Stock Land Bank v. Radford, 295 U.S. 
555, 596-602 (1935). Nor is a slot interest a contract subject to 
the Takings Clause as a war risk insurance contract is to a 
beneficiary, in Lynch v. United States, 292 U.S. 571, 579 (1934).
---------------------------------------------------------------------------

    Further, we disagree with petitioners' claims that the conditions 
on the waiver do not serve the government interest and are tantamount 
to ``extortion.'' Nollan v. California Coastal Commission, 483 U.S. 
825, (1987).\41\ Our grant of the waiver permitting the petitioners to 
proceed with the slot interest transaction, subject to slot 
divestitures to new entrant and low-cost carriers, substantially 
advances the FAA's legitimate objectives of more efficient use of 
constrained airspace and of fostering airline competition at airports. 
A ``broad range of governmental purposes and regulations satisfies'' 
the requirements for considering a condition to a waiver as 
substantially advancing a governmental interest. Nollan at 834-35. 
Accordingly, we find that the conditions to the waiver do not deprive 
petitioners of property without just compensation.
---------------------------------------------------------------------------

    \41\ Nollan struck down, as an unlawful ``taking,'' a State 
condition on a building permit to replace a small beachfront 
bungalow with a larger house with a public easement across the 
beach. The Court held that the permit condition did not 
substantially advance legitimate State interest related to land-use 
regulation. The Court did find, however, that a legitimate permit 
condition would have been a height limitation, a width restriction, 
or a ban on fences. 483 U.S. at 836.
---------------------------------------------------------------------------

    Even assuming slots are property for purposes of the Takings 
Clause, the divestiture as a condition to the FAA waiver simply 
regulates the carriers' use of the slot interests and does not 
constitute a taking. The Supreme Court has identified several factors 
for consideration of when a government taking has occurred under the 
Fifth Amendment: ``The character of the government action, its economic 
impact, and its interference with reasonable investment-backed 
expectations.'' See Penn Central Transportation Co v. New York City, 
438 U.S. 104, 125 (1978) (City Landmarks Preservation Commission 
disapproval of construction of a 50-story office building over Grand 
Central Terminal held not to be a ``taking'' of the owners' right to 
exploit the superadjacent airspace).
    Here, our waiver condition of slot divestiture would constitute a 
regulatory, not a takings, action.\42\ By conditioning the transfer of 
a large portion of slot interests on the sale of some of the slot 
interests, the FAA effectively is regulating the ability of the 
petitioning carrier to transfer slot interests in a manner that results 
in unreasonable industry concentration. Divesting some slot interests 
to petitioners' competitors will ensure that the traveling public does 
not experience a degradation of fares, service or routes at the 
affected airports.
---------------------------------------------------------------------------

    \42\ Lingle v. Chevron U.S.A. Inc., 554 U.S. 528 (2005), cited 
by Continental for a takings test, is not apposite. That case 
reversed and remanded the Ninth Circuit Court of Appeals' holding 
that a Hawaii statute which responded to concerns of oil companies' 
market concentration by limiting the rent that oil companies charged 
to dealers, effected an unlawful taking.
---------------------------------------------------------------------------

    With respect to reasonable investment-backed expectations, carriers 
have been on notice for decades that the FAA has considered slots to be 
an operating privilege not a property right. 14 CFR 93.223(a). As 
discussed above, not only have the FAA regulations been clear about the 
tentative nature of slots and the duration of slot interests, the FAA 
retired the slot system at Chicago O'Hare airport in 2008. 14 CFR Part 
93, Subpart B, Congestion and Delay Reduction at Chicago O'Hare 
International Airport, Sec.  93.21(e). In AIR-21 (2000), Congress 
legislated a phase-out of the HDR at the New York airports and at 
O'Hare. Accordingly, the carriers and those banks and financing firms 
holding slots as collateral were aware of the FAA/Congress' right to 
change the slot system, withdraw slots, etc. The Securities and 
Exchange Commission filings recognize the Federal encumbrances to slot 
holdings.\43\ Consequently, the ability of the FAA to condition the 
waiver allowing the transfer of massive amounts of slots on 
divestitures of a small percentage is a ``burden we all must bear in 
exchange for `the advantage of living and doing business in a civilized 
community.' '' Monsanto, 467 U.S. 986, 1007.
---------------------------------------------------------------------------

    \43\ See, for example, America West Holdings Corporation Form 
10-K for the Fiscal Year Ending December 31, 2003 (at 11):
    At New York City's John F. Kennedy International Airport and 
LaGuardia Airport, and at Washington DC's Ronald Reagan National 
airports, which are designated ``High Density Airports'' by the FAA, 
there are restrictions on the number of aircraft that may land and 
take-off during peak hours. At the New York airports, slot 
restrictions are abolished after January 1, 2007. In the future 
these takeoff and landing time slot restrictions and other 
restrictions on the use of various airports and their facilities may 
result in further curtailment of services by, and increased 
operating costs for, individual airlines, including AWA, 
particularly in light of the increase in the number of airlines 
operating at such airports. In general, the FAA rules relating to 
allocated slots at the High Density Airports contain provisions 
requiring the relinquishment of slots for non-use and permit 
carriers, under certain circumstances, to sell, lease or trade their 
slots to other carriers. All slots must be used on 80% of the dates 
during each two-month reporting period. Failure to satisfy the 80% 
use rate will result in loss of the slot which would revert to the 
FAA and be reassigned through a lottery arrangement.
---------------------------------------------------------------------------

    Because we may condition the grant of the waiver, and the 
conditions do not effect a ``taking'' of ``property,'' we disagree with 
petitioners' contention

[[Page 26329]]

that the conditions adversely affect the asserted ``just compensation'' 
to be derived from their slot interests under United States v. 50 Acres 
of Land, 469 U.S. 24, 29 (1984). In any event, the process we will 
institute provides for the sale of the slot interests, subject to 
certain rules to maintain competition, for a bundle of slot interests.

The FAA May Condition the Waiver on DCA Slot Interest Divestitures

    The petitioners assert that we have no jurisdiction over the DCA 
slot interest sale by Delta and purchase by US Airways, because the 
High Density Rule permits an unfettered sale of slots at DCA. They 
claim a forced divestiture of DCA slots conflicts with the HDR.
    As we explained in the Notice, we find that the slot swap between 
US Airways and Delta at both LaGuardia and DCA are a single 
transaction, such that the LGA purchase and sale would not occur 
without the DCA purchase and sale. Accordingly, we review both 
transactions as part of a single, unified transaction and may condition 
our waiver to the LGA Order on divestitures of slots at both airports.
    In the petition before us, the carriers seek a waiver from the buy-
sell prohibition in the LGA Order for the purpose of exchanging slot 
interests at both LGA and DCA airports. We are not ``bound by legal 
formalisms'' in discharging its duty but instead will ``take account of 
the economics of the transaction under investigation.'' See Reves v. 
Ernst & Young, 494 U.S. 56, 61 (1990); The Shoshone Indian Tribe of the 
Wind River Reservation, Wyoming v. United States, 58 Fed. Cl. 77, 86 
(2003) (``must examine the underlying economic reality'' of the 
transaction).
    The fact that the slot swap concerns two airports does not compel 
us to segregate the transactions; rather, it is clear that the 
transactions are contingent on each other. The joint application of US 
Airways and Delta, filed August 24, 2009, before the U.S. Department of 
Transportation for approval of the transfer of U.S.-Brazil frequencies 
is expressly termed ``contingent joint application,'' made dependent on 
completion of the Mutual Asset Purchase and Sale Agreement, which 
involves the slot interest transfer at issue here. As stated in the 
joint application:

    The Joint Applicants are submitting this application on a 
strictly contingent basis. The proposed transfer of the Joint 
Applicants' U.S.-Brazil frequencies is part of the larger 
transaction described herein. The Joint Applicants will proceed with 
the larger transaction only if all transaction components * * * 
occur. (Joint application, fn. 2).

The joint application explains that the larger transaction includes the 
swap of the slot interests at both LaGuardia and Reagan National 
airports:

    The [Mutual Asset Purchase and Sale] Agreement further involves 
the transfer of certain slots and real estate at LaGuardia Airport 
to Delta from US Airways, and the transfer of slots from Delta to US 
Airways at Reagan Washington National Airport, allowing the Joint 
Applicants to expand their respective operations at these points.'' 
(Joint application, at 2-3).

In such a situation, the agreements concerning each airport constitute 
``a single actual transaction.'' See SEC v. M&A West, Inc., 583 F.3d 
1043, 1052-3 (9th Cir. 2008) (holding that the ``existence of multiple 
agreements bears little effect when the agreements collectively 
constitute a single transaction.'') The fact that the slot purchase and 
sale agreements at both DCA and LGA were entered into simultaneously 
and were linked together creates a necessary nexus between the 
agreements for purposes of conditioning our approval of the petition on 
certain remedies. Shosh