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r~'800 Independenc:eAve.. SW. .. Washington, D.C.u.s. Dertment

of Transpoation

Feeral Aviation. Administration

AUG 3 0 199 ArNI~~JJulius W. Cohn Esq.

Cerrato, Sweeney, Cohn Sta & Vaccaro

20 Eas Post Road

Whte Plains, NY 10602

Ròbert 1. Cimino, Esq.

Suffolk County Attorney

. Bùilding 158

North County Complex.

Veterens.Memorial Highway

Hauppage, NY 11787-43 II .

Re:. Sky East Services, Inc. and Hampton Air Transport System, Inc. v. Suffok

County, New York, Formal Complaints Nos. 13-88-6 and 13-89-1

Dea Messrs. Cohn and Cimino:

Enclosed is acopy-ofthêFinal Decision and Order of the Federal Aviation Administration

.(F ÁA) with respect to the above-referenced formal complaints under Federal Aviation .Regulations (FAR) Section 13.5..

Based on the record in this proceeding, the FAA is making final the tentative findings and .conclusions set forth in the FAA's Order to Show Cause dated January 5, 1994.ACcrdingly, as set forth in the attached Final Decision and Order, we find that SuffolkCounty, by refusing to permit Sky East to sell fuel at-letail and tò refuel Hampton Aisaircraf using a refueling truçk is in viola.tion of its assurances under the Aiort andAiay Improvement Act of 1982 (49 U.S.C.App. § 2210). We further find that by. .

viue of said refusals, Suffolk County isin violation' of section 308 of the Federal AviationAct of 1958, as amended (49 U.S.C.App. § 1349(a)). However, in ,view ofthe .decisionof Sufolk County not to contest these tentative findings and to take the corrective actions

specified in the Order to Show Cause, we have concluded that the imposition of sactionsproposed in the Order to Show Cause is not warranted at this time.

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Pleae refer to the Final Decision and Order enclosed herewith for additional FAArequests regarding recordkeepirig~ reporting and monitoring to assure continued .compliance by Suffolk County with its grant obligations.

Except as otherwse specifed above and in the Final Decision and Order, the above .referenced complaints are dismissed. The Final Decision and Order is the FAA's fiagency action with respect to this matter.

SÙ1eeely, .

~r 1ULenard E. Mudd

.Director, Offce of Airport

Safety and Standards

Enclosure

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.SKY. EAST SERVICES INC.

AND HAMPTON AIR TRANSPORT SYSTEM, INC.V.'

TH-COUNTY OF SUFOLK, NEW VORK

FEDER-ALA VI TION ADMINSTRATION ENFORCEMENTDOCKET NOS. 13-88-6 AND 13-89-1 *

FIAL DECISION AND ORDER

i. INODUCTION

On Janua, 5, 1994, the Federal Aviation Administration (FAA) issued an order to showcause-in these proceed~ngs. Sky East Servces Inc. (Sky East) and Hampton Air TransportSystem, Inc. (Hampton) initiated the .administrative proceedings by complaints filedagaistthe County of Suffolk, New York (County), owner of the Francis S. GabreskiAirport, also kn0wn as_ the Suffolk County Airport (Airport), in accordance with ourInvestigative and EIlorcement Procedùres,14 C.F.R. Par 13. The FAA tentativelyconcluded that in certn respects, the County's actions were inconsistent with the

obligations assumed by the. County in grant agreements under the Airport and AirwayImprovement Act of 1982, as amended (AAA), 49 U.S.C. App. 2201 et seq. and withsecton 308 of the Federal Aviåtion Act of 1958, as amended (FAAct), 49 U.S.C. App;1349(a); The Order to Show Cause proposed corrective actions and _ptoposedsáctions ifthe corrective actions were not taken.' -

With respect to other issues raised in the complaints, the FAA tentatively concl~ded thàtthe County~s actions were consistent With applicable Federal requirements or that there.

was not suffcient basis for further investigation. Sky East and the County have responded.. _ to the Order To Show Cause in accordance with its procedures,.and the.caSe stands ready- for aecision. The County has elected not to contest the tentative findings of non-- compliance. - - -

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* In the -Order to Show Cause issued in this proceeding, thë FAA consolidated theprocedings in both dockets into FAA Docket No. -13-88-6. A single unified public recordof both dockets will be maintained in FAA Docket No. l3-88-6. . . .- .During the course of the proceedirlgs in this case, eách par filed docunients with

erroneous docket numbers listed. Wherever a docùment is referenced by docket. number. in this order, the correctèd docket number has been employed. A consolidated docketindex shoWing docket numbers as fied and as corrected is, included in the public docket.

As set forth below, the FAA makes final its tentative findings and conclusions with respect

to the issues raised, in this proceeding. However, in light of the County's election not to'contest the tenÚitive findings of non-compliance and its decisioÍi to take the correctiveactions' proposed, the FAA will not implement the sanctions proposed in the Order to'Show Cause. T~e.F AA. will monitor the situation to verify that the corrective actionsagreed to by: the County are completed.

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n. TH ORDER TO SHOW CAUSE

In the Order to Show Cause, the FAA tentatively found and concluded that:

A. The County, by refusing to allow Sky East to sell aviation fuel to the generalaviation public through the use of a refueling truck which is of the ;tye the 'Countyauthorized for Malloy's' use and which meets ~ourity health and saety requir~ments, rather.than requiring Sky East to install and/or repåir the Airport's existing fuel. storage tans, is

violating the provisions requiring the Airp()rt to be available for public use on fai andreasonable terms and without unjust discrimination as set forth in Section 5 I I (a)( I) of theAirport and Airway Improvement Act of 1982, as amended (AAA), 49 U.S.,C. App.Section 2210(a)(1), and the County's Federal grant agreements;

B. The County, by refusing to allow Sky East to sell aviation fuel, yetpermttngMaoy to sell aviation fuel, is violating the provisions prohibiting the granting of an' .exclusive right for the use of the Airport as set forth in Section 511(a)(2) of the AA49 U.S.C. App. Section 2210(a)(2), and th~ County's Federal grant agre,ements; ei, .- .. .

C.' The County, by refusing to permt SkyEast or Hampton to serveeHarpton'saircraf with petroleum próducts, is violating the provisions establishing the right of each' .air carer using the Airport to servce itself as set forth in Section 511(a)(1)(C) of the -

AA49 Ù.S.C~ Section 2210(a)(1)(C), and the County's Federal grant agreements; .. -- .D. The County: by charging Sky East a different rental rate than it is ,charging.

Malloy, isnot violating the provisionsJequiring access' on fair andreasonable term. without unjust discrimination, including the requirement that each fixed-base operator.atthe Airport be sUbject to the same rentals as are uniformy applicable to all other . .

. fixed-base operators making the same or similar uses of such Airport utilizg the Sae orsimilar facilties, as set forth in Secti~n 51 1

(a)(I)(B) of the AAA, 49 U.SòC.App. Section'2210(a)(1)(B), and the Coùnty's Fed~ral grant agreements;

E. Ther~ is insuffcient. evidence tò justify further' investigation of Sky Eas'sallegation that the County is expending Airport revenu,es, including local taxes on a~ationfuel, to off-set the cost of non-aviation related activities at the Airport Ù1 violation 'ofthe.. .requirement that all AirPort revenues, including local taxes on aviation fuel, be expended

. ror the capital or operating costs of the Airport; the local Ai~rt system, or other local .2

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facilities which are owned or operate.d by the owner or operator of the Airport and are ...directly and substantially related to the actual air transpbrtation of passengers or propertas set forth in Section 51 1(a)(i2) of the AAA,° 49 U.S.C..App. Section 2210(a)(12),andthe County's Federal giant agreements; , .

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F. There is insuffcient evidence to justify further investigation of Sky East's

allegation that the County is including in the Airport's rate base any par of Federal grantfundÙ1g in establishing fees, rates, and charges for users of the Airport in violation of the

. provisions prohibiting such conduct as set forth in Section 51 I (a)(9) of the AA .

49 U.S.C. App. Section 22lO(a)(9), and the County's Federalgrânt agreements; and,

G. With respect to the tentative findings in E and F above, a review and redesign ofthe County's current Airport financial reporting system so that Airport revenue andexpenditures for non-avia,tion and aviation operations are segregated, and Federal grantfunds are',separately accounted for is appropriate; and that, upon completion ofthis reviewand redesign a special finaiicial report which segregates Airport revenue aid. expendit1resfor non-aviation and aviation operations is appropriate.

Based on the foregoing, the FAA proposed to withhold approval of any new grantagreement, and to withhold payment under any outstanding grant agreement, untilfollowing occ:urs:

a. The County enters into good faith negotiations with interested persons andentities at the Airport to allow such persons and entities to engage in aviatiqn fuel saesandfor self-service at the Airport with the use of refueling trucks that meet Countyheath and saety requirements and which are of the type the County authorized forMalloy's use; and,

b. The COl.nty reviews and redesigns the .Airport's current financial reportingsystem so that Airport revenue and expenditures for non-aviation and aviation operationsare segregated and Federal grant furidsare separately accounted for. Upon the completionof the review and redesign; the County wil provide to the FAA Airports Division, EasternRegon, a special financial report which segregates aviation-related airport revenue and

. oexpenditu~es' from nonaviation-related airport revenue and expenditures and segregatesFederal grant funds from_ other funds. . The FAA Airports Division, Eastern Region willreview this report to assure the County is in compliance with its Federal obligations

, concernng use of airport revenue and grant funds.

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The Order to Show Cause further specified that upon successful completion of suchnegotiations. and development of a revised financial reporting system acceptable to the

. FAA the County would have eligibilty for Al grants and payments restored.

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The Order to Show Cause provided for the fiing of objections within 21 days and forresponses to objections within 1 0 days. .

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By letter dated J anuary 7, 1994, Sky East, through counsel fied objections to the Order to.Show Cause. By letter dated Januar 25, 1994, the County filed its objections. Byletterdated Januar 28, i 994, Sky East, through counsel filed its response to the County'sObjections. By letter dated February 9, 1994, the County fied its response to Sky East's.objecions. .The County did not object to the tentative findings and conclusions that its policy on theuse of refueling trucks by Sky East was inconsistent with applicable Federal requi,rementsand that improvement of its financial recordkeep~ng would-be desirable. However: theCounty objected to the proposal to withhold payment and withhold approval of new grant. agreements until the FAA had approved the new financial reportÙ1g system.

Sky East 'objected to the tentative finding and conclu~ion that Sky East's rental rates arenot inconsistent with the County's applicable Federal requirements. Sky East requested anoral evidentiary hearing to resolve this issue.

,Sky East also filed a reply to the County's response (letter from counsel for Sky Eastdated Februar 15, 1994), which the FAA will accept for tlle record. In adçlition, based'on the County's decIsion not to contest the FAA's tentative findings with respec to.

aircraf fueling, the FAA contacted the County to explore the possibility of settling thedispute over Slc East's rental rates. without the need to render a final FAA decision.Those discussions were not fiitfuL. However, as a rèsult of those discussions, the FAArequested a schedule of rental rates paid by all aeronautical users of the Airport. TheCounty provided the schedule by letter dated April 11, 1994. The County's lettér includedadditional argument on the rental rate issue. The FAA provided a copy of the County's i

letter to Sky East and provided an opportunity to respond: Sky East responded by a letterfrom counsel dated April 22, 1994. The County replied by letter dated April 29,1994 and

. clarfied its reply by letter dated May 9, 1994. Th~ FAA is accepting these letters for therecord. .

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" m. ANALYSIS AN CONCLUSIONS.

The FAA hercln provides a statement of conclusions ånd. analysis for each of the tentativefindings and conclusion set forth in the Order to Show Cause. In addition, the FAAaddresses'the paries' objections with respect to the proposed imposition of sactions.

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A. TENT A TIVE FININGS A-C, COUNY POLICY ON REFULING 'TRUCKS

The ëounty does not object to tentative findings A-C, concluding that the County's refusalto permt Sky East to sell fuel from retail fueling trucks and to refuel Hampton Aits ..

. Aircraf is inconsistent with applicable Federal requirements. In its Februar 9 letter, theCounty clarfied that its failure to object was not an admission of discrimination. Ratherthe County was not objecting in the interests of expediency in view of the County'sexperience with -Sky East's using a refueling trucks for several yeas without Ù1cident. i

Sky Eas did not object to Tentative Findings A-C. However, in its objections to theOrder to Show Cause, Sky East referred to the County's policy on. refueling trucks asevidence of a pattern of discrimination against Sky East and in favor of Malloy thatconcerned the FAA as early as 1982. Sky East also.asserts that the County's statements inits February 9 letter indicate that the County has not fully accepted the FAA's findÙ1gs oracknowledged its obligation to negotiate in good faith. Sky East refers specifically to thestatement in that letter that "the County certainly would objectif Sky East expanded its.operation. " .Based on the reasons set forth in the Order to Show Cause and based on the failure of any .pary to object, the. FAA will make final it.s Tentative findings and Conclusions A-C.- -

~. TENTATIVE FININGS E-G, MISÙSE OF AIORT REVENU AN AlGRAT FUNS

The County does not object to tentative findings E-G, However, the County objecs tothe withholding of payments under existing grant agreements and approval of new grant.agreements until the redesign of the Airport financial reporting system required Ù1

,Tentative Finding G.is cómpleted and approved by the FAA.

Sky East does not object to Tentative Findings and Conclusions E-G.

Based on the reasons set forth in the Order to Show Cause and based on the faiure of any'. pary to object, the FAA will make final its Tentative Findings and Conclusions E-G. Theissue of withholding payments and new grant agreements is discussed separately below., .

.C. TENTATIVE FINING AN CONCLUSION D, SKY EAST RENTALRATES

. In the Order to Show Cause, the FAA tentatively found that Sky East's rental rates werenot inconsistent with the requirement to provide access on fair. and reasonable terms .

1 In its May 6 1994 letter, the County affrmed its nonobjection.

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without unjust discrimination, including the requirement that each fixed~base operator atthe Airport be subject to the same rental s as are uniformly appIicableto all other fixed-

. base operators makng the same or similar uses of the airport. ' .

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i. The Positions ofthè Parties

The County did not object to Tentative Finding and Conclusion D.. Sky East objects tothis tentative finding and conclusion. Sky East further objects to the makng fina of thistentative finding and conclusioIiwithout an oral evidentiar heang. H~wever,SkyEast .would consent to an oral evidentiary hearing being limited to a walk-through and physicalexamation of the facilties at the airport. leased to Sky East and Malloy Air Eas .(Malloy). . . ì .In support of its objections, Sky East offers as evidence of discrimination the fact thatMalloy leases three hangars, the airport coffee shop, offce space in the airport termnalbuilding and 5.69 acres ofland inapreferehtial location (underneath the controltower).In contrast, Sky East leases one building 'imd two acres ofland. Objection of Sky East toOrderto Show Cause (Sky East Objection) at 1-2,3 (Januar 7, 1994).

Sky East also asserts that the FAA's tentative finding that the rentai rates are 1I0pen, fairand consistent With customary practice~ in cOmmercial leasing," is erröneousby virtuèofignorig the realities of the disparate treatment of Sky East and Malloy referenced above.Id. at 4.

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.Sky East also asserts that the recent operation of the escalator clauses in Sky East's and.Malloy's leases to increase Malloy's rental by 1 i 6.21 % while SkY East's increased. by66.58% has not brought the two firms' rental rates into line. Sky East argues that thiscontention ignores the disparity'in the .amount and location of space granted to each firm.

~ and the inconsequential initial rent paid by Malloy. Sky East Objection at 4.

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Sky. East further argues that theCòunty's unjust discrimination with respect to rentáIis par of a pattern of discrimination that includes the .county's policy. of refusal toSky East to sell fuel from refueling trucks (Id. at 3) and its current refusal to allowEast to sell Jet A fueL. Response of Sky East to Suffolk County Objections to OrderShow Cause (Sky East Response) at 2 (Februar 14;1994).

In further support of its objections, Sky East rtfers to an audit_ of Airport revenuesconducted by the CouIity Deparment of Audit and Control dated Novembtr i I, 1982(Audit Report), including references to an FAA letter contained in that report. The auditreport concluded, inter aliä, that Marloy had 'not fully developed its fixed-base acivitiesand was not fully utilizing its leased premises. Audit report at 7-9. The audit report alsocriticized the County for receiving less than the appraised rental value of the land. The.auditors recommended that the airport negotiate with Malloy to receive an increase Ù1 rent. and that all future rental values at the airport should be at not less than the appraised .value. Apdit reportat9.

In the letter referred to in the Au~it Report,.. the FAA stated that the County may befostering a prohibited exclusive right by leasing to Malloy facilties and. properties Ù1excess of its needs aÌd by leasing to Malloy fuel tans not currently being use by Malloy.

In -its letter transmitting the schedule of aeronautical rental rates, the County argues thtthe disparty in Sky East's and Malloy's rental rates are justified because Malloy's rateswere the result ofa competitive RFP process.in which.Sky East and its predecessor didnot paricipate; Malloy collects landing fees for the County without cost to the County; .Malloy committed to remove disabled aircraft without 'charge; and Malloyagreeto pay a5 percent commssion on gross sales, which is more than double the rate paid by other.tenants. In addition, Malloy agreed. to rehabilitate at its expense the roof of one building.rented to it. Letter dated April II, 1994 from Jeltje DeJong, Suffolk County, to EdRancourt, FAA regarding schedule of rental rates paid by aeronautical tenants (Apri IICounty letter) at 1-2. ' .In its reply,. Sky East asserts thàt it was not a bidder when Malloy's contract was let:because it was not in a position to be a bidder due to the County's discrimination agáinstSky East's attempt t9 sell fuel and that it was never asked to undertake the servce of .collecting landing fees. With respect to removal of disabled aircraft, Sky East asserts that .

the agreement with Malloy effectively denied Sky East the possibilty of getting jobs formechacal repairs of wrecked aircraft. Sky East assets that Sky East is precluded frombusiness because Malloy picks up the aircraft and "badmouths Sky East and Sky Eastsrepair facilty to the owner" of the, wrtckedaircraf.Letter dated April 22, 1994 from 1.Cohn to Leonard Mudd, FAA in reply to April 1 I County Letter (April 22 Sky EasLetter) at 1-2. With respect to the lease of Hangar 312, SkyEasi asserts tliat Malloyobtained the financial wherewithal to pay for hangar repairs as a result of discriminatiòn in.its favor with respect to fuel sales. - Sky East further asserts that this discrimin~tion .

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provided Malloy the wherewithal to pay for the 116.21 percent increase in its rental rates.Id' at 2. . .

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2. Determination

For the reasons' set forth below, the FAA is making final its tentative findings andconclusions on this issue. The FAA has concluded that the disparty in rental ratesbetween Malloy and Sky East is not unjustly discriminatory within the meang of the .grant assurances iaiplementing section 51 l(a)(l) of the AAA. Before addressÙ1g thespecifC'ssues and objections raised by Sky East, a discussion of the nature and pt1rpose ofthe grant assurances ard the FAA's role in eIlorcing them is in order.

The purpose of the grant assurances is to protect the public interest in the operation ofFederally' assisted airports. The purpose is not to .provide alternative or supplementalrights to those normally available to comm~rcial tenants in disputes with their landlords,i.e. negotiation or commercial litigat,ion under applicable state laws. The FAA does riotconsider that Congress intended. grant assurances and the FAA's compliance process toprovide a device by whièh.a commercial aeronautical tenant can abr!Jgate an otherwsevalid commercial lease with a sponsor because the operations under the leasearel~ssprofitable than the tenant anticipated. Such use of the grant assurances would beespecially inappropriate in a case like this, where the tenant did not negotiate directly withthe sponsor but elected to assume a prior tenant's lease by acquiring the tenant .In addition, the relevant grant assurance in this case prohibits only unjìist.discrimination

among users. Differences in treatment, including rental rates, arê permssible solong asthose differences are not, unjust. FAA policy specifies FBO's making the same or, simiaruse of an airport should be subject to the same rates, fees and rentals as are uniformy

, applicable to otherFßO's. However, as the record in this case demonstrates, each FBO'suse of the Airport .differs in terms. of the size of the leastholdor the authoried uses. See' .April 11 County Letter, Annex; Exhibit C to County Answer, FAA Docket No. 13-88~(Elm Air Lease and Malloy Lease). In these circumstances, exact parity of rental r~tes is'not required to satisfy the obligation to avoid unjust discrimination. In this regard, therental rates for commercial aeronRutical tenants are distinguishable tfom uniform rates for

. landing fees ånd for rental charges' for common terminal areas paid by air carrers. . Eachaircraf type makes the ,same or substantially similar use of the runway., Each square footof common terminal arêa is virtually identical. .The FAA acceptsas.true Sky East's assertions that Malloy leases substantially more'spacethan Sky East at a more valuable location on the airport and that the differenc~ in rentalrates is not in strict numerical proportio"n to the differences in size or location. For thereasons set forth below, however, the FAA has concluded that in this case, theseassertions do not establisl, unjustdiscriminatiòn and that a hearing, even lim!ted to a'visualinspection of the airport is not necessary to resolve the issue of unjust dis~riminatioÍl. .

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First, the FAA notes that Malloy undertook to provide valuable servces for the

that Sky East is not required to provide. Malloy is obligated to remove disabledno cost to the County and to collect landing fees and other County fees. See Exhbit C toCounty Answer FAA Docket No. 13-88-6. In addition, the premises that Malloy lea~sincludes Hangar 312. The County provided the building on a rent free basis in exchangefor Malloy's agreement to make$lOO,OOO worth of repairs to the hangar; County Apri1 i, i 994 letter at 2; April 8, i 99 1 County Letter, Exhbit III. In addition, Malloy agreeto pay a commssion of five percent on gross sales wlule Sky East is obliged to pay acommssion ofless than half that amount, 2 percent. County April I I, 199 I letter,Exhbits III, IV. These percentage commissions do not apply to the sale offuel, in thecae of Malloy. Fuel sales were subject to a separate flowage fee.

Afer reviewing the record as a' whole, the FAA is satisfied that the differences Ù1 theterms of the Malloy and Sky East leases justify the rental rate differential. The FAA hasconsidered Sky East's argument,hat Malloy was able to pay for repairs to Hangar 312 dueto its favored status with respect to fuel sales. The FAA considers the argument that- /; .Malloy's favored status with respect to fueling enabled Malloy to finance hangar repairsand the i 16 percent increase (Sky East April 22 letter) to be specific arguments in supportof Sky East's general argument that it has been subject to a pattern of discrimination. Thisargument is addressed below. Whatever the reasons that Malloy could afford the hangarrepairs, Malloy gave. valuable consideration for the right to occupy the buildÙ1g rent free.In light of this consideration, the FAA does not consider the rent-free lease to be unjustlydiscrinatory. Likewise, the fact that Malloy's contract to remove disabled aircraf mayhurt Sky East's business is not a basis for finding unjust discrimination. Nothing in eitherSky East's or Malloy's lease precludes Sky East from removing disabled aircraf~ CountyAnswer, FAA Docket 13-88-6, Exhibit C. Further, when Malloy executed its lease, no .other operator offered repair services at the airport. Moreover, Malloy should not be able.to gain any uIlair competitive advantage over Sky East for the repair business because, asSky East asserts, Malloy has "absolutely no facilities to make aircraf repairs(.)" Sky'East.April 22 letter at 2.

In short, Sky East and MalloydoIiot makethe.same or similar use of the áirport.

. Diferencés in rental rates are therefore consistent with the County's grant. obligations.

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In àddition, Sky East's rental rates and those applicable to all other aeronautical tenants atthe Airport, except Malloy, are determined on a uniform basis -- appraised fair market .. rental value at the time of the lease. Moreover, as a result of this method. Sky East payslower rental rates per square foot and per acre than all other commercial aeronauticaltenants but MàIioy. See, April i 1 County Letter, Anex. Sky East's assertion that renta .rates are not uniformy applicable as between Malloy and Sky East. (Sky East Opposition'

at-5) is accurate. But the differences in this case do not amount to unjust discrimination.

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Malloy's lease and rental rates are the result of a cqmpetitive request for proposal (R) .process, The County employed this procedure, rather than setting a rentairate based onfair market. value because, in 1978, the County found itself without an FBO at the airPort.County April 8, i 991 letter at 6. The County received proposals from six bidders. Id.Maloy's proposal was considered to be the most financially attractive by the County's .airport manager, although it appears to have' been submitted late in the selection process.Id., Exhbit.XIII. Malloy was selected after another bidder, Perr's.Flying Servcedeclined to enter into an agreement based on its proposal. . Id., Exhbit XI.

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The record shows that Malloy's rental rates were the result of an open competitive processand -that Malloy's offer was the best of those available to the County. Even if the rental

rates agreed to by Malloy might have been less than appraised fair rental market rates, theRF process itself established market values at the time Malloy entered into its lease. Inaddition, our policy recognizes that an airport sponsor has flexibility to offer specialarangements in order to induce anFBO to locate on an airport lacing FBO servce. FAAOrder 5190.6A,par. 4-14.d(2)(g), p. 22. .~

The record does not support Sky East's contention that Sky East was not a bidder when -Malloy's lease, was awarded because the lease favored Malloy with respect to fuel sales. .:Rather, the arrangement was available to all bidders that Submitted RFPs; Sky Eas's'predecessor did not participate. Instead, Sky East's predecessor signed a lease 15 months. afer Malloy that did not include the right to sell fu~i.. County Answer, FAA Docket No.13-88-6, Exhbit C. Approximately seven years later, Sky.East assumed that lease, ratherthan negotiate directly with the County. In retrospect, this decision may hot haveproduced the financial results that Sky East anticipated, but the grant assurances do notcreate an obligation on the sponsor to negotiate automatically with each tenant thatassumes an existing lease. The tenant bears the responsibilty in the first .instance tochoose whether-to assume an existing lease .or to negotiate a new one. The grant

_ assurances do not require a sponsor to be penalized if the tenaIt's decision. does notproduce the expected financial resul~s.

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.Thus,. the record as a whole, including evidence submitted by Sky East; establishes that theFAA did not, as Sky East alleges, err in tentatively finding that the rental rates are open,

. fair and consistent with customary practices in commercial leasing. All comiercialaeronautical leases but Malloy'sdare based on appraised fair market rental value. County

April 11, 1994 letter, Annex. This method is precisely the one recommended by the

County's audit of the airport revenue in 1982. Sky East OppositioÌi,Exhibit A, AuditReport at 10. Moreover, the RFPprocess used for the Malloy lease is a form of .competitive nidding commonly employed by governmental entities'. In this regard, theFAA notes that procurement by competitive'proposas is expressly authoried for the .award of construction contracts to be funded with Al grants. See.49 C.F.R.§ 18.36(c)(3). .

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The FAA has carefully considered the Audit Report in its entirety. . The report does not ,establish that the rental rate disparty amounts to unjust discrimination within the Ineåningof the grant assurances. The Audit Report criticized

Malloy's rental ratesbecause they did

not allow the County to earn the full appraised value of the propert. .There wáSno

finding regarding discrimination vis-à-vis. other commerctal aeronautical tenants. SkyEastOpposition, Exhbit A, Audit Report at 10. Moreover, with respect to the

,Malloy leae,the Audit Report recommended that the County negotiate with Malloy to obtain anincrease in rent. Ibid. Thus the Audit Report implicitly recogned the limits.. on theCounty's abilty to take unilateral action to increase Malloy's leae. TheF AÀconcernsdiscussed in the AuditReport were not over possible unjust discrimination in renta rates.Rather, the FAA was concerned over the possible granting of txclusive rights with respecto hangar access and fuel dispensing~ Id. at 8-9.

The FAA has, also considered Sky East's allegation that the disparty in renta ratesbetween Malloy and Sky East is part of a pattern of discrimiriation that includes theCounty's policies on fuel sales by Malloy. In administering the grant compiiance prognim,the FAA's objective is assuring that sponsors are currently in compliance with theirobligations. The FAA's interest is not in punishing past noncompliance. Evidence of a .pattern of wrong-doing is relevant only to the extent that the FAA,could infer from thepattern that nòncompliance is currently ongoing.

In this case, the FAA tentatively concluded that the County's policies with respect to. permtting Sky East to engage in aircraft fueling activities were unreasonable and unjustly'discriminatory. Th~ County has not contested this tentative conclusion. Any inferencesthat might be drawn from this conclusion with respect to the disparity in Malloy's and SkyEast's rentalrntes, however, must be weighed against the evidence directly related to therental rates. The evidence in the recordestab~ishes that the rental rates of all aeronauticaltenants but Malloy were established in a llniform manner --based on fair market rentalvalue at the time pfthe iéase. County April 11, -1994 letter, Anex.

Malloy's rental rates

, 'were established through a competitive proposal: process; Malloy's offer was the bestá-vàilable to the County at the time ofacceptance.- County April 13 1991 letter, Exhbitsxii-xv. . That evidence ~uggests that Malloy was not the beneficiar of any unjust,

. discrination in its favor in esta.blishing rental rates and that Sky East was nótthe victim-of unjust discrimination against Slc East in the establishment of

its rental rates,

Finally, the relief sought by Sky East could as a practical matter itself put the County inviolation of its grant obligations. . Party between Sky East and Malloy (or even

a ':narrowing of the differences in rental rates) could be achieved in one of two ways -- byincreasing Malloy's rates or decreasing Sky .East's. Malloy's rates could

not bé increaed

without Malloy's agreement, and Malloy. should 'not bé.expected to voluntarly accpt. a

rent increase. Thus, the only realistic alternative would be to reduce Sky East's rentaI -rates. If the County were to do so, other aviation tenants whose rental rates are based on

fair market value could assert that they were the victims ofu.njust discrimination in

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violation of the. grant assurances. As noted, each of these tenants currently pays higherrental rates than Sky East. If the County were to reduce those tenants' rental nites in turn.to avoid the alleged urijust discrimination, the Airport might not generate enough revenueto be self-sustai~ng. The County is subject to a grant obligation to establish a fee andrental structure to make the airport as self-sustaining as possible in the paricularcircumstances of the airport.

.'

Based on the foregoing, the FAA makes final its tentative decision that the disparty in Sky.East's and Malloy's rental rates are not unjustly discriminatory within the meang of theCo. . untY's grait assurances. .. .. ~

D. IMOSITION OF SANCTIONS

Inthe Order to Show Cause, the FAA proposed to withhold issuance of new grants andpayments under existing grants until the County had completed good faith negotiationswith. Sky East and any other commercial aeronauti~al tenant desiring to engi;ge in fuelsales and self-fueling and had received FAA approval of revised financial. statement andreports.

1. Positions of the Parties

The County objects to withholding of grant funds until after FAA approval of revisedfinarcial statements. The County asserts that it has used the identical financial reportssince 1980and that it has relied on FAA's continuing acceptance of those statements.

County ObjeCtion to Order to Show Cause, .

Sky East urges - the FAA to withhold new grants and grant payments until afernegotiations are completed. Sky East argues that the County will not engage in good faith

- negotiations without the incentive 6fthis proposed sanction. January 28 Sky East letter at3.

2. Determnation

.In light of the County's decisionnotto contest the FAA's tentative finding~ with respect tofueling, the FAA has determined not to withhold further payments under existing AI 'grants or to withhold approval of new grants automatically. However, the FAA's Eastern .

.. Region Airports Division will be monitoring the progress of the County's negotiations withSky East.. . . .The Order to Show Cause proposed tówithhold funding pending completion of twodistinct events -- FAA approval of changes to the County's financial reports and. . '. .completion of negotiations with respect to fueL. However, the FAA did not ttmtatively ..conclude th~t the County's financial practices were in viohition of its grant.obligations. .

12-

.

Where the FAA has found a sponsor's financial reporting system to be inadequate without.. an adverse finding regarding the sponsor's underlying financial practices, the F AAdoes

not usually suspend Al assistance pending FAA review and approval of new financial.reports. See, Executive Air Taxi v. City ofBiS1ark, FAA Dockets 13-91-5 and 13-92-4,

Record of Decision at 26-29 (June 29, 1993). The FAA proposed to suspend in this caseonly because of the tentative conclusions with resptct to fueling. As discussed below, theFAA has decided not to withhold Al assistance pending completion of negotiations'fueling. In addition, the County has agreed to revise its financial reports. Undèr theFAA's past practice, there is no independent basis to withhold Al assistance until theF AA appr~:)Ves the revised financial reports.

As to the fueling, the FAA expected the County to object to the tentative findings. The

FAA proposed to withhold funding until negotiations were completed because anynegotiatians would have been, in effect, under protest. Therefore, the FAA had concernsabout the' likelihood of successful negotiati~ns. In light of the County's decision not tocontest the tentative findings, successful negotiations are more likely. The .FAA considersthe continued Withholding of Al assistance to be undue punishment inlight of the .County's agreement to accept the FAA's tentative findings with respect to fueling. TheFAA's objective is to achieve compliance, not to punish past non-compliance:

The pleadings suggest that negotiations over fueling may be contentious. To faciltate the

negotiations, the F AAis clarifying the County's rights and obligations under the grant.agreements. First, the specific County policy that the FAA finds to be inêonsistent \Vththe grant obligations is the requirement to install bulk storage tanks at the airport as a

. prerequisite for dispensing fuel at..retail (to Sky East's own aircraft and to retail . . .

purchasers). In the context of this case, the FAA considers bulk fuel storage to be a.. .distinct activity, and the County may adopt 'reasonable regulations tò assure the saety ofbulk fuel storage at the airport. Such regulations may include reasonable limitations on.the use of refueling trucks to provide for storage of bulk quantities offueL. Under thegrant agreèmehts,.the.County has assumed the obligati~m to manage the Airport iíi a sae.maer. .

, "

Second, consistent with that same assurance, the County may adopt reasonable regulations"to assure both the quality of the fuel that Sky East obtains off-site and the operational. . '

saety of Sky East's refueling truck operation and to provide a method for the County tomonitor the fuel quality and operational safety. .

The FAA is available to provide technical assistance with respect'to these important saetyissues. -ACCORDINGLY:

i ~ The FAA finds and conclqde's that:

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..A. The County, by refusing to allow Sky East to sell aviation fuel to the general

aviation public through the use of a refueling truck which is of the type the County .. authorized for Malloy's use and which-meets Courity healthaid safety requirements, rather

than requiring Sky East to install aidJor repair the Airport's existing fuel storage tans, is

violating the provisions requiring the,Airport to be available for public use on fair andreanable terms and without unjust discrimination as set forth in Section 511(a)(I) of

theAirport and AirWay Improvement Act of 1982, as amendëd (AAA), 49 U.S.C. App.

- Section 221O(a)(I),and the County'sFederalgrant agreements;. .B. The County, by refusing to allow Sky East to sell aviation fuel, yet permttmg

Malloy to sell aviation fuel, is violating the provisions prohibiting the granting of an .exclusive right for the use of the Airport as set forth in

Section 51 I (a)(2) of the AAA,

.49 U.S.C. App. Section 221O(a)(2), and tht County's Federal grant agreements;

C. The County, by refusing to permit Sky East or Hampton to servce Hampton'saircraf With petroleum products, is violating the prQvisipns establishing the right of each .air carer using the AirportLO service itself

as set forth in Section 511(a)(1)(C) of the .AAIA, 49U.S.C. Se~tion 221O(a)(1)(C), and the County's Federal grant agreements; ,

D. The County, bytharging Sky East a different rental rate than it is chargingMalloy, is not violating the provisions requiring access on fair and reasonable terms- .without unjust discrimination, including the requirement that each fixed-base operator atthe Airport be.subject to the same rentals as are uniformly applicable to all other .fixed-base operators makng the same or similar uses of such Airport utilizng the same. or

. similar facilities, as set forth in Section 51 l(~)(l)(B) of the AAA, 49 U.S.C. App.Section 221 OCa)(I )(B), and the County's Federal grant. agreements;

E. There is insuffcient evidence to justifY further investigation of Sky East's.allegàtion thàt the County is expending Airport revenues, including local

taxes on aviationfuel, to off-set thè' cost of non-aviation related activities at the Airport.in violation 'of therequirement that all Airport revenues, incltidinglocal taxes on aviation fuel, be expendedfor the. capital or operating costs of the Airport, the local Airport system, Or other local

. . facilities which are owned or operated.by the oWner or operator of the Airport.and aredirectly and substantially related to the actual air transportation of passengers or propert \ . .

as set forth in Section 511(a)(12) of the AAA, 49 U.S.C. App. Section 2210(a)(12), andthe Co~nty's Federal grant agreements;

F. .' There is insuffcient evidence to justifY further investigation of Sky East'sallegation that the County is including. in the Airport's rate base

any part of Federal grait. funding in establishing fees, rates, and charges for users of the Airport in violation of theprovisions prohibiting such conduct as set forth in Section 51 1

(a)(9) of the AAA,49 U.S.C. App. Section 2210(a)C9), and the County's Federal grant agreements; and,'

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,- G. With respect to the tenttttive findings in E and F above, a'.reviewand redesign

the County's current Airport financial reporting system so .that Airport revenue andexpenditures for.non-aviation and aviation operations are segregated, and Federalfunds are separately accounted for is appropriate; and that, upon completion of this

and redesign, a special financial report which segregates Airport revenue and expendiI'resfor non-aviation and aviation openi.tions is appropriate; .

2. The FAA' directs the County to entèr into good faith negotiations with interested .. .persons and entities at the Airport to allow such interested persons and entities to engagein aviation fuel sales and/or self-service at the Airport with the use of refueling trucks thatmeet county health and safety requirements and which are of the type the Countyauthorized for Malloy's use, subject to reasonable regulations to à.ssur~ the s~ety of suchoperatioas;

i

3. The FAA requests that the County review and redesign the Airport's current financial,.

reporting system so that Airport revenue and expenditures for non-aviation and aviationoperations are segregated and Federal grant funds are separately accounted for, and

uponthe completion of the review and redesign, the County to provide to the FAA AirportsDivision, Eastern Region, a special financial report which segregates aviation-relatedairPort revenue and expenditures fromnonaviation-related airport revenue and .expenditures and segregates Federal grant funds from other funds;

4. The FAA Airports Division, Eastern Region wil review this report to åssure theCounty is in cqmpliance with its Federal obligations concernng use of

airport revenue andgrant -fnds;

5. The FAA Airports Division, Eastern Region will monitor the progress of the goodfaith negotiations required in this record of decision and Will be available to provide

techncal assistance with respect to fueling operation s~fety; , /

6. The FAA accepts for the record aII pleadings and letters sub~itted by the paries afer'issuance of the FAA's Order to Show Cause; and .

7. Except as otherwse provided in this order, the complaints in FAA Docket Numbers13-88-6 and 13-89-1 are dismissed. ~

l

These determnations are made under sections 307, 308(a), 313(a) and 1006(a) of the

Federal Aviation Act, as amended (FAAct), 49 U.S.C. §§ 40103, 40113, and 46110,respectively and sections 511 and 519 of the AAA, 49 U.S.C. §§ 47107 and47122,.respectively.

"\

..

. 'RIGHTOFAPPEAL

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.1This Order constitutes final agency action under Section 1006(a) of the FAAct,49 V.S.C. 46110 and under section 519 of the AAA,49 U.S.C. 47106. Any par to thisproceeding having a substantial interest in this order may appeal the order to the courts of .appeals of the United States or the United States Court of Appeals for the District ofColumbia, upon petition fied within 60 days afer entry of this order.

~.¿~.'LEONAR E. MUD .Direcor, Offce of Airport Safety

and Standards

d$O/çL¡DATE

,

./

1#

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