2 January 2002
Source: http://www.access.gpo.gov/su_docs/aces/fr-cont.html

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[Federal Register: January 2, 2002 (Volume 67, Number 1)]
[Rules and Regulations]
[Page 249-262]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02ja02-11]

[[Page 249]]

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Part VII

Department of Transportation

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14 CFR Part 330

Procedures for Compensation of Air Carriers; Final Rule and Proposed
Rule

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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 330

[Docket OST-2001-10885]
RIN 2105-AD06


Procedures for Compensation of Air Carriers

AGENCY: Office of the Secretary, DOT.

ACTION: Final rule; response to comments.

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SUMMARY: On September 22, 2001, President Bush signed into law the Air
Transportation Safety and System Stabilization Act (``the Act''). The
Act makes available to the President funds to compensate air carriers,
as defined in the Act, for direct losses suffered as a result of any
Federal ground stop order and incremental losses beginning September
11, 2001, and ending December 31, 2001, resulting from the September 11
terrorist attacks on the United States. In order to fulfill Congress'
intent to expeditiously provide compensation to eligible air carriers,
the Department used procedures set out in Program Guidance Letters to
make initial estimated payments amounting to about 50 percent of the
authorized funds. On October 29, 2001, the Department published a final
rule and request for comments establishing application procedures for
air carriers interested in requesting compensation under this statute.
This document makes amendments to the rule and otherwise responds to
the comments the Department received.

DATES: This rule is effective January 2, 2002.

FOR FURTHER INFORMATION CONTACT: Steven Hatley, U.S. Department of
Transportation, Office of International Aviation, 400 7th Street, SW.,
Room 6402, Washington, DC 20590. Telephone 202-366-1213.

SUPPLEMENTARY INFORMATION: As a consequence of the terrorist attacks on
the United States on September 11, 2001, the U.S. commercial aviation
industry suffered severe financial losses. These losses placed the
financial survival of many air carriers at risk. Acting rapidly to
preserve the continued viability of the U.S. air transportation system,
President Bush sought and Congress enacted the Air Transportation
Safety and System Stabilization Act (``the Act''), Public Law 107-42.
    Under section 101(a)(2)(A-B) of the Act, a total of $5 billion in
compensation is provided for ``direct losses incurred beginning on
September 11, 2001, by air carriers as a result of any Federal ground
stop order issued by the Secretary of Transportation or any subsequent
order which continues or renews such stoppage; and the incremental
losses incurred beginning September 11, 2001 and ending December 31,
2001, by air carriers as a direct result of such attacks.'' The
Department of Transportation previously disbursed initial estimated
payments of nearly $2.5 billion of the $5 billion amount that Congress
authorized, using procedures set forth in the Department's Program
Guidance Letters that were widely distributed and posted on the
Department's Web site.
    On October 29, 2001 (66 FR 54616), the Department published in the
Federal Register a final rule and request for comments to establish
procedures for air carriers who had received or wished to receive
compensation under the Act. The rule covered such subjects as
eligibility, deadlines for application, information and forms required
of applicants, and audit requirements. The Department has received
submissions from many carriers pursuant to this rule and is continuing
to process requests for compensation.
    The Department received 18 comments on the rule during the comment
period; correspondence, memoranda of meetings, and late filed comments,
have also been entered into the docket. The following portion of the
preamble summarizes the comments that we received and describes the
Department's responses to those comments, including, where appropriate,
amendments that the Department is making to the October 29 final rule.

Wet Lease Issues

    Several commenters disagreed with the rule's provisions concerning
how RTMs are counted in cargo ``wet lease'' situations. In a wet lease,
one air carrier (the lessor) provides an aircraft, crew, maintenance,
and insurance (ACMI) for another air carrier (the lessee). The rule,
consistent with an existing regulatory definition of an RTM and Bureau
of Transportation Statistics (BTS) guidance concerning it, provided
that for purposes of the statutory formula for determining the proper
amount of compensation for which an air carrier is eligible, RTMs would
be attributed to the lessee who had reported the RTMs to the
Department. This approach, the preamble to the rule said, was in
keeping with the statutory direction to rely on RTMs ``as reported to
the Secretary.''
    Comments on this subject included letters from Atlas Air, Southern
Air, Cargo Airline Association (CAA), Custom Air Transport (CAT),
National Air Carrier Association (NACA), Air Transport Association
(ATA), Congressman James P. McGovern, and a group of six members of the
Florida Congressional delegation. They were in agreement that the
Department's approach to this issue should be changed.
    These commenters asserted that there would not be a ``double-
counting'' situation to fear by granting wet lessors compensation.
Atlas claims this is because ``scope clauses in labor agreements
typically prevent U.S. carriers from utilizing ACMI services''; thus,
``virtually all ACMI business is with foreign carriers, which by
definition are not entitled to compensation under the Act.''
Consequently, they said, the Department's rule would unreasonably
preclude any compensation for certain flights, since foreign carrier
lessees are not eligible for compensation and the lessors could not
count the RTMs involved for compensation purposes.
    These commenters also made the point that the Department's rule
elsewhere emphasizes (in denying compensation to indirect air carriers)
the role of the direct air carrier in actually flying the aircraft and
in fact specifies that RTMs must be flown by the air carrier submitting
the claim. In this context, wet lessors better meet these standards
than their lessees, they said, since the lessor is the party that
actually flies the aircraft.
    A number of these comments said that it was unreasonable for the
Department to rely on the way RTMs are reported to the Department on
the BTS ``Form 41,'' since they viewed this report as being provided
for unrelated purposes. In addition, some pointed out, the Department
had previously proposed a rule that would change reporting requirements
so that operating carriers (i.e., the lessor in a wet lease situation)
would report the RTMs.
    Some of these comments referred to the ``other auditable measure''
language in the Act, saying that this language provided greater
flexibility than the Department had provided in the rule. However, none
of the commenters suggested any other auditable measures. Instead,
several requested that they be able to count what they believed were
their own RTMs for operating as wet lessors, even though these RTMs had
previously been reported to the Department by the lessees.
    In a late-filed comment, CAT urged that the Department reverse its
position

[[Page 251]]

that wet lessees, rather than wet lessors, be credited with RTMs. CAT
is a wet lessor that operates flights on behalf of other U.S. carriers.
CAT asserted that it is irrelevant who reports RTMs to the Department;
what should be dispositive in all cases, in CAT's view, is who actually
operated the flights. This is just as true in the case of situations in
which U.S. carriers are the lessees as in which foreign carriers are
the lessees.
    In the Conference Report on the Aviation Transportation Security
Act (House Report 107-296 at p. 79), the managers made the following
comment on this issue:

    It is the Conferees' position that the Stabilization Act's
section 103 compensation formula language, ``revenue ton miles or
other auditable measure'' should be broadly construed and should not
restrict compensation exclusively to revenue ton miles reported on
previously filed DOT Form 41s. If Air, Crew, Maintenance, Insurance
lessors can provide accurate and auditable records of their revenue-
ton-miles during the relevant time period, then they should be
eligible for compensation based under the Stabilization Act.''

DOT Response

    Double counting--compensating more than one carrier for the same
operation--is contrary to the statutory scheme of the Act. Under the
Act, the amount of compensation available to a carrier is not simply a
function of actual documented losses. Rather, compensation availability
is limited by a formula based on the available seat-miles or revenue
ton-miles (or other auditable measure) as reported by the carriers. The
formula approach was clearly envisioned as a way to permit carriers to
participate in a finite amount of compensation based on their
proportionate market shares. Market shares are not ``shared'' due to
multiple carriers participating in particular operations. Indeed,
permitting two or more carriers to be compensated for the same
operation would give greater weight to some operations than others,
contrary to the broad and proportionate distribution principle evident
from the language of both section 101 and 103.
    For example, suppose carrier A and carrier B both participated in
operation X. Meanwhile, carrier C flew the same amount of cargo over
the same route in operation Y, without the involvement of another
carrier. Both operations result in 100,000 RTMs. If double counting
were permitted, operation X would generate twice as much compensation
as operation Y, reducing the total pool of funds available to all
carriers, depriving other carriers of the proportionate amount of
compensation that Congress intended them to receive.
    We would also point out that there are many forms of multiple
participation in operations, such as wet leases, charters, code shares,
and indirect/direct air carrier relationships. Attempting to find ways
of accommodating all these situations, and the variety of types of
double counting that would be involved, would not only be
administratively impracticable but inevitably involve multiple
inequities. Congress could not have intended such a result.
    We do not agree with commenters who would disregard the role of the
Department's reporting requirements (i.e., the Form 41 process) in
determining the appropriate carriers to receive ``credit'' for ASMs or
RTMs. Knowledge of this long-standing reporting scheme can clearly be
attributed to Congress, and the Act's explicit and repeated references
to ASMs and RTMs ``as reported to the Secretary'' show that Congress
implicitly adopted the Department's reporting requirements. There is no
evidence that Congress sought to revise these requirements or nullify
them for purposes of the statutory compensation formula so that, for
example, wet lessors would get credit for ASMs and RTMs while wet
lessees would not.
    We recognize Congress did add the term ``or other auditable
measure'' to the calculus with respect to RTMs. While neither the
Department nor commenters have been able to suggest what such measures
might be, this addition at least stands for the proposition that
Congress intended some flexibility in the way that compensation was
distributed among cargo carriers. That interpretation is fortified by
the Conferees' statement in House Report 107-296 as cited above, which
we note was directly in support of the compensation claims of wet
lessors.
    Working with these principles, together with the mandates of the
Act itself, we believe that the comments discussed above have some
merit, and that wet lessors in some circumstances can participate in
compensation payments. The primary condition to that participation is
that an eligible carrier with a superior claim to RTMs under our rules
has not applied for compensation. This requirement is necessary in
order to avoid either double counting or the displacing of the claim of
another carrier (e.g., the lessee in a wet lease situation) that
Congress, through its ``as reported to the Secretary'' language,
intended the Department to recognize.
    Therefore, we will accept applications from wet lessors if they (1)
Otherwise qualify as an air carrier; (2) identify and document their
status as wet lessor, explaining thereby why they have not previously
reported ASMs or RTMs for the operations in question; (3) identify the
wet lessees involved in these operations; (4) document that such
lessees are either ineligible for compensation or voluntarily have not
and will not claim such compensation with respect to the operations in
question; and (5) provide accurate and auditable records of ASMs or
RTMs actually flown during the relevant time period for these
operations.
    We recognize that it is possible that some wet lessors either did
not apply for compensation because of the way that the rule addressed
this issue or would seek to amend their applications to claim
additional RTMs or ASMs. We are amending the application procedures of
the rule to allow carriers to do so within 14 days of the publication
of this amendment.
    Claims to confidentiality of information provided under this
provision will be carefully scrutinized. In any situation in which the
Department determines that both wet lessors and wet lessees have
claimed compensation for the same operations, the Department's general
rule that wet lessees report RTMs will be given effect and lessees
given priority.

Indirect Air Carrier Issues

    A number of commenters objected to the provision of the rule that
only direct air carriers are eligible for compensation. These
commenters (Emery Air Freight, CAA, BAX Global, and the Association of
Air Medical Services (AAMS)) pointed out, first, that indirect air
carriers are within the statutory definition of ``air carrier,'' and
consequently should be eligible for compensation. These commenters
disagreed with the Department's contention, in the rule's preamble,
that the intent of Congress was to compensate carriers who actually
operated flights. Emery added that, as an air freight forwarder, it has
been recognized in DOT administrative decisions as responsible for the
transportation of property, even though it did not actually operate
flights.
    Emery also asserted that, as a lessee for air freight
transportation, it suffered losses because the direct air carriers
whose aircraft it leased could not fly during the period of the
Secretary's September 11 ground stop order. This is exactly the sort of
loss Congress intended to compensate, Emery said.
    Reporting ASMs or RTMs to the Department should not be an
eligibility requirement, these commenters said. All air carriers should
be eligible for

[[Page 252]]

compensation regardless of whether the Department could calculate the
``formula cap'' for compensation using RTMs, particularly since the
statute allows for ``other auditable measures'' to be used in place of
RTMs.
    In some cases, CAA said, indirect air carriers should get credit
for the RTMs involved in cargo operations, since they ``generate'' the
freight carried, contract with direct air carriers for dedicated lift
which requires payment regardless of how much freight is carried, and
bear the entire financial risk for the operation. Emery also said that
it, rather than the direct air carriers involved, should be regarded as
generating RTMs, which the direct air carrier merely reports.
    BAX asserted that it is the Department's obligation to find an
appropriate ``other auditable measure'' for indirect air carrier
operations for carriers that do not report RTMs, though BAX did not
suggest what such measures might be. BAX did suggest, however, that the
flexibility given to air taxis in the rule, for whom DOT could estimate
RTMs based on other data, could be given to indirect air carriers as
well.
    BAX dismissed the Department's concern about ``duplicating'' ASMs
or RTMs, saying that such overlap between direct and indirect air
carriers is not ``inherently injurious.'' BAX appears to mean that a
carrier will not be able to get ``double recovery,'' though it concedes
that some carriers might have their compensation reduced as a result.
Emery agreed that allowing indirect air carriers to claim RTMs will not
require DOT to pay more than once for a specific loss. Emery added that
the parties to a contract (i.e., a direct and indirect air carrier)
should be able to provide DOT the information needed to make
appropriate allocations of relief.
    AAMS, representing air ambulance operators, also requested that the
Department provide compensation to those air ambulance operators who
are indirect air carriers.

DOT Response

    Much of the discussion above concerning wet lease issues also
pertains to the comments on indirect air carrier issues. In particular,
the Department believes that double counting is impermissible. We find
nothing in the text of the statute or its legislative history
suggesting that Congress meant for carriers to be able to ``share''
RTMs. Further, none of these commenters have offered a way to calculate
``other auditable measures'' that may be applicable to them in a way
that is free of the problem of duplicating the claims of other
carriers. (BAX's analogy to air taxis is inapposite, since air taxis
have been required to construct RTM data in a manner consistent with
other carriers and no duplication of data is involved.)
    Nor are we persuaded by the suggestions that indirect air carrier/
freight forwarders have a superior claim to RTMs that are flown with
their cargo aboard. As noted above, we believe that Congress implicitly
adopted the reporting requirements of the Department in the Act, and we
find no suggestion that it intended to displace, as eligible for
compensation under the Act, the direct air carriers that report RTMs in
accordance with our rules in favor of indirect air carriers that do
not.
    As to comments analogizing the role of freight forwarders to that
of wet lessees, there are clearly differences between the two. While
both assume economic risks, a wet lessee assumes economic control and
responsibility for the flight, which the freight forwarder does not. As
to claims that freight forwarder operations are economically equivalent
to a wet lease, if an air carrier has in fact reported RTMs to the
Department as a wet lessee, then its application can be processed on
that basis. We believe that the manner in which carriers have actually
defined their relationships and reported the data to DOT--without
regard to the economic incentive created by the availability of
compensation--should be given credibility.
    That said, we are deleting the provision of the rule that made
indirect air carriers ineligible to apply for compensation. In order to
be consistent with the approach we have taken above for wet lessors, we
will accept for processing applications from indirect air carriers if
they (1) Otherwise qualify as an air carrier; (2) identify and document
their status as an indirect air carrier, explaining thereby why they
have not previously reported ASMs or RTMs on claimed operations; (3)
identify the direct air carriers involved in their operations; (4)
document that such direct air carriers are either ineligible for
compensation or voluntarily have not and will not claim such
compensation with respect to the operations in question; and (5)
provide accurate and auditable records of ASMs or RTMs actually flown
during the relevant time period for these operations.
    We recognize that it is possible that some indirect air carriers
may not have applied for compensation in the past because the rule said
that they were ineligible. We are amending the application procedures
of the rule to allow indirect air carriers who did not apply previously
to so do within 14 days of the publication of this amendment.
    As noted above, claims to confidentiality of information provided
under this provision will be carefully scrutinized. In any situation in
which the Department determines that both indirect and direct air
carriers have claimed compensation for the same operations, the
Department's general rule that direct air carriers report RTMs will be
given effect and they will be given priority.

Air Ambulance Issues

    AAMS expressed concern about the provisions of the Act and the rule
that based calculations of compensation for which air carriers are
eligible on available seat-miles (ASMs). AAMS said that ASMs are not a
good measure of the capacity of air ambulance services, because air
ambulances must be staffed and ready to go on a 24-hour basis, yet fly
relatively few ASMs. Given the way the statutory formula works, this
would result in very little compensation being made available to air
ambulance services.
    In place of the ASM calculations that are used for other kinds of
air carriers, AAMS recommended that the Department calculate lost
volume by comparing the flight volume of August and September 2001,
multiplying the difference by the average revenue per flight, and
extrapolating the result to the industry as a whole. AAMS suggested
that the functional equivalent of ASMs (i.e., as a measurement of
capacity) could be calculated by multiplying the average number of
seats in air ambulances aircraft (six) times the average speed of the
aircraft (150 m.p.h.) times the hours per day it is staffed and ready
(24). This, AAMS suggested, would create a reasonable approximation of
the capacity of an air ambulance aircraft per day.
    In the Aviation and Transportation Security Act (Pub. L. 107-71),
Congress also addressed the situations of air ambulances. Section
124(d) of this statute amended section 103 of the Air Transportation
Safety and System Stabilization Act. The purpose of this amendment,
according to the Conference Report (House Report 107-296 at p. 79), is
to ``to allow for a modified system of providing compensation to air
tour operators and air ambulances to better address their needs after
industry wide losses.'' The following is the text of this amendment:

    (d) Compensation for Certain Air Carriers.--
    (1) Set-Aside.--The President may set aside a portion of the
amount of

[[Page 253]]

compensation payable to air carriers under section 101(a)(2) to
provide compensation to classes of air carriers, such as air tour
operators and air ambulances (including hospitals operating air
ambulances) for whom application of a distribution formula
containing available seat miles as a factor would inadequately
reflect their share of direct and incremental losses. The President
shall reduce the $4,500,00,000 specified in section (b)(2)(A)(i) by
the amount set aside under this subsection.
    (2) Distribution of Amounts.--The President shall distribute the
amount set aside under this subsection proportionally among such air
carriers based on an appropriate auditable measure, as determined by
the President.

Under the statutory language, use of this set-aside authority is
discretionary (``The President may set aside * * *''). Neither the
statute nor the Conference Report provides any guidance concerning the
appropriate size of such a set-aside or the identity of any other
``classes'' of air carriers that could be included in it, if the
President chooses to use the authority.

DOT Response

    The Department will consider using the discretion provided by
section 124(d) of the Transportation Security Act to set aside a
portion of the $4.5 billion compensation available for passenger
carriers for air ambulances and other classes of air carriers for whom
application of an ASM-based compensation formula would inadequately
reflect their share of direct and incremental losses. The Department is
issuing a separate document in today's Federal Register requesting
comment on the issue of whether we should establish a set-aside, which
classes of carriers a set-aside should cover, and what method or
methods should be used to allocate funds from a set-aside.

Charter Carrier Issues

    NACA, representing charter air carriers, asked for changes in the
data the Department collects. NACA said that Parts 2 and 4 of Form 330-
A request a variety of types of information (e.g., forecast ASMs and
RTMs; volume, revenue and cost information related to individual
passengers; break even load factor, average length of passenger haul,
departures planned, average passenger fares, and passenger yield per
RPM) that are not relevant to charter air carriers' operation. Charter
air carriers, NACA said, typically sell full planeload charter flights
to tour operators, who in turn pay for the whole airplane by ``block
hour.'' Charter revenue forecasts are based on aircraft utilization,
which is the predicted monthly number of block hours the carrier
expects to operate. The forecast units then become revenue and cost per
block hour, rather than ASMs and RTMs.

DOT Response

    The Department understands that some charter carriers may not have
some of the data elements in the form the Department has asked for
them. The Department has received applications from a number of such
carriers, and we are working with the carriers in question to clarify
information necessary to permit determinations on compensation to be
made. Consequently, the Department does not believe that it is
necessary to make any changes in the current rule or forms to
accommodate NACA's concern. However, we will consider whether, in
connection with the third increment of compensation we intend to
distribute in 2002, we should change any of the data elements for
charter carriers.

Accounting Issues

    The American Institute of Certified Public Accountants (AICPA)
recommended a number of changes in the way that the rule describes the
independent audit requirements of the final rule. Rather than requiring
a ``review'' of a carrier's ``forecasts,'' or an ``audited financial
statement,'' AICPA suggested that DOT require carriers to perform an
``agreed-upon procedures engagement.'' This change would make the rule
more consistent with accounting terms of art, AICPA said. AICPA
provided a suggested draft of such agreed-upon procedures as well as
technical amendments to the rule's language that would accommodate the
group's concerns.
    AICPA also commented concerning the rule's requirement that
carriers report and support reports of losses for the period beginning
September 11, 2001. Generally, AICPA said, carriers prepare financial
data on a monthly, rather than a daily basis, so it would make more
sense to report losses beginning September 1 rather than September 11.
Also, carriers and the DOT should have access to the independent
auditors' working papers on request, but the carrier should not
routinely obtain and retain them. Doing the latter would be
inconsistent with AICPA auditing standards, the organization asserted.
    The Air Transport Association noted in its comments that it
supported the AICPA's views.

DOT Response

    In the interest of facilitating auditing of carriers' records, the
Department will make the regulatory text changes suggested by AICPA,
with minor edits. These changes in the Department's rule include
adoption of the ``agreed-upon procedures engagement'' approach that
AICPA suggested. However, the Department does not adopt or otherwise
approve the specific agreed-upon procedures document enclosed with
AICPA's comment.
    In implementing the agreed-upon procedures approach, DOT will
require that airlines and their accountants use procedures that are
acceptable to applicants and the Department. The Department intends to
issue, in the near future, guidance that will provide the essential
elements of procedures that the Department will accept. As part of this
process, the Department is considering guidance relating to abbreviated
procedures for smaller air carriers.

Before- and After-Tax Reporting

    TEM Enterprises noted that the rule requires that carriers report
both ``net losses, before taxes'' and ``total net income after taxes,
based on application of standard corporate income tax rates.'' TEM
recommended that the Department use before-tax information in
determining compensation, particularly where a carrier projected losses
even before the September 11 attacks, since no tax would have been paid
in that case. It would not make sense to use after-tax data except,
perhaps, in the case of carriers who project having taxable income at
the end of their tax years. TEM also objected to the possibility that
the reference to ``standard corporate tax rates'' would mean that the
Department would uniformly apply a 34 percent tax rate against a
carrier's projected net income.
    AICPA also asked for clarification on whether compensation will be
based on pre-tax or net income after taxes, and on what is meant by the
rule's reference to ``standard corporate income tax rates.''

DOT Response

    The Department has determined, as the result of reviewing both
compensation applications and comments to the docket for this rule,
that the Department will rely on pre-tax data for purposes of
determining carriers' losses. Consequently, issues concerning use of
after-tax data, including the appropriate corporate tax rate to apply,
are moot. We have deleted the after-tax income lines from the reporting
forms in Appendices A-C of the regulation.

[[Page 254]]

Documentation of pre-September 11 Forecasts

    TEM Enterprises and Custom Air Transport made similar comments
concerning the rule's requirement that carriers submit documentation
that pre-September 11 forecasts were, in fact, completed before
September 11. The problem, they said, was that carriers such as
themselves do not routinely prepare forecasts of the kind contemplated
by the rule. They could produce, for purposes of their applications,
they said, detailed forecasts based on information existing before
September 11, but these forecasts were prepared after September 11. It
would be unreasonable, they said, to exclude carriers from compensation
because their normal business practices before September 11 did not
involve preparing detailed forecasts. Like air taxis, some other air
carriers should be given flexibility to make a good faith effort to
categorize their revenues and expenses according to the rule's forms.

DOT Response

    The Department believes that it is fair to accommodate the
situation of carriers that did not prepare actual forecasts before
September 11. In reviewing applications that have been submitted, the
Department has accepted some carriers' estimates of pre-September 11
expectations for their performance, based on historical data, in lieu
of a forecast actually made before that date. As a matter of
interpretation, the Department will continue this practice. While the
Department will scrutinize the carrier's data to make sure the
estimates of expectations are reasonable, the Department will not
exclude carriers in this category from eligibility for compensation.

Other Issues

    Worldwide Flight Services, an aviation services firm that provides
ramp, passenger, cargo, maintenance, container leasing, and fueling
services, commented that it has suffered significant losses as the
result of the September 11 attacks. The company is not receiving its
expected revenue because carrier customers operating fewer flights are
using their services less. Worldwide asserted it is not an indirect air
carrier and that its unique position and the services it provides to
carriers should result in its becoming eligible for compensation.
Generally, Worldwide believes its services are vital to the flights of
aircraft.
    If its operations stopped tomorrow, Worldwide said, many flights
could not operate because essential services would not be provided,
especially in smaller communities. According to Worldwide, in view of
the Act's mandate that the Secretary take appropriate action to ensure
the continuation of scheduled air service to small communities, the
Department should compensate the company. In addition, acccording to
worldwide, if Worldwide stopped providing its service, there would be
interruptions of mail deliveries.
    ATA expressed concern about the provision that carriers must
provide all requested information with their applications or face
rejections of their applications by the Department. This requirement is
too stringent, in ATA's view, particularly since carriers may be unable
to meet precisely some of the rule's information requirements. For
example, carriers may well be unable to provide an auditable forecast
and actual losses for the September 11-30 period, since they do not
keep records in a daily or weekly, as opposed to monthly, fashion. Like
AICPA, ATA recommended that the rule's information collection
requirements relate to the entire month of September.
    Finally, ATA disagreed with the rule's requirement that independent
auditors review carriers' forecasts for accuracy. This, ATA said, would
be difficult given the variation among carriers' forecasting methods.
Instead, the auditors should certify that the forecast submitted to DOT
was the carrier's most recently available forecast prior to September
11.

DOT Response

    The events of September 11 had serious economic effects on a wide
variety of businesses. For example, airport concessionaires, hotels and
resorts, and other tourism-related businesses appear to have lost
substantial amounts of money. We do not doubt that an aviation services
company like Worldwide may have suffered significant financial losses
as the result of the September 11 attacks, and we recognize that firms
like Worldwide can play an important role in the aviation industry.
    Nevertheless, Congress provided compensation in the Act only to air
carriers. Worldwide is not only not an indirect air carrier; it is not
an air carrier at all, as defined in the Act. We do not have the legal
discretion to provide compensation to parties that are not air
carriers, even though doing so could help to achieve other purposes of
the Act, such as maintaining service to small communities.
    The Act requires losses to be calculated from September 11, not
September 1. The Department cannot assume that a forecast pertaining to
all of September will permit an accurate calculation of losses
pertaining to September 11-30. Certainly, merely pro-rating data for
the entire month as a means of estimating losses for September 11-30
would not be an accurate method for doing so. It is appropriate and
possible, in the Department's view, for carriers--even those who did
not originally structure their forecasts in this fashion--to break out
data pertaining to September 1-10 and September 11-30, respectively.
    As noted in the response to the AICPA comment, DOT is modifying
audit requirements and will rely on ``agreed-upon procedures'' as
distinct from a formal ``review'' or ``audit'' of carrier information.
This change adequately responds to ATA's comments on this point. We do
not believe it would be adequate to have an auditor merely attest to
the recency of a carrier's documents. To ensure that the Department
distributes funds in accordance with Congress' direction, auditors need
to consider the accuracy of the substance of this information.

Regulatory Analyses and Notices

    This rule is an economically significant rule under Executive Order
12886, since it will facilitate the distribution of more than a billion
dollars into the economy during the 12-month period following its
issuance. Because of the need to move quickly to provide compensation
to air carriers for the purpose of maintaining a safe, efficient, and
viable commercial aviation system in the wake of the events of
September 11, 2001, we are not required to provide an assessment of the
potential cost and benefits of this regulatory action. The Department
has determined that this rule is being issued in an emergency
situation, within the meaning of Section 6(a)(3)(D) of Executive Order
12866. However, this impact is expected to be a favorable one: making
these funds available to air carriers to compensate them for losses
resulting from the terrorist attacks of September 11. In accordance
with Section 6(a)(3)(D), this rule was submitted to the Office of
Management and Budget for a brief review.
    Because a notice of proposed rulemaking is not required for this
rulemaking under 5 U.S.C. 553, we are not required to prepare a
regulatory flexibility analysis under 5 U.S.C. 604. However, we do note
that this rule may have a significant economic effect on a substantial
number of small entities. Among the entities in question are air taxis,
as well as some commuters and small certificated air carriers. In

[[Page 255]]

analyzing small entity impact for purposes of the Regulatory
Flexibility Act, we believe that, to the extent that the rule impacts
small air carriers, the impact will be a favorable one, since it will
consist of receiving compensation. We have facilitated the
participation of small entities in the program by allowing a longer
application period for air taxis, which are generally the smallest
carriers covered by this rule and which do not otherwise report traffic
or financial data to the Department. The Department has also concluded
that this rule does not have sufficient Federalism implications to
warrant the consultation requirements of Executive Order 13132.
    We are making this rule effective immediately, without prior
opportunity for public notice and comment. Because of the need to move
quickly to provide compensation to air carriers for the purpose of
maintaining a safe, efficient, and viable commercial aviation system in
the wake of the events of September 11, 2001, prior notice and comment
would be impractical, unnecessary, and contrary to the public interest.
Consequently, prior notice and comment under 5 U.S.C. 553 and delay of
the effective date under 5 U.S.C. 801, et seq., are not being provided.
On the same basis, we have determined that there is good cause to make
the rule effective immediately, rather than in 30 days. We are
providing for a 14-day comment period following publication of the
rule, however. The Department will subsequently respond to comments we
receive.
    The Office of Management and Budget has approved the information
collection requirements of this rule, with Control Number 2105-0546.

List of Subjects in 14 CFR Part 330

    Air carriers, Grant programs--transportation, Reporting and
recordkeeping requirements.

    Issued this 26th day of December, 2001, at Washington, DC.
Read C. Van de Water,
Assistant Secretary for Aviation and International Affairs.

    For the reasons set forth in the preamble, the Department amends 14
CFR Part 330 as follows:

PART 330--PROCEDURES FOR COMPENSATION OF AIR CARRIERS

    1. The authority citation for Part 330 is revised to read as
follows:

    Authority: Pub. L. 107-42, 115 Stat. 230 (49 U.S.C. 40101 note);
sec. 124(d), Pub. L. 107-71, 115 Stat. 631 (49 U.S.C. 40101 note).

    2. Amend Sec. 330.7 by revising paragraph (c) to read as follows:

Sec. 330.7  How much of an eligible air carrier's estimated
compensation will be distributed under this part?

* * * * *
    (c) If, as an air carrier, you are able to submit data, subsequent
to your application under this part but before December 31, 2001,
demonstrating and documenting conclusively that you have incurred
actual losses as defined in section 101(a)(2) of the Act that exceed
the amount of compensation for which you demonstrate you are eligible
under the formula of section 103(b)(2) of the Act, the Department may
disburse to you, without waiting for a submission in Calendar Year (CY)
2002, the remainder of the formula amount of compensation for which you
are eligible.
    (1) A carrier that requests a final installment before December 31,
2001 must submit its claim of actual losses for the period of the
claim, a forecast for the same period that was prepared before
September 11, 2001, and an independent public accountant's report based
on the performance of agreed-upon procedures approved by the Department
of Transportation with respect to the carrier's forecasts and actual
results. The independent public accountant's engagement must be
performed in accordance with generally accepted professional standards
applicable to agreed-upon procedures engagements.
    (2) The consideration of requests for final payment before December
31, 2001 is contingent upon the establishment by the Department of a
fixed comprehensive universe of ASMs and RTMs for all eligible air
carriers to be used as the basis of the final compensation formula for
all eligible air carriers as established in the Act.

Sec. 330.11  [Amended]

    3. Amend Sec. 330.11 by removing and reserving paragraph (b).

    4. Amend Sec. 330.21 by adding new paragraphs (d) and (e), to read
as follows:

Sec. 330.21  When must air carriers apply for compensation?

* * * * *
    (d) Notwithstanding any other provision of this section, if you are
an eligible air carrier that did not submit an application or wishes to
amend its application, you may do so by January 16, 2002 if you are one
of the following:
    (1) An indirect air carrier which did not file an application
because indirect air carriers were formerly ineligible to apply for
compensation; or
    (2) A wet lessor that either did not file an application, or
submitted fewer ASMs or RTMs with its application than it now believes
can be counted for compensation purposes, because this rule formerly
limited the ASMs or RTMs that you could submit.
    (e) If you are submitting a new or amended application under
paragraph (d) of this section, you must include a signed statement,
under penalty of perjury, that you are submitting the new or amended
application for the reason stated in paragraph (d)(1) or (d)(2) of this
section.

    5. Revise Sec. 330.31 to read as follows:

Sec. 330.31  What data must air carriers submit concerning ASMs or
RTMs?

    (a) Except as provided in paragraph (d) of this section, if you are
applying for compensation as a passenger or combination passenger/cargo
carrier, you must have submitted your August 2001 total completed ASM
report to the Department for your system-wide air service (e.g.,
scheduled, non-scheduled, foreign, and domestic).
    (b) Except as provided in paragraph (d) of this section, if you are
applying for compensation as an all-cargo carrier, you must have
submitted your RTM reports to the Department for the second calendar
quarter of 2001.
    (c) In calculating and submitting ASMs and RTMs under paragraphs
(a) and (b) of this section, there are certain things you must not do:
    (1) Except at the direction of the Department, or to correct an
error that you document to the Department, you must not alter the ASM
or RTM reports you earlier submitted to the Department. Your ASMs or
RTMs for purposes of this part are as you have reported them to the
Department according to existing standards, requirements, and
methodologies established by the Office of Airline Information (Bureau
of Transportation Statistics).
    (2) You must not include ASMs or RTMs resulting from operations by
your code-sharing or alliance partners.
    (3) You must not include ASMs or RTMs that are reported by or
attributable to flights by another carrier.
    (d) If you have not previously reported ASMs or RTMs as provided in
paragraphs (a) and (b) of this section for a given operation or
operations, you may submit your calculation of ASMs or RTMs to the
Department with your application. You must certify the accuracy of this
calculation and submit with your application the data and assumptions
on which the calculation is based. After reviewing your submission, the
Department may modify or reject your calculation.
    (1) If you are a direct air carrier that has operated your aircraft
for a lessee (i.e., a wet lease, or aircraft, crew,

[[Page 256]]

maintenance, and insurance (ACMI) operation), you may submit your
calculation of ASMs or RTMs for these flights. Your submission must
include the following elements:
    (i) Documentation that you otherwise qualify as an air carrier;
    (ii) Documentation that you are a wet lessor, and an explanation of
why you did not previously report ASMs or RTMs for the operations in
question;
    (iii) Documentation of the identify of the wet lessees involved in
these operations;
    (iv) Documentation that such lessees are either ineligible for
compensation or voluntarily have not and will not claim such
compensation with respect to the operations in question; and
    (v) Accurate and auditable records of ASMs or RTMs actually flown
during the relevant time period for these operations.
    (2) If you are an indirect air carrier, you may submit your
calculation of ASMs or RTMs for flights that direct air carriers have
operated for you under contract or other arrangement. Your submission
must include the following elements:
    (i) Documentation that you otherwise qualify as an air carrier;
    (ii) Documentation that you are an indirect air carrier, and an
explanation of why you did not previously report ASMs or RTMs for the
operations in question;
    (iii) Documentation of the identify of the direct air carriers
involved in these operations;
    (iv) Documentation that such direct air carriers are either
ineligible for compensation or voluntarily have not and will not claim
such compensation with respect to the operations in question; and
    (v) Accurate and auditable records of ASMs or RTMs actually flown
during the relevant time period for these operations.

    6. Amend Sec. 330.35 by revising paragraph (a)(4) to read as
follows:

Sec. 330.35  What records must carriers retain?

* * * * *
    (a) * * *
    (4) You must agree to have your independent public accountant
retain all reports, working papers, and supporting documentation
pertaining to the agreed-upon procedures engagement conducted by your
independent public accountant under the requirements of this part for a
period of five years. The accountant must make this information
available for audit and examination by representatives of the
Department of Transportation (including the Office of the Inspector
General), the Comptroller General of the United States, or other
Federal agencies.
* * * * *

    7. Amend Sec. 330.37 by revising paragraph (b) to read as follows:

Sec. 330.37  Are carriers which participate in this program subject to
audit?

* * * * *
    (b) Before you are eligible to receive payment from the final
installment of compensation under the Act, there must be an independent
public accountant's report based on the performance of procedures
agreed upon by the Department of Transportation with respect to the
carrier's forecasts and actual results. The independent public
accountant's engagement must be performed in accordance with generally
accepted professional standards applicable to agreed-upon procedures
engagements. You must submit the results of the agreed-upon procedures
engagement to the Department with your application for payment of the
final installment.

    8. Amend Appendix A to Part 330 by revising Page 1 of 5 and Page 3
of 5 of Form 330-A to read as follows:

Appendix A to Part 330--Forms for Certificated and Commuter Air
Carriers

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[[Page 257]]

[GRAPHIC] [TIFF OMITTED] TR02JA02.046

[[Page 258]]

[GRAPHIC] [TIFF OMITTED] TR02JA02.047

[[Page 259]]

    9. Amend Appendix B to Part 330 by revising Page 1 of 5 and Page 3
of 5 of Form 330-B to read as follows:

Appendix B to Part 330--Forms for Certificated Cargo Carriers
[GRAPHIC] [TIFF OMITTED] TR02JA02.048

[[Page 260]]

[GRAPHIC] [TIFF OMITTED] TR02JA02.049

    10. Amend Appendix C to Part 330 by revising Page 1 of 7 and Page 3
of 7 of Form 330-C to read as follows:

Appendix C to Part 330--Forms for Air Taxi Operators

[[Page 261]]

[GRAPHIC] [TIFF OMITTED] TR02JA02.050

[[Page 262]]

[GRAPHIC] [TIFF OMITTED] TR02JA02.051

[FR Doc. 01-32176 Filed 12-27-01; 4:28 pm]
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[Federal Register: January 2, 2002 (Volume 67, Number 1)]
[Proposed Rules]
[Page 263-264]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02ja02-25]

[[Page 263]]

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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 330

[Docket OST-2001-10885]
RIN 2105-AD06


Procedures for Compensation of Air Carriers

AGENCY: Office of the Secretary, DOT.

ACTION: Request for comments.

-----------------------------------------------------------------------

SUMMARY: On September 22, 2001, President Bush signed into law the Air
Transportation Safety and System Stabilization Act (``the Act''). The
Act makes available to the President funds to compensate air carriers,
as defined in the Act, for direct losses suffered as a result of any
Federal ground stop order and incremental losses beginning September
11, 2001, and ending December 31, 2001, resulting from the September 11
terrorist attacks on the United States. In a final rule being published
in today's Federal Register, the Department is amending its application
procedures for this compensation program. This document requests
further comments on the issue of whether the Department should
establish a set-aside of compensation funds for classes of air
carriers, such as air ambulances and air tour operators, for whom the
final rule's compensation formula may not adequately reflect their
share of direct and incremental losses.

DATES: Comments should be received by January 16, 2002; late-filed
comments will be considered to the extent practicable.

ADDRESSES: Interested persons should sent comments to Docket Clerk,
Docket OST-2001-10885, Department of Transportation, 400 7th Street,
SW., Room PL-401, Washington, DC 20590. Commenters wishing to have
their submissions acknowledged should include a stamped, self-addressed
postcard with their comments. The Docket Clerk will date stamp the
postcard and return it to the commenter. Comments will be available for
inspection at the above address from 10 a.m. to 5 p.m., Monday through
Friday. Comments also may be sent electronically to the Dockets
Management System (DMS) at the following Internet address: http://
dms.dot.gov/. Commenters who wish to file comments electronically
should follow the instructions on the DMS Web site. Interested persons
can also review comments through this same Web site.

FOR FURTHER INFORMATION CONTACT: Steven Hatley, U.S. Department of
Transportation, Office of International Aviation, 400 7th Street, SW.,
Room 6402, Washington, DC 20590. Telephone 202-366-1213.

SUPPLEMENTARY INFORMATION: As noted in the preamble to the final rule
on airline compensation procedures that the Department is publishing in
today's Federal Register, commenters expressed a concern about the
provisions of the Act that based calculations of compensation for which
air carriers are eligible on available seat-miles (ASMs). The concern
was basically that this ASM-based formula would not adequately
compensate air ambulances and air tour operators for the losses they
suffered as the result of the September 11 attacks.
    In the Aviation and Transportation Security Act (Public Law 107-
71), Congress addressed the situations of air ambulances, air tour
operators and other similarly situated classes of air carriers. Section
124(d) of this statute amended section 103 of the Air Transportation
Safety and System Stabilization Act. The purpose of this amendment,
according to the Conference Report (House Report 107-296 at p. 79), is
to ``to allow for a modified system of providing compensation to air
tour operators and air ambulances to better address their needs after
industry wide losses.'' The following is the text of this amendment:

    (d) Compensation for Certain Air Carriers.--
    (1) Set-aside.--The President may set aside a portion of the
amount of compensation payable to air carriers under section
101(a)(2) to provide compensation to classes of air carriers, such
as air tour operators and air ambulances (including hospitals
operating air ambulances) for whom application of a distribution
formula containing available seat miles as a factor would
inadequately reflect their share of direct and incremental losses.
The President shall reduce the $4,500,00,000 specified in subsection
(b)(2)(A)(i) by the amount set aside under this subsection.
    (2) Distribution of Amounts.--The President shall distribute the
amount set aside under this subsection proportionally among such air
carriers based on an appropriate auditable measure, as determined by
the President.

Under the statutory language, use of this set-aside authority is
discretionary (``The President may set aside * * *''). Neither the
statute nor the Conference Report provides any guidance concerning the
appropriate size of such a set-aside, the methodology for
proportionally allocating any funds set aside, or the identity of any
other ``classes'' of air carriers that could be included in it, if the
President chooses to use the authority.
    The Department is considering using the discretion provided by
section 124(d) of the Transportation Security Act to set aside a
portion of the $4.5 billion compensation available for passenger
carriers for air tour operators, air ambulances and other classes of
air carriers for whom application of an ASM-based compensation formula
would inadequately reflect their share of direct and incremental
losses. The Department does not have sufficient information to
determine whether to create such a set-aside at this time, which
classes of carriers a set-aside would cover, what the appropriate size
of such a set-aside would be, or how any funds set aside should be
allocated. While we have some information about the situation of air
ambulances, we have little information about the situation of other
classes of air carriers to which such a set-aside could apply.
    Both because of this lack of information and our desire to avoid
delays in distributing the second increment of compensation funds to
carriers, the Department did not make a determination, for purposes of
today's final rule, about whether to create a set-aside. After this
second increment of funds is distributed, approximately 15 percent of
the authorized $4.5 billion will remain. This should be more than
enough to use for the purpose of compensating carriers who would be
subject to such a set-aside. If the Department decides to implement a
set-aside, we would do so in connection with the third increment of
compensation funds. To help the Department decide whether to implement
a set-aside, the Department requests information concerning whether
there are classes of air carriers for whom application of an ASM-based
compensation formula would inadequately reflect their share of direct
and incremental losses for which use of this set-aside authority would
be appropriate. This information should pertain to classes of carriers,
not just to individual carriers, and concern such subjects as the type
of operations conducted by a class of carriers and the reasons why use
of the statute's general approach to compensation is inadequate for the
class. Commenters should note that the statute's general approach does
not assure that all losses attributable to the terrorist events will be
compensated; because of the statute's default provision to the ASM
formula, the vast majority of passenger carriers are scheduled to
receive compensation well below their claimed losses.
    If the Department were to establish a set-aside, there are a number
of possible ways that funds from the set-aside could

[[Page 264]]

be allocated. In its comment, the Association of Air Medical Services
(AAMS) recommended that the Department calculate lost volume by
comparing the flight volume of August and September 2001, multiplying
the difference by the average revenue per flight, and extrapolating the
result to the industry as a whole. AAMS suggested that the functional
equivalent of ASMs (i.e., as a measurement of capacity) could be
calculated by multiplying the average number of seats in air ambulances
aircraft (six) times the average speed of the aircraft (150 m.p.h.)
times the hours per day it is staffed and ready (24). This, AAMS
suggested, would create a reasonable approximation of the capacity of
an air ambulance aircraft per day. This suggestion, a variation of it,
or some other surrogate for ASMs could be one possible approach to
distribution of compensation under a set-aside.
    Subsequent to the enactment of the Transportation and Aviation
Security Act, AAMS and the air carrier MEDjet approached the Department
separately with alternative approaches for compensating air ambulances,
that do not rely on ASM's as a factor. These proposed alternative
approaches are derived from the Medicare Fee Schedule, which both AAMS
and MEDjet propose could be used as a benchmark for determining lost
revenue based on lost volume. Both AAMS and MEDjet propose that the
lost revenues for an air ambulance could be determined by taking a base
rate for each lost trip and adding that amount to the product of the
lost miles for that trip and a fixed mileage rate. The base rate and
the mileage rate would be derived from the Medicare Fee Schedule. Both
AAMS and MEDjet proposed a different, limited period of time to be used
for calculating lost trips as well as different base rate and mileage
rate figures. One disadvantage to these approaches is that they may not
be readily adaptable to use for air tour operators or other classes of
carriers.
    Another approach could be to calculate the average percentage of
documented direct and incremental losses that applicant carriers have
received in compensation. We could then apply that percentage to the
direct and incremental losses that carriers in the class or classes
subject to the set-aside could document. For example, if on average all
carriers were eligible, under the statutory formula, for compensation
equivalent to 60 percent of their documented losses, the Department
could compensate carriers participating in the set-aside for 60 percent
of their documented losses.
    The Department seeks comments on these or other approaches that the
Department could use to allocate funds from a set-aside, as well as on
the underlying question of whether the Department should use its
discretionary authority to establish a set-aside in the first place.
    The Department will keep the docket open for 14 days to receive
comments on this set of issues. If the Department decides to establish
a set-aside, we would amend Part 330 in the future to provide
application instructions for carriers who sought compensation under the
set-aside.

Regulatory Analyses and Notices

    This request for comments pertains to an underlying rule (49 CFR
Part 330) that is significant for purposes of Executive Order 12886 and
the Department of Transportation's rulemaking policies and procedures.
If the Department decides to undertake further rulemaking after
reviewing comments, the Department will follow applicable provisions of
these requirements.
    If the Department proceeds with further rulemaking on the subject
of this notice, the rulemaking may have a significant economic effect
on a substantial number of small entities. Among the entities in
question are air ambulances and other classes of air carriers that
include small entities. In analyzing small entity impact for purposes
of the Regulatory Flexibility Act, we believe that, to the extent that
the use of the Department's set-aside authority impacts small air
carriers, the impact will be a favorable one, since it will consist of
receiving additional compensation. The Department has also concluded
that this rule does not have sufficient Federalism implications to
warrant the consultation requirements of Executive Order 13132.

List of Subjects in 14 CFR Part 330

    Air carriers, Grant programs--transportation, Reporting and
recordkeeping requirements.

    Issued this 26th day of December, 2001, at Washington, DC.
Read C. Van de Water,
Assistant Secretary for Aviation and International Affairs.
[FR Doc. 01-32177 Filed 12-27-01; 4:28 pm]
BILLING CODE 4910-62-P