This edition of the Cozen O’Connor Aviation Regulatory Update discusses the Justice Department’s antitrust lawsuit against United Airlines and Delta Air Lines seeking to block the carriers’ proposed slot swap at Newark, DOT’s ban on electronic smoking devices in checked baggage, DOT and the FAA’s planned registration requirements for drones/unmanned aircraft, the FAA’s new safety compliance philosophy, new FAA rules on production certificates and approvals, APHIS final rules on agricultural quarantine and inspection services, a Congressional hearing on TSA security oversight, and the latest DOT and FAA enforcement actions.

Department of Justice

Justice Department Files Antitrust Lawsuit Against United and Delta to Stop Newark Slot Swap

The Department of Justice announced that it has filed a civil antitrust complaint against United Continental Holdings Inc., parent of United Airlines, and Delta Air Lines to block United’s planned acquisition from Delta of 24 takeoff and landing slots at Newark, which DOJ alleges would increase United’s “already dominant position at the airport” and “strengthen a barrier” to other airlines that wish to compete with United at Newark. DOJ alleged that United extracts a “Newark premium,” with airfares at the airport among the highest in the U.S., while providing service that DOJ says “ranks among the worst.” The complaint also contends that United is “sitting” on many of its slots in order to deliberately limit its Newark service, operating only 386 daily roundtrip flights when its slots would allow it to operate 451 flights. DOJ stated that United’s unused slots are greater than the number of slots available to any single competitor, and that United was sitting on the “key asset needed to compete” while trying to acquire even more slots. According to the complaint, United controls 73 percent of the slots the FAA has allocated to carriers at the airport – over 10 times more slots than its closest competitor. DOJ asserted that United’s acquisition of more slots at Newark would “fortify United’s monopoly position, and weaken rivals’ ability to challenge that dominance, leaving consumers to pay the price.” In remarks regarding the lawsuit, Assistant Attorney General Bill Baer said the lawsuit charges United with “trying to maintain and enhance its monopoly position at Newark” in violation of Section 2 of the Sherman Act, and charges United and Delta with violating Section 1 of the Sherman Act by “entering into an agreement that restrains trade.”

The DOJ complaint also cites a joint letter submitted recently by Alaska Airlines, Allegiant Air, Frontier Airlines, Spirit Airlines, and Virgin America to DOT Secretary Anthony Foxx and FAA Administrator Michael Huerta urging DOT/FAA to finalize a proposed rule that would amend current slot management rules at slot-controlled New York City area airports. In the letter, the carriers expressed strong support for DOT/FAA proposals that would tighten slot utilization rules by requiring carriers to maintain at least 80 percent usage of each slot based on “the same flight or series of flights”; ensure that “new entrant” air carriers that operate fewer than 20 slots per day be given priority in any distribution of slots; develop a “robust secondary market” for the transparent trading of slots; and allow DOT to review standalone slot transactions that raise competitive or public interest issues. The carriers contend that such rules are necessary to mitigate the dominance of the three large incumbent airlines, American Airlines, Delta Air Lines, and United Airlines, at the New York airports. The carriers told DOT/FAA that they “have been frustrated in their attempts to obtain slots at commercially viable times of the day to provide needed new service and competition at the NYC Airports.”

Department of Transportation

Regulatory

DOT/PHMSA Issues Interim Final Rule Banning Electronic Smoking Devices in Checked Baggage

DOT’s Pipeline and Hazardous Materials Safety Administration (PHMSA) issued an interim final rule prohibiting the carriage of battery-powered portable electronic smoking devices (e.g., e-cigarettes, e-cigs, e-cigars, e-pipes, personal vaporizers, electronic nicotine delivery systems) in passenger and crew members’ checked baggage due to the potential fire hazard. The rule also prohibits passengers and crew members from charging the devices and/or batteries used for the devices onboard aircraft. Passengers and crewmembers may continue to carry such devices in carry-on baggage or on their person but may not use them on flights. The interim final rule became effective on November 6, 2015.

DOT Creates Task Force to Develop Unmanned Aircraft (Drone) Registration Requirements

DOT announced the creation of a task force to develop recommendations for an Unmanned Aircraft Systems (UAS) registration process. The task force, comprised of 25 to 30 representatives from both the UAS and other aviation industries, federal agencies, and other stakeholders, will advise DOT on which types of UAS should be subject to registration requirements and provide recommendations for a streamlined registration system. The registration requirement will address the alarming increase in unsafe UAS operations, including incidents involving manned aircraft and interference with wildfire operations. The task force is required to submit a report with recommendations to DOT by November 20, 2015.

Enforcement

DOT Denies Kuwait Airways’ Request for Reconsideration of Passenger Discrimination Findings and Review of Staff Action

DOT sent a letter to Kuwait Airways denying its request for reconsideration of DOT’s finding that the airline violated U.S. anti-discrimination laws and possibly U.S. anti-boycott laws by refusing to transport an Israeli citizen on a flight between the United States and the U.K. DOT stated that the carrier provided “no new information or arguments” that would persuade DOT to modify its findings of discrimination, and that its September 30, 2015, letter to Kuwait Airways was a “final agency decision.” (See the September 2015 edition of the Cozen O’Connor Aviation Regulatory Update for information regarding DOT’s September 30, 2015 letter to Kuwait Airways). DOT ordered Kuwait Airways to “cease and desist” from refusing to provide air transportation to Israeli citizens between the U.S. and any third country where they are allowed to disembark based on the laws of that country. DOT cautioned that if the carrier fails to comply with this requirement, DOT would “pursue further administrative and/or judicial action.” Counsel for Kuwait Airways submitted a response letter to DOT last month asserting that DOT’s discrimination determination was inconsistent with DOT’s statutory authority, relevant precedent, international agreements and law, and U.S. case law, and stated that Kuwaiti law prohibits the airline from selling tickets to, or transporting, Israeli citizens/passport holders. The carrier said that its policy merely “distinguishes passengers based upon their citizenship” rather than on racial or ethnic characteristics and that U.S. legal precedent permitted citizenship-based distinctions. On November 2, 2015, Kuwait Airwayspetitioned DOT for review of staff action, calling DOT’s decision to uphold its finding of discrimination “arbitrary and capricious, an abuse of discretion, made without observance of procedure required by law, and otherwise not in accordance with law.” On November 9, 2015, DOT’s Office of the General Counsel issued a letter denying the carrier’s petition, stating that further review of the Department’s prior determination was “unnecessary” and again ordering Kuwait Airways to “cease and desist from its unlawful discrimination” and asserting that DOT expected the carrier to “comply promptly.”

DOT Issues Consent Order Against American Airlines for Alleged Violations of 24-Hour Reservation Hold Rule

DOT issued a consent order alleging that American Airlines violated DOT’s 24-hour reservation hold rule and ordering the carrier to cease and desist, but assessing no civil penalties. American displayed erroneous fares when it advertised U.S.-China business class fares on its website for a base fare of $0 or $20, prompting 1,194 reservations to be made, with 605 of those reservations placed on 24-hour hold. While American honored the 589 tickets that had been fully purchased, it canceled the 605 tickets that were on hold prior to the expiration of the required 24-hour hold period. Responding to more than 100 complaints, DOT’s Enforcement Office concluded that by canceling the reservations before the expiration of the 24-hour hold period, American violated its customer service plan’s 24-hour hold provisions required under 14 C.F.R. § 259.5(b)(4), as well as the statutory prohibition against unfair and deceptive practices (49 U.S.C. § 41712). In mitigation, American told DOT that the mistaken fares were purchased and reserved after consumers learned of the fares through social media, and that the social media postings regarding the mistaken fares showed “an intent to cheat, as many consumers knew the fares were not valid.” American asserted that the proliferation of social media sites publicizing mistaken fares has resulted in consumers purchasing such fares in bad faith, and stated that DOT regulations and guidance should not be used to reward consumers who purchase mistaken fares in bad faith. In settlement with DOT, American agreed to compensate the holders of cancelled reservations by offering them either a zero dollar economy class ticket (plus applicable taxes and fees), or a reduced price business class ticket, for air transportation between the same city pairs covered by the cancelled reservations.

DOT Assesses $10,000 in Civil Penalties Against Middle East Airlines Airliban for Alleged Full-Fare Advertising Violations

DOT issued a consent order assessing $10,000 in civil penalties against Middle East Airlines Airliban (MEA) for alleged violations of DOT’s full-fare advertising regulations. DOT said the carrier misrepresented carrier-imposed surcharges as “taxes” during the online booking process on its “U.S.-directed” website. The consent order was issued in response to a third-party complaint brought by Benjamin Edelman against the carrier for “mischaracterizing a carrier-imposed fee or surcharge as a ‘tax’ in violation of the Department’s regulations.” MEA argued that enforcement action was unwarranted because any mischaracterization of a tax, fee, or surcharge by the carrier was “inadvertent, and likely resulted from ongoing technical upgrades to the carrier’s website.” The carrier also asserted that DOT lacked jurisdiction because MEA does not have any DOT-issued economic authority and MEA’s website is not “marketed to U.S. consumers.” However, DOT ruled that even without economic authority, MEA is a ticket agent because it “sells, offers for sale, negotiates for, or holds itself out as selling, providing, or arranging for, air transportation” and is thus subject to DOT’s full-fare advertising rules. DOT also found the carrier’s website to be marketed to U.S. consumers because: (1) the default language for the carrier’s website when accessed in the United States is English; (2) the displayed prices are in U.S. dollars; (3) MEA has nine U.S. airports for a consumer to select as the departure city for a flight; (4) MEA maintains two offices in New York and Los Angeles, with local telephone numbers listed on MEA’s website for each office; and (5) MEA lists eight U.S. cities as destinations on its website’s route map. DOT ordered MEA to pay $5,000 within 30 days, with the remaining $5,000 due and payable if MEA violates the order’s cease and desist provisions within one year of the date of issuance of the order or fails to pay the civil penalty.

Federal Aviation Administration

Regulatory

FAA Announces New Safety Compliance Philosophy

FAA Administrator Michael Huerta announced that the FAA has developed a new Compliance Philosophy to enhance its ability to detect safety problems before they result in an incident or accident, use the most beneficial approach to address those problems, and monitor the situation to ensure that no new problems develop. Huerta stated that the new philosophy “encourages an open and transparent exchange of information and data between the FAA and industry.”

FAA Issues Final Rule Amending Requirements for Production Certificates and Approvals

The FAA issued a final rule amending its certification procedures and marking requirements for aeronautical products and articles. The final rule requires production approval holders (PAHs) to identify to the FAA “an accountable manager” responsible for production operations and who serves as a primary contact for the FAA. The rule also permits PAHs to issue authorized release documents for aircraft engines, propellers, and articles; allows production certificate holders to manufacture and install interface components; and requires PAHs to ensure that each supplier-provided product, article, or service conforms to the PAH’s requirements and establish a supplier-reporting process for products, articles, or services that have been released from or provided by the supplier and subsequently found not to conform to the PAH’s requirements. The final rule is effective on March 29, 2016.

FAA Publishes Random Drug and Alcohol Testing Percentage Rates for 2016

The FAA published a notice retaining the current minimum drug and alcohol testing rates of 25 percent of safety-sensitive employees for random drug testing and 10 percent of safety-sensitive employees for random alcohol testing for the period January 1, 2016, through December 31, 2016. The FAA decided to retain the current testing rates based on the 2014 random drug test positive rate of 0.534 percent and the 2014 random alcohol test violation rate of 0.106 percent.

FAA Clarifies Applicability of Aircraft Registration Requirements for Unmanned Aircraft (Drones); Requests Information Regarding Electronic Registration for UAS

 The FAA issued a clarification statement regarding the applicability of aircraft registration requirements to unmanned aircraft systems (UAS), including those operated as model aircraft. The FAA also requested information and recommendations regarding what “platform” should be used for UAS registration and how it can minimize the registration burden for UAS operators. Both DOT and the FAA are currently evaluating options for an electronic-based registration system for small UAS (see the related article above). The FAA requested that registration-related information and recommendations be submitted by November 6, 2015. The FAA’s basis for considering new registration requirements for UAS has been driven by the increased reporting of unsafe UAS operations, the lack of awareness of UAS operators regarding what constitutes safe UAS operations in the NAS, and the current inability of the FAA to identify UAS and their operators to ensure accountability for responsible UAS use. Both DOT and the FAA believe that aircraft identification and marking will assist in identifying UAS owners operating in an unsafe manner, so that they may be subject to enforcement action.

FAA Enters Into “Pathfinder” Agreement to Evaluate How Technology Can Detect UAS Activity near Airports

The FAA announced that it has entered into a “Pathfinder” agreement with CACI International Inc. to evaluate how the company’s technology can help detect UAS activity near airports. CACI’s prototype UAS sensor detection system will be evaluated at airports selected by the FAA to determine the effectiveness of the technology. Pathfinder is a framework for the FAA to work closely with industry to identify the next steps in UAS operations beyond those proposed last February in the FAA’s proposed small UAS rule.

FAA Initiates Review of Helicopter Safety

The FAA announced that it has requested the Aviation Rulemaking Advisory Committee’s Rotorcraft Occupant Protection Working Group to review airworthiness standards for older helicopter type designs in response to helicopter operators’ inability to reduce the number of fatal accidents and to find solutions to provide helicopter occupants with the greatest possible chance of surviving an emergency landing or accident. The FAA has found that as of the end of 2014, only 16 percent of the U.S. helicopter fleet included crash-resistant fuel systems and only 10 percent had energy absorbing seats. The Rotorcraft Occupant Protection Working Group will provide the FAA with three reports over the next 6-to-24 months.

FAA Updates Schedule of Charges for FAA Services Outside the U.S

The FAA published a notice announcing a new Advisory Circular 187-1J, which provides an updated schedule of charges for services performed by the FAA’s Flight Standards Service outside the United States. These services include airman certification for pilots, flight engineers, flight navigators, aircraft dispatchers, and mechanics certified under Parts 61, 63, and 65; air agency certification under Parts 141, 142, 145, and 147; and certification of designated representatives under Part 183. The advisory circular and the revised charges became effective on October 1, 2015.

FAA Upgrades IASA Safety Rating for Nicaragua

The FAA issued a release upgrading Nicaragua to a Category 1 safety rating under the FAA’s International Aviation Safety Assessment (IASA) program and stating that Nicaragua complies with ICAO safety standards. The FAA based its upgrade on a June 2015 FAA assessment of the safety oversight provided by the Nicaraguan Institute of Civil Aviation (INAC). Nicaragua had been under a Category 2 rating since 1994, when the FAA found the country either lacked laws or regulations necessary to oversee air carriers in accordance with minimum international standards.

Enforcement

FAA Proposes Largest Civil Penalty So Far Against UAS (Drone) Operator

The FAA issued a release proposing a $1.9 million civil penalty against SkyPan International, Inc. of Chicago, Illinois, for unsafe UAS operations. The FAA alleged that between March 21, 2012, and December 15, 2014, SkyPan performed 65 unauthorized UAS operations in heavily congested airspace over New York City and Chicago, violating airspace regulations and operating rules. The FAA said that SkyPan operated 43 of the flights in New York Class B airspace without receiving an air traffic control clearance, and that SkyPan’s UAS lacked an airworthiness certificate and effective registration, did not have a Certificate of Waiver or Authorization for the operations, and was not equipped with a two-way radio, transponder, and altitude-reporting equipment.

FAA Takes Enforcement Action Against Unical Aviation for Alleged Hazmat Violations

The FAA issued a release proposing to assess $68,000 in civil penalties against Unical Aviation Inc. of the City of Industry, California, for alleged hazmat violations. According to the FAA, Unical knowingly offered undeclared Protective Breathing Equipment Units, each of which contained an oxygen generator chemical, to FedEx for shipment by air. The FAA alleges that the shipment was not accompanied by proper shipping papers, was not adequately packaged, marked or labeled as containing hazardous materials, and that Unical failed to provide emergency response information with the shipment.

Animal and Plant Health Inspection Service

APHIS Amends User Fees for Agricultural Quarantine and Inspection Services

USDA’s Animal and Plant Health Inspection Service (APHIS) issued a final rule amending its user fees for agricultural quarantine and inspection (AQI) services provided for commercial aircraft and international passengers arriving at U.S. airports. The user fee for international passenger AQI services was reduced from the current $5.00 per passenger to $3.96 per passenger based on changes to the model used by the agency for calculating its AQI reserve funds and the cost of AQI activities related to air passengers. The international air passenger user fee covers the costs for AQI services related to the inspection of passenger baggage and the oversight of the handling of regulated garbage generated on airplanes carrying passengers entering the United States. The commercial aircraft user fee was substantially increased from the current $70.75 per aircraft to $225.00 per aircraft based on increased aircraft-related inspection costs. The commercial aircraft user fee pays the costs of inspecting the aircraft itself, cargo, and the cargo hold, as well as the costs of monitoring aircraft disinfection if: (1) such services occur during the regular hours of service (8:00 a.m. to 4:30 p.m. Monday through Friday) or (2) inspection of the cargo is concurrent with inspection of the aircraft. Aircraft with 64 or fewer passenger seats that do not carry certain types of plant or meat products are exempt from the AQI commercial aircraft inspection fee. Airlines for America denounced the aircraft user fee increase as “unlawful” and urged APHIS to withdraw its “unjustified proposal to increase taxes on aircraft operators by 300 percent.” The final rule also imposes a new fee for APHIS-prescribed “treatments” for “pests of quarantine significance” when found upon inspection or for commodities that present high risk. Entities will be assessed the fee only if treatment is required and is performed in the United States and monitored by an APHIS inspector. The new $237 fee for such treatments will be phased in over a five-year period. The fee will be set initially beginning on December 28, 2015, at $47 and then rise to $95 in the second year, $142 in the third, $190 in the fourth, and $237 in the fifth year. The AQI fees have not been adjusted since FY 2010 and APHIS stated that they do not reflect the current cost of providing AQI services. The final rule and new fees become effective on December 28, 2015.

APHIS Increases Charges for Inspection Service Overtime

APHIS issued a final rule increasing the hourly rates charged for overtime work performed by APHIS employees to cover the “full cost” of providing agricultural inspection, laboratory testing, certification, or quarantine of regulated commodities or articles intended for importation into, or exportation from, the U.S. From FY 2016 through FY 2018, APHIS overtime charges will increase by $24 for inspection, testing, certification, or quarantine of animals or agricultural products performed outside APHIS employees’ regular work schedule (Monday through Saturday and holidays), by $33 for such work performed on Sundays outside the employees’ regular work schedule, by $24 for commercial airline inspection services that are performed outside of the regularly established hours of service on a holiday or any other period, and by $31 for commercial airline inspection services that are performed outside of the employees’ regularly established hours of service on a Sunday. FY 2016 rates will become effective on November 2, 2015, FY 2017 and FY 2018 rates will become effective on the first day of each of those fiscal years, and the FY 2018 rates will remain in effect until new rates are established.

Customs and Border Protection

CBP Issues Interim Final Rule on Automated Commercial Environment Filings for Electronic Entry of Cargo

CBP issued an interim final rule to replace the Automated Commercial System (ACS) currently used for processing electronic entry and entry summary filings submitted by importers and exporters for cargo entering the United States or being exported from the United States, with the Automated Commercial Environment (ACE) as the CBP-authorized Electronic Data Interchange (EDI) System used by shippers. The electronic information currently submitted via ACS and soon to be submitted via ACE is used by CBP and other government agencies to determine whether cargo may be released from CBP custody. The system handles cargo transported on all modes of transportation, including by air. By the end of February 2016, CBP plans to have ACE fully functional for filing entry and entry summaries so that ACS will no longer be available for entry filings. CBP will complete the development of core trade processing capabilities in ACE and completely decommission ACS capabilities by December 31, 2016. ACE will become the “single window” for processing trade data, and will serve as the primary system through which the international trade community will submit import and export data and CBP will determine admissibility. CBP encourages filers to “adjust their business practices” by filing in ACE as of the effective date of the rule and definitely before the end of February 2016, when CBP anticipates that ACS will no longer be supported for cargo entry and entry summary. The interim final rule became effective on November 1, 2015, and comments on the interim final rule were due on or before November 12, 2015.

Congressional Action Impacting Aviation

House Passes Highway Bill with Export-Import Bank Reauthorization Language

The House has passed the ”highway bill” to provide $325 billion for surface transportation projects over the next six years. Although the bill does little to affect the aviation industry, it includes a reauthorization of the Export-Import Bank. The bill was hotly debated and received no support from new Speaker of the House, Paul Ryan (R-Wis.), but inclusion of bill language authorizing the Export-Import Bank until 2019 is seen as a victory for those in the aviation industry that benefit directly from the agency’s loan guarantees. House and Senate negotiators will now seek to draft a final bill by November 20, 2015, when surface transportation funding is set to expire.

House Transportation and Infrastructure Committee to Focus on FAA Reauthorization Bill

With the highway bill moving towards completion, congressional leadership on transportation will focus on funding and programmatic changes at the FAA. Although the current FAA reauthorization extension will remain in place until March 31, 2016, that provides little time for the Senate and the House to craft an agreed-upon FAA reauthorization bill. It is expected that Chairman Bill Shuster (R-Pa.) of the House Transportation and Infrastructure Committee will take the lead on drafting a bill before the end of the year. Additional FAA-related hearings and briefings are likely to continue over the next few months as lawmakers focus on FAA reauthorization issues such as ATC reform, PFCs, and consumer protection issues.

House Oversight Committee Holds Hearing on TSA Security Gaps

The Government Accountability Office (GAO) has released a report that reveals troubling security gaps in the operations of the Transportation Security Administration (TSA). The report found that TSA has not consistently evaluated the overall effectiveness of new technologies prior to their adoption, or established performance measures that fully reflect the agency’s security oversight goals. The report was the main focus of a House Oversight Committee hearing during which lawmakers expressed their concerns about the report’s findings. Congressman John Mica (R-Fla.), an original author of the legislation that created the TSA, has become a staunch critic of the agency. The GAO report served as a follow up to a GAO report released earlier this year which documented TSA personnel’s failure to identify fake bombs in 67 out of the 70 tests that were conducted. GAO recommended that TSA do more to fully address congressional concerns about the effectiveness of TSA security oversight. Peter Neffenger, the recently appointed TSA Administrator, testified at the hearing and reiterated his commitment to resolving TSA operational issues.