UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY STAR MARIANAS AIR, INC., Complainant, v. COMMONWEALTH PORTS AUTHORITY, Respondent. Docket DOT-OST-2021-0138 RESPONDENT'S APPENDIX OF EVIDENCE Please serve: Scott P. Lewis Timothy J. Roskelley Mina S. Makarious Paul M. Kominers Ezra Dunkle-Polier ANDERSON & KREIGER LLP 50 Milk Street, 21 st Floor Boston, Massachusetts 02109 T: 617.621.6500 F: 617.621.6639 [email protected][email protected][email protected][email protected][email protected]Counsel for Commonwealth Ports Authority The Robert T. Torres TORRES LAW GROUP Plata Drive Whispering Palms (Chalan Kiya) P.O. Box 50375 CK Saipan, MP 96950 T: 670.234.7859 F: 670.234.5749 [email protected]November 5, 2021 SMA App. 001
Exh. CPA-4 — Email attaching 2016 Rate Study SMA App. 045
Exh. CPA-5 — Form of Operating Agreement SMA App. 047
Exh. CPA-6 — 9.2.17 BOD Minutes SMA App. 189
Exh. CPA-7 — Director’s Determination SMA App. 194
Exh. CPA-8 — 2015 Rate Study SMA App. 223
Exh. CPA-9 — Associate Administrator’s Final Agency
Decision
SMA App. 252
Exh. CPA-10 — Board Resolution No. 2021-05 SMA App. 268
Exh. CPA-11 — 6.28.21 NPRM SMA App. 271
Exh. CPA-12 — Termination Notice SMA App. 369
Exh. CPA-13 — AUA SMA App. 395
Exh. CPA-14 — Notice of Final Regulations SMA App. 460
Exh. CPA-15 — Letter to FAA re OPA SMA App. 467
Exh. CPA-16 — SMA AR Summary SMA App. 470
Declaration of Bonnie Ossege
SMA App. 474
Exh. CPA-17 — 2022 Rate Study SMA App. 486
Exh. CPA-18 — Rota Space Drawing SMA App. 514
SMA App. 002
1
UNITED STATES OF AMERICA
DEPARTMENT OF TRANSPORTATION
OFFICE OF THE SECRETARY
STAR MARIANAS AIR, INC.,
Complainant,
v.
COMMONWEALTH PORTS AUTHORITY,
Respondent.
Docket DOT-OST-2021-0138
DECLARATION OF SKYE HOFSCHNEIDER
I, Skye Hofschneider, declare as follows under the pains and penalties of perjury:
1. I have read the Complaint by Star Marianas Airlines, Inc. (“SMA”) in this
proceeding and offer this testimony in support of the Commonwealth Ports Authority (the
“Authority” or “CPA”). This testimony is based upon my personal knowledge.
2. I am the Comptroller at CPA. I have worked in this capacity for CPA for the past
eight years. In this role, I am responsible for the management and supervision of all phases of
CPA’s accounting. With respect to setting rates for the three airports in CPA’s airport system –
Saipan International Airport, Rota International Airport and Tinian International Airport
(collectively, the “Airports”) – my duties include managing our relationship with our outside
financial consultants, Ricondo & Associates (“Ricondo”), providing the information Ricondo
needs to calculate our airport rates and charges and reviewing their rate calculations. Before
being named Comptroller, I was the Accountant III for CPA. In my role as Accountant III, I was
responsible for performing accounting procedures involving specific phases of the accounting
function, including recording and reconciling expenditures, monitoring budgets, issuing check
payments, and processing purchase orders. I worked in this capacity for CPA from 2012 to
SMA App. 003
2
2013. I hold a Bachelor of Science degree in Accounting and a Master in Business
Administration degree with a concentration in Accounting.
3. SMA began offering air transportation to and from the Airports in 2009.
Currently, SMA operates commuter flights at all three airports. Saipan International Airport has
two passenger terminals, the “Main Terminal,” used by international carriers, and the
“Commuter Terminal,” which SMA uses. Rota and Tinian both have single terminals that are
utilized by SMA. Aircraft rescue and fire-fighting (“ARFF”) facilities are located at each
airport. All ARFF facilities are active, functional and available to provide calls and rescues to all
aeronautical users of the Airports, including SMA.
4. In 2015, CPA began to develop a new rate methodology for charging air carriers
for the use of the Airports. The impetus for the new rate methodology was an unsuccessful effort
by SMA to establish that the terminal fees that were being charged by CPA were excessive and
constituted an illegal “head tax” under the Anti-Head Tax Act (“AHTA”) because they were
assessed on a per-passenger basis – even though they were established in accordance with an
Airline Use Agreement & Lease of Premises (the “AUA”) between each of the air carriers,
including SMA, and CPA. SMA’s allegations were reviewed by the local Airports Division
Office (“ADO”) of the Federal Aviation Administration (“FAA”). On January 3, 2013, the ADO
rejected SMA’s excessive fees claim, finding that “the facilities of the airport are made available
to the public on reasonable terms without unjust discrimination” and “[t]herefore, CPA has not
violated the requirements of Grant Assurance 22 with regard to its access fee.” A true copy of
the ADO’s January 3, 2013 letter to CPA addressing “Excessive Fees for Use of Airport Space”
is attached to this Declaration as Ex. CPA-1. On the same day, FAA wrote separately to address
the AHTA allegations, finding that “the cost allocation methodology applied to the airport rates
and charges does not represent an illegal head tax,” but recommending that CPA change its rate-
setting terminology to avoid confusion in the future. A true copy of the ADO’s January 3, 2013
letter to CPA addressing “Use of Head Tax for Assessing Fees” is attached to this Declaration as
Ex. CPA-2.
SMA App. 004
3
5. Even though FAA rejected SMA’s claims, SMA continued to dispute the fees
charged to SMA under the AUA. As a result, in 2015 CPA contracted with Ricondo, a well-
respected national aviation consulting firm that had advised CPA on airport finance since 1999.
We asked Ricondo to develop a new compensatory rate methodology that would fairly distribute
costs among the air carriers serving the Airports in accordance with applicable FAA
requirements and compute terminal charges on the basis of square footage rather than passenger
head-counts. CPA also asked Ricondo to develop a new form of airline agreement, a short-term
operating agreement (the “Operating Agreement”), to implement the new rate methodology.
6. In 2015 and 2016, Ricondo developed a new compensatory rate methodology and
a new Operating Agreement to replace the existing AUA between CPA and the air carriers
serving the Airports, including SMA.
7. During July and November 2016, CPA and Ricondo representatives met with the
air carriers serving the Airports to explain the new rate methodology and the new Operating
Agreement. We had at least two meetings with SMA: one on July 19, 2016 and a later one on
November 17, 2016.
8. Prior to the July 19 meeting, CPA provided SMA with a detailed written
explanation of the new rate methodology developed by Ricondo titled “Projected Airline Rates
and Charges Methodology for Commonwealth Ports Authority” dated July 13, 2016 (the “2016
Rate Study”). A true copy of the 2016 Rate Study is attached to this Declaration as Ex. CPA-3.
A true copy of an email dated July 15, transmitting the 2016 Rate Study to SMA, is attached to
this Declaration as Ex. CPA-4.
9. When we met with SMA on July 19, 2016, CPA and Ricondo presented the new
rate methodology and answered whatever questions SMA asked. I attended this meeting with
my colleagues Joy Deleon Guerrero, Edward Mendiola and Christopher Tenorio from CPA and
our financial consultant, Bonnie Ossege, from Ricondo. Shaun Christian and Rowena Advincula
represented SMA at this meeting.
SMA App. 005
4
10. I also attended the November 17, 2016 meeting with SMA, with Joy Deleon
Guerrero and Brian Flaherty (one of our lawyers) from CPA and Bonnie Ossege from Ricondo
(remotely). This time SMA was represented by Robert Christian, Shaun Christian and their
lawyer, Timothy Bellas. During this meeting, CPA presented the new form of “Operating
Agreement.” The new rate methodology, as well as projected rates for Fiscal Year 2017
calculated using the new rate methodology, were displayed in Exhibit E to the form of Operating
Agreement we shared with SMA at that time. A true copy of the form of Operating Agreement
we provided to SMA is attached to this Declaration as Ex. CPA-5. We again answered whatever
questions SMA asked.
11. It was apparent during our November 17 meeting that SMA had carefully
reviewed the 2016 Rate Study. SMA raised two primary objections to the new rate
methodology: (1) that the allowance for ARFF facilities should be based on fair market value
instead of actual costs; and (2) that SMA should not be charged for security screening and
circulation space that was not used by SMA’s passengers. SMA requested that, instead of
moving forward with the new rate methodology, CPA work with SMA and the Commonwealth
of the Northern Mariana Islands Legislature to develop a rate methodology that would further
reduce the costs of commuting between the islands, thereby advancing local interests.
12. SMA was the only air carrier serving the Airports that refused to accept the new
rate methodology and execute the form of Operating Agreement we had proposed. SMA stated
to me and others at CPA that they would provide a letter explaining their objections, but no such
letter was ever received by CPA.
13. Nevertheless, in response to SMA’s refusal to sign the Operating Agreement, the
Authority’s Board of Directors delayed the implementation of the Operating Agreement and new
rate methodology.
14. On August 22, 2017, Robert Christian, Board Chair at SMA, made a presentation
to the Authority’s Board of Directors. I attended the meeting and witnessed his presentation. A
true copy of an excerpt of the minutes from the August 22, 2017 Board of Directors meeting with
SMA App. 006
5
Mr. Christian’s presentation is attached to this Declaration as Ex. CPA-6. During his
presentation, SMA’s Board Chair admitted that CPA has the right to charge new fees calculated
using the compensatory rate methodology Ricondo developed and documented in the 2016 Rate
Study. Mr. Christian urged, however, that CPA should instead develop a rate methodology that
would further reduce the costs for airlines, such as SMA, that operate commuter flights to and
from Tinian Island and Rota Island. Ex. CPA-6 at 11.
15. Following that meeting, the Authority’s Board of Directors continued for four
years to delay implementation of the new rate methodology and the Operating Agreement as a
result of objections SMA raised to the Legislature over the impact of the new rate methodology
on commuter airfares. Throughout this time, SMA pursued a relentless, but unsuccessful legal
campaign to challenge the rates and fees charged by CPA for its use of our Airports. SMA has
filed rate challenges in federal court, in our local court and with the FAA. These efforts have all
failed, including SMA’s formal complaint to the FAA under 49 C.F.R. Part 16. In May 2020,
the FAA’s Director of Airport Compliance and Management Analysis (the “Director”) dismissed
every allegation in SMA’s Part 16 complaint. A true copy of the Director’s Determination is
attached to this Declaration as Ex. CPA-7. The Director’s findings included a review of
Ricondo’s rate methodology which led the Director to conclude that “nothing in these documents
appears to conflict with acceptable methodologies for establishing airport rates and charges with
airlines” and that the “Ports Authority’s compensatory methodology used to establish the
airport’s rates and charges, and fees is fair and reasonable.” Ex. CPA-7 at 13. A true copy of the
Ricondo rate study reviewed by the Director is attached to this Declaration as Ex. CPA-8. The
compensatory rate-setting methodology described by Ricondo in the rate study reviewed by the
FAA is essentially the same as the method Ricondo used to calculate the fees that are in dispute
in this proceeding. The Director’s Determination was upheld by the Associate Administrator for
Airports. A true copy of Associate Administrator’s Final Agency Decision is attached to this
Declaration as Ex. CPA-9.
SMA App. 007
6
16. Before it brought the present proceeding before the Department, SMA’s most
recent lawsuit against CPA challenging our rate-setting was filed in the Superior Court of
Commonwealth on the Northern Mariana Islands in December 2020. CPA has moved to dismiss
SMA’s complaint and a decision on that motion is pending.
17. On May 27, 2021, the Authority’s Board of Directors decided to move forward
with the new rate methodology and adopted Board Resolution No. 2021-05. This resolution
authorized the implementation of Ricondo’s new rate methodology “through the termination of
the existing Airline Use Agreements, the promulgation of amendments to the Authority's Airport
Rules and Regulations, and the issuance of new Operating Permits.” Resolution 2021-05
required CPA to provide the public 30 days’ notice to comment on the proposed amendments to
the Airport Rules and Regulations and, after considering any comments, “on October 1, 2021,
the Authority shall terminate any existing Airline Use Agreement, make effective the Authority's
amendments to the Airport Rules and Regulations, and proceed to issue Operating Permits to
airlines operating at its Airports.” A true copy of Board Resolution No. 2021-05 is attached to
this Declaration as Ex. CPA-10.
18. On June 28, 2021, notice of the proposed amendments to the Airport Rules and
Regulations was published in the Commonwealth Register. A true copy of the published notice
of the proposed amendments is attached to this Declaration as Ex. CPA-11.
19. On August 25, 2021, CPA sent written notice to SMA by hand delivery,
terminating the AUA and instituting the new rate methodology through regulation, effective
October 1, 2021. A true copy of the notice given to SMA on August 25, 2021 is attached to this
Declaration as Ex. CPA-12.
20. Termination of the AUA was consistent with and permitted by Section 6.01 of the
AUA. Section 6.01 provides: “This Agreement may be terminated as of September 30th in each
year by written notice from either party to the other given on or before August 31st of the year.”
A true copy of the AUA between CPA and SMA is attached to this Declaration as Ex. CPA-13.
SMA App. 008
7
21. On August 28, 2021, notice of certification and adoption of the proposed
amendments to the Airport Rules and Regulations was published in the Commonwealth Register.
A true copy of the August 28, 2021 notice is attached to this Declaration as Ex. CPA-14.
22. On September 3, 2021, at SMA’s request, CPA sent SMA a detailed breakdown
of the airfield and terminal costs used in calculating the rates for all three Airports.
23. In ¶ 55 of its Complaint, SMA alleges that CPA is unlawfully diverting airport
revenue to the Commonwealth Treasurer by paying one percent (1%) of the Authority’s
operating budget to the CNMI Office of the Public Auditor (“OPA”). I am not a lawyer and
offer no opinion on whether or not such payments, if they were made, would constitute unlawful
airport revenue diversion. The Authority has been communicating with regional officials of the
FAA to resolve any concerns about the propriety of such payments. A true copy of a letter from
CPA to the FAA seeking FAA’s guidance is attached to this Declaration as Ex. CPA-15. The
Authority has not actually made any such payments to the OPA for at least the past 15 years and
does not plan to make such a payment to OPA in FY 2022 unless the FAA advises that it would
be lawful to do so. The budget that Ricondo used to calculate the Fiscal Year 2022 rates
contained an allowance for such a payment to the OPA of $126,239 in the event that the FAA
advises such a payment is lawful. If the FAA advises such a payment is not lawful, a credit to
the airlines will be included in the year-end reconciliation of budgeted to actual costs for the
year. With respect to alleged payments to the OPA in Fiscal Years 2018-2021, the OPA
contribution was budgeted as an expense, but CPA has not made any such payments to the OPA.
If the FAA advises that payments under our local legislation are not lawful, CPA will reconcile
historical budgeted OPA expenses with the airlines, as appropriate.
24. As of the date of this declaration, SMA has not paid CPA any fees (other than
Passenger Facility Fees or “PFCs”) for its use of the terminals at the Airports since March 2015,
and SMA has not paid CPA any landing fees for its use of the airfields at the Airports since May
2015. As of November 1, SMA’s outstanding balance is $2,606,428.09 for use of the airfields
SMA App. 009
SMA App. 010
Exhibit CPA-1
SMA App. 011
SMA App. 012
Exhibit CPA-2
SMA App. 013
SMA App. 014
Exhibit CPA-3
SMA App. 015
Ricondo & Associates, Inc. (R&A) prepared this document for the stated purposes as expressly set forth herein and for the sole use of the Commonwealth Ports Authority and its intended recipients. The techniques and methodologies used in preparing this document are consistent with industry practices at the time of preparation. Ricondo & Associates, Inc. is not registered as a municipal advisor under Section 15B of the Securities Exchange Act of 1934 and R&A does not provide financial advisory services within the meaning of such Act.
Projected Airline Rates and Charges Methodology for Commonwealth Ports Authority Saipan Internat ional A i rport , Rota Internat iona l A i rport , T in ian Internat iona l A i rport
PREPARED BY :
RICONDO & ASSOCIATES, INC. Scr ipps Center |312 Walnut Street |Suite 3310, Suite 1700
4. Terminal Space ......................................................................................................................................... 4
6. Debt Service .............................................................................................................................................. 6
8. Airline Rates and Charges ....................................................................................................................... 8
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SMA App. 017
1.1 Introduction
This document has been created to summarize the rate-making methodology to be utilized by the Commonwealth Ports Authority (the Authority) for the airlines serving Saipan International Airport, Rota International Airport, and Tinian International Airport (collectively known as “the Airport System”). This document is for discussion purposes only. Neither the Authority nor any of the airlines will be bound by any of the provisions of this document until an Operating Agreement has been fully executed. This document presents projected airlines rates and charges resulting from the operation of the Airport System by the Authority. The projected airline rates and charges methodology presented herein is based on the provisions and articles in the Operating Agreement and incorporates the estimated rates and charges impacts associated with both the day-to-day operations of the Airports, as well as undertaking capital projects during the time period covered in this document.
Included in this document are revenues and expenses for Fiscal Year (FY) 2016 Budget and Projected FY 2017 through FY 2020 (the Projection Period). The Authority’s FY is the twelve-month period ending September 30th in each year. These projections are based on a review of historical financial operations, estimated future aviation activity levels, discussions with Authority staff and the impacts of the projected Capital Improvement Program (CIP). This report also includes estimated airlines rates and charges, airline cost per enplanement, Airport cash flow, and debt service coverage for the Series A 1998 bonds.
The Authority has developed a rate-making methodology that is primarily compensatory in nature. It is recognized by the Authority that, with the current financial circumstances in which the Airlines are operating, along with transitioning to operating and maintaining a new airport facility, the business arrangement should reflect the fact that both the Airlines and the Authority are working together to provide adequate facilities at the Airports that do not create an unreasonable burden to the Airlines financially. The proposed business arrangement includes the following key elements.
A “cost center residual” landing fee rate for the Airfield Cost Center using total landed weight as the divisor.
A “cost center compensatory” average terminal rental rate for the Terminal Cost Center using total rentable square feet as the divisor.
Cost centers have been developed that are consistent with industry practices.
As a result of these assumptions and other described later in this report, the projected impacts to the Airlines for Budget FY 2016 and the Projection Period under the Operating Agreement are shown in Table 1.
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SMA App. 018
(Fiscal Year Ending September 30)
Estimated Budget
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Old Methodology Rates:
Facility Service Charges
Saipan Main Terminal:
Signatory - Per Enplaned Passenger $9.07
Nonsignatory - Per Enplaned Passenger (150%) $13.61
Signatory - Per Deplaned Passenger $2.20
Nonsignatory - Per Deplaned Passenger (150%) $3.30
Saipan Commuter Terminal:
Signatory - Per Enplaned Passenger $3.35
Nonsignatory - Per Enplaned Passenger (125%) $4.19
Rota:
Signatory - Per Enplaned Passenger $4.95
Nonsignatory - Per Enplaned Passenger (150%) $6.19
Tinian:
Signatory - Per Enplaned Passenger $4.95
Nonsignatory - Per Enplaned Passenger (150%) $6.19
Per Use Fee - Ticket Counters and Queuing $52.99 $55.10 $57.38 $59.67 $62.09
Per Use Fee - Holdrooms/Gates $371.59 $386.43 $402.39 $418.45 $435.45
Debt Service Coverage 1.92 1.85 1.81 1.79 1.76
Cost Per Enplanement $12.59 $12.96 $13.35 $13.74 $14.15
Source: Commonwealth Ports Authority and Ricondo & Associates, Inc.
Prepared by: Ricondo & Associates, Inc.
Table 1 Rates and Charges Summary
PROJECTED
(FY 2015 - Saipan RCModel_Budget 2016 - 7/13/2016)Page 4 of 29 PREPARED ON 07/13/2016
SMA App. 019
The remainder of this document is presented under the following headings:
Financial Structure Activity Projections Terminal Space Debt Service PFC Revenue Operating Expenses Non-Aviation Revenues Airline Rates and Charges
1.2 Financial Structure
Expenses, Debt Service and Capital Expenditures of the Authority are categorized into Cost Centers. The Authority utilizes the cost center structure described below, which is consistent with industry standards.
The Authority has identified the following Direct Cost Centers:
Airfield. The Airfield cost center includes the portion of the Airports provided for the landing, taking off, and taxiing of aircraft, including runways, taxiways, approach and runway protection zones, safety areas, infield areas, landing and navigational aids, and land areas required by or related to aeronautical use of the Airports.
Main Terminal. The Main Terminal cost center includes the Saipan International Airport main terminal passenger building and associated curbside entrance areas and adjoining landscaped areas. This cost center also includes the aircraft aprons at the Main Terminal.
Commuter Terminal. The Commuter Terminal cost center includes the Commuter Terminal building and associated curbside entrance areas, and aircraft aprons at the Commuter Terminal.
Rota Terminal. The Rota Terminal cost center includes the Rota Terminal building, associated curbside entrance areas, and aircraft aprons at the Rota Terminal.
Tinian Terminal. The Tinian Terminal cost center includes the Tinian Terminal building, associated curbside entrance areas, and aircraft aprons at the Tinian Terminal.
Indirect Cost Centers have expenditures that will be allocated to Direct Cost Centers:
ARFF. The ARFF cost center includes all aircraft rescue and firefighting functions of the Airport System.
Security. The Security cost center includes all functions of the Airport System related to security. Administrative. The Administrative cost center includes the administrative functions of the Airport
System.
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SMA App. 020
For 2016, Operating Expenses in indirect cost centers will be allocated on the following basis.
Allocation of Indirect Operating Expenditures
Budget PROJECTED
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Allocation % for Saipan ARFF Operating Expenses:
Main Terminal 39% 39% 39% 39% 39%
Commuter Terminal 5% 5% 5% 5% 5%
Airfield 56% 56% 56% 56% 56%
Total 100% 100% 100% 100% 100%
Allocation % for Saipan Security Operating Expenses:
Main Terminal 75% 75% 75% 75% 75%
Commuter Terminal 5% 5% 5% 5% 5%
Airfield 20% 20% 20% 20% 20%
Total 100% 100% 100% 100% 100%
Allocation % for Saipan Administrative Operating Expenses: 1/
Main Terminal 78% 78% 78% 78% 78%
Commuter Terminal 4% 4% 4% 4% 4%
Airfield 18% 18% 18% 18% 18%
Total 100% 100% 100% 100% 100%
1/ The Administrative Cost Center is allocated to Direct Cost Centers based on each Direct Cost Center's proportionate share of expenses after allocation of ARFF and Security indirect operating expenses.
Source: Commonwealth Ports Authority
Prepared by: Ricondo & Associates, Inc.
ARFF and Security Cost Centers are allocated at each airport based on an approximation of effort expended in each Direct Cost Center and are consistent with industry standards. It is the intent of the Authority to review these allocations periodically throughout the term of the Agreement to ensure that expenses are properly allocated to the appropriate Direct Cost Centers. The Administrative Cost Center is allocated to Direct Cost Centers based on each Direct Cost Center’s proportionate share of expenses after allocation of ARFF and security indirect operating expenses.
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SMA App. 021
1.3 Activity Projections
Table 2 presents projected enplanements and landed weights for the Airports for the Projection Period.
The activity projections have been developed for all airlines and the main assumptions are:
Enplanements. The enplanements are projected to grow by 1.0 percent annually throughout the Projection Period.
Landed Weights. The landed weights are projected to grow by 1.0 percent annually throughout the Projection Period.
1.4 Terminal Space
Total terminal space differentiated into airline preferential space, airline joint use space, other rentable space and non-rentable space for each airport.
The other rentable space includes concessions, Federal Inspections Services (FIS), Transportation Security Administration (TSA), U.S. Customs and Border Protection (CBP), other miscellaneous rentable and Authority administrative space. Joint Use space is allocated to Airlines based on each Airline’s percentage of enplanements.
The following Tables 3A-3D present terminal space for the Airport System:
1.5 Debt Service
Debt service consists of projected debt service on the Airport’s Series A 1998 bond. Table 4 presents the projected debt service at the Airports from FY 2016 throughout the Projection Period. Debt service at the Airports is expected to remain level at approximately $1.4 million throughout the Projection Period.
1.6 Passenger Facility Charge (PFC) Revenue
Table 5 presents estimated PFC Revenue at the Airport System for the Projection Period. The Authority collects the maximum rate of $4.50 per enplanement and under FAA regulation is able to keep $4.39 per enplaned passenger after a $0.11 per enplanement administrative fee is paid. Historically, the Airport System has eligible enplanements of approximately 90.0 percent of total enplanements.
CPA has authority to pay 30.2 percent of annual Debt Service and coverage payments from PFC revenues based on 1998 PFC-eligible projects. Total PFC Revenue to be used for debt service between FY 2016 and FY
Reimburse CPA for PAYG Projects 1,898,444 1,924,962 1,945,234 1,974,362 2,000,906
Ending Balance $0 $0 $0 $0 $0
Source: Commonwealth Ports Authority and Ricondo & Associates, Inc.
Prepared by: Ricondo & Associates, Inc.
PROJECTED
Table 5 PFC Revenues
(FY 2015 - Saipan RCModel_Budget 2016 - 7/13/2016)Page 16 of 29 PREPARED ON 07/13/2016
SMA App. 031
2020 is approximately $500 thousand per year. The remaining PFC revenues received annually reimburse CPA for PFC-eligible projects originally funded with CPA funds.
1.7 Operating Expenses and Capital Expenditures
Tables 6A and 6B present Operating Expenses and Capital Expenditures at the Airport System for the Projection Period. Operating Expenses at the Airport System are expected to increase at a compound annual growth rate of 4.5 percent through the Projection Period. Capital Expenditures at the Airport System are expected to increase at a compound annual growth rate of 3.0 percent through the Projection Period.
1.8 Non-Aviation Revenues
Table 7 presents Non-Aviation Revenue at the Airport System for the Projection Period. Non-Aviation Revenue includes revenues from cargo landing fees and facility rentals, hangers rentals, fuel flowage fees, FBO rentals, rental car contracts, concessions, other ground transportation fees, investments earnings, and miscellaneous other revenues.
Non-Aviation Revenue at the Airport System is expected to increase at a compound annual growth rate of 2.7 percent through the Projection Period, based on inflationary impacts and enplanement growth.
1.9 Airline Rates and Charges
Rates will be calculated for the Terminal and Airfield at the Airports. The airlines rates and charges presented in these analyses for FY 2016 though the Projection Period reflect the proposed methodology described earlier in this report. The proposed methodology is described in more detail below.
The components of the total requirement for the terminal rental rate and landing fee include the following:
Operating Expenses. Includes the Operating Expenses (direct and allocated indirect) attributable to the specific rate-setting area.
Debt Service. Includes the portion of Total Debt Service attributable to the specific rate-setting area. Debt Service Coverage. Includes 25 percent of Total Debt Service attributable to the specific rate-
setting area. Capital Equipment. Includes the capital Equipment attributable to the specific rate-setting area.
1.9.1 LANDING FEE
A residual calculation for the Landing Fee is presented in Table 8. The Total Airfield Requirement is equal to the sum of the previously described components for the Airfield Cost Center. Fuel flowage revenues, and PFC revenues eligible for Debt Service and Coverage attributable to the Airfield are deducted to yield the Airfield
Total Landing Fees $2,106,703 $2,194,167 $2,288,175 $2,383,116 $2,483,574
Source: Commonwealth Ports Authority and Ricondo & Associates, Inc.
Prepared by: Ricondo & Associates, Inc.
PROJECTED
Table 8 Calculation of Landing Fees
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SMA App. 036
Requirement. Dividing the Airfield requirement by the total landed weight yields the Average Landing Fee. The Landing Fee is differentiated so that the Landing Fee for the Commuter Airfield, Rota Airfield, and Tinian Airfield are 50 percent less than the landing fee for the Main Terminal.
1.9.2 TERMINAL RENTAL RATE
A compensatory calculation for the Terminal Rental Rates is presented in Table 9A. The Terminal Requirement is equal to the sum of the previously described components for the Main Terminal Cost Center, Commuter Terminal Cost Center, Rota Terminal Cost Center and Tinian Terminal Cost Center less PFC revenues eligible for Debt Service and Coverage attributable in the Main Terminal Cost Center, Commuter Terminal Cost Center Rota Terminal Cost Center and Tinian Terminal Cost Center. Dividing the Terminal Requirement by the total rentable space in the terminal building yields the Average Terminal Rental Rate. The Average Terminal Rental Rate is then differentiated so that the terminal rental rate for the Commuter Terminal, Rota Terminal and Tinian Terminal is 50 percent less than the terminal rental rate for Saipan Main Terminal.
Tables 9B-9E provide detail of joint use space at the Airport System allocated based on airlines proportionate enplanements.
1.9.3 PER USE FEES
A Per Use Fee has been developed for Saipan Main Terminal to charge airlines utilizing shared space within the Main Terminal Building. Specifically, certain Ticket Counters/Queuing Space and Holdrooms/Gates are used by more than one airline and often on a less than daily basis. Airlines will be charged for this space based on the number of times the airline uses the space. A calculation for the Per Use Fees at the Saipan Main Terminal is presented in Table 10.
The average leased airline space used for the Ticket Counters/Queuing Space - Per Use Fee is the sum of the total ticket counters space and the total queuing space (ticketing lobby area) divided by the total number of ticket counters in the terminal building. The Average Terminal Rental Rate is applied to the Average Leased Ticket Counter/Queuing Space to calculate the annual cost of average ticket counter/queuing space. The Per Use Fee is equal to the annual cost of average ticket counter/queuing space divided by the days of the year, divided by the average turns per day.
The Holdrooms/Gates – Per Use Fee equals the average holdroom gate size multiplied by the Average Terminal Rental Rate, divided by the days of the year and the average usage per day.
1.9.4 CASH FLOW AND COST PER ENPLANEMENT
Table 11 presents the Cash Flow, Coverage Calculation and Cost Per Enplanement for the Airport System.
Total Aviation Revenues $7,626,360 $7,927,200 $8,249,641 $8,575,149 $8,918,838
Total Enplanements 605,765 611,822 617,941 624,120 630,361
Cost Per Enplanement $12.59 $12.96 $13.35 $13.74 $14.15
Source: Commonwealth Ports AuthorityPrepared by: Ricondo & Associates, Inc.
Table 11 Cash Flow, Coverage Calculation, Cost Per Enplanement
PROJECTED
(FY 2015 - Saipan RCModel_Budget 2016 - 7/13/2016)Page 29 of 29 PREPARED ON 07/13/2016
SMA App. 044
Exhibit CPA-4
SMA App. 045
1
From: CPA Receptionist [mailto:[email protected]] Sent: Friday, July 15, 2016 4:28 PM To: 'Shawn Christian' <[email protected]> Subject: RE: Airline Meeting Good afternoon, Attached is the meeting materials for the rate methodology meeting on Tuesday, July 19 at 1:00pm. For your perusal, thank you. Christine Santiago Pulido Receptionist/Secretary Commonwealth Ports Authority P.O. Box 501055 Saipan, MP 96950 Tel: (670) 237‐6500 | Fax: (670) 234‐5962
From: CPA Receptionist [mailto:[email protected]] Sent: Friday, July 01, 2016 4:28 PM To: 'Shawn Christian' <[email protected]> Subject: Airline Meeting Dear Star Marianas Air, Good afternoon, the Commonwealth Ports Authority would like to schedule a meeting for July 19 at 3:00PM at the CPA Conference Room. The meeting is to discuss about the new rate methodology. Because your presence is important, we request that you confirm your attendance at your earliest convenience. We look forward to your favorable response, thank you. Christine Santiago Pulido Receptionist/Secretary Commonwealth Ports Authority P.O. Box 501055 Saipan, MP 96950 Tel: (670) 237‐6500 | Fax: (670) 234‐5962
SMA App. 046
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EXHIBIT E: RATES FOR RENTALS, FEES AND CHARGES
SECTION I - RATE CALCULATIONS
E.01 Rates for Terminal Rentals, Landing Fees, and Per Use Fees. The Terminal Rental Rates, Landing Fees,
and Per Use Fees shall be calculated in accordance with Exhibits E-1, E-2 and E-3, respectively. E.02 Summary of Rates for Rate Setting Period – For November 1, 2016, through September 30, 2017, the
rates will be as follows:
Terminal Rental Rate – Calculation of the Terminal Rental Rates per square foot is presented on Exhibit E-1 and shall be:
Source: Commonwealth Ports Authority and Ricondo & Associates, Inc.
Prepared by: Ricondo & Associates, Inc.
Exhibit E-1 Line Items
A. Maintenance and Operating Expenses - the current expenses, paid or accrued, of operation, maintenance, and ordinary current repairs related to the Terminal Cost and Revenue Center.
B. Debt Service – shall mean with respect to any series of Bonds or Subordinated Bonds the total, as of any
particular date of computation and for any particular period or year, of the aggregate amount required pursuant to the Resolution to be deposited during such period or year in the Bond Fund, attributable to the Terminal Cost and Revenue Center.
C. Debt Service Coverage – twenty-five percent (25%) of the Debt Service payable for Bonds in each Fiscal
Year (adjusted as may be permitted under the Bond Resolution), attributable to the Terminal Cost and Revenue Center.
SMA App. 182
E-3
D. Capital Equipment – expenditures for acquisition of moveable equipment consisting of, but not limited to, firefighting equipment, trucks, tractors, mowers, and other maintenance equipment, and automotive equipment and other similar moveable equipment and for the purpose of paying the cost of rebuilding, reconstructing, altering, maintaining, replacing and renewing the moveable equipment of the Airport System, attributable to the Terminal Cost and Revenue Center.
E. TOTAL TERMINAL MAINTENANCE AND OPERATING EXPENSES – sum of A through D.
F. PFC Revenues for Debt Service & Coverage - total amount of PFC Revenue eligible for contribution
to annual Debt Service and Debt Service Coverage in current Fiscal Year, attributable to the Terminal Cost and Revenue Center.
G. NET TERMINAL REQUIREMENT – Sum of E minus F.
H. Total Airport System Terminal Rentable Space (per square foot) – total Terminal Square Fee available
to be leased by Airport System users.
I. AVERAGE TERMINAL RENTAL RATE (per square foot) – G divided by H.
J. Saipan Main Terminal Rental Rate (per square foot) – the Terminal Rental Rate to be charged to Airport users leasing space within the Saipan Main Terminal, after 40 percent (40%) differentiation is applied between Saipan Main Terminal and Saipan Commuter Terminal, Rota Terminal, and Tinian Terminal. The Saipan Main Terminal Rental Rate (per square foot) is an iterative calculation forcing a 40 percent (40%) differential between Saipan Main Terminal and Saipan Commuter Terminal, Rota Terminal, and Tinian Terminal while simultaneously generating the Net Terminal Requirement based on Airline leased terminal space.
foot), and Tinian Terminal Rental Rate (per square foot) – the Terminal Rental Rate to be charged to Airport users leasing space within the Saipan Commuter Terminal, after 40 percent (40%) differentiation is applied between Saipan Main Terminal and Saipan Commuter Terminal, Rota Terminal, and Tinian Terminal. The Saipan Commuter Terminal Rental Rate (per square foot), Rota Terminal Rental Rate (per square foot), and Tinian Terminal Rental Rate (per square foot) is an iterative calculation forcing a 40 percent (40%) differential between Saipan Main Terminal and Saipan Commuter Terminal, Rota Terminal, and Tinian Terminal while simultaneously generating the Net Terminal Requirement based on Airline leased terminal space.
SMA App. 183
E-4
E.04 Calculation of Landing Fee Rate – Exhibit E-2
Exhibit E-2 Calculation of Landing Fees
(Fiscal Year Ending September 30)
Budget
FY 2017
Airfield Expenses:
Maintenance and Operating Expenses [A] $2,572,466
Debt Service [B] 449,704
Debt Service Coverage [C] 112,426
Total Airfield Maintenance and Operating Expenses [D] = [A+B+C] $3,134,597
Less:
Fuel Flowage [E] $177,496
PFC Revenues for Debt Service & Coverage [F] 362,143
Source: Commonwealth Ports Authority and Ricondo & Associates, Inc.
Prepared by: Ricondo & Associates, Inc.
Exhibit E-2 Line Items:
A. Maintenance and Operating Expenses - the current expenses, paid or accrued, of operation, maintenance, and ordinary current repairs related to the Airfield Cost and Revenue Center.
B. Debt Service – with respect to any series of Bonds or Subordinated Bonds the total, as of any particular
date of computation and for any particular period or year, of the aggregate amount required pursuant to the Resolution to be deposited during such period or year in the Bond Fund, attributable to the Airfield Cost and Revenue Center.
SMA App. 184
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C. Debt Service Coverage – twenty-five percent (25%) of the Debt Service payable for Bonds in each Fiscal Year (adjusted as may be permitted under the Bond Resolution), attributable to the Airfield Cost and Revenue Center.
D. TOTAL AIRFIELD MAINTENANCE AND OPERATING EXPENSES – sum of A through C.
E. Credit for Fuel Flowage - total amount of revenue collected from fuel flowage in current Fiscal Year.
F. Credit for PFC Revenues for Debt Service & Coverage - total amount of PFC Revenue eligible for
contribution to annual Debt Service and Debt Service Coverage in current Fiscal Year.
G. Subtotal Airfield Revenues – sum of E through G.
H. NET AIRFIELD REQUIREMENT – D minus H.
I. Saipan Main Terminal Landed Weight (thousand pounds) – total Maximum Gross Landed Weight (MGLW) of all international flights landing at Saipan International Airport and using the Saipan Main Terminal in current Fiscal Year.
J. Saipan Commuter Terminal Landed Weight (thousand pounds) – total MGLW of all flights
landing at Saipan Commuter Airport and using the Saipan Commuter Terminal in current Fiscal Year.
K. Rota Landed Weight (thousand pounds) – total MGLW of all flights landing at Rota International Airport and using the Rota Terminal in current Fiscal Year.
L. Tinian Landed Weight (thousand pounds) – total MGLW of all flights landing at Tinian
International Airport and using the Tinian Terminal in current Fiscal Year.
M. Total Landed Weight (thousand pounds) – sum of J through M.
N. AVERAGE LANDING FEE (per thousand pounds) – I divided by N.
O. SAIPAN INTERNATIONAL LANDING FEE (per thousand pounds) – Landing Fee for all international flights landing at Saipan International Airport and using the Saipan Main Terminal after 25 percent (25%) differentiation is applied between Saipan International Airport and Saipan Commuter Airport, Rota International Airport, and Tinian International Airport. The Saipan International Landing Fee (per thousand pounds) is an iterative calculation forcing a 25 percent (25%) rate differential between Saipan International Airport and Saipan Commuter Airport, Rota International Airport, and Tinian International Airport while simultaneously generating the Net Airfield Requirement based on Airline landed weights at each respective Airport.
P. SAIPAN COMMUTER / ROTA / TINIAN LANDING FEE (per thousand pounds) – Landing Fee for
all flights landing at Saipan Commuter, Rota International, and Tinian International Airports and using Saipan Commuter, Rota, and Tinian Terminals after 25 percent (25%) differentiation is applied between Saipan International Airport and Saipan Commuter Airport, Rota International Airport, and Tinian International Airport. The Commuter / Rota / Tinian Landing Fee (per thousand pounds) is an iterative calculation forcing a 25 percent (25%) rate differential between Saipan International Airport and Saipan Commuter Airport, Rota International Airport, and Tinian International Airport while
SMA App. 185
E-6
simultaneously generating the Net Airfield Requirement based on Airline landed weights at each respective Airport.
E.05 Calculation of Per Use Fees – Exhibit E-3
Exhibit E-3 Calculation of Per Use Fees
(Fiscal Year Ending September 30)
Budget
FY 2017
Calculation of Per Use Fees:
Per Use Fee - Ticket Counters and Queuing
Ground Floor - Total Ticket Counter Space (square feet) 2,766
Ground Floor - Total Airline Queuing Space (square feet) 18,107
Total Leased Airline Ticket Counter and Queuing Space (square feet) 20,873
Divided by Total Number of Ticket Counters 12
Average Leased Ticket Counter Space (square feet) 1,739
Saipan Main Terminal Rental Rate $48.19
Cost of Average Ticket Counters and Queuing Space $83,828
Divided by 365 365
Divided by Average Turns Per Day 4
Per Use Fee - Ticket Counters and Queuing $57.42
Per Use Fee - Holdrooms/Gates
Second Floor - Average Holdroom B Gate Size (square feet) 6,109
Saipan Main Terminal Rental Rate $48.19
Total Cost of Shared Holdrooms/Gates $294,415
Divided by 365 365
Divided by Average Turns Per Day 4
Per Use Fee - Holdrooms/Gates $201.65
Source: Commonwealth Ports Authority and Ricondo & Associates, Inc.
Prepared by: Ricondo & Associates, Inc.
SMA App. 186
E-7
Exhibit E-3 Line Items (Ticket Counters and Queuing):
A. Ground Floor – Total Ticket Counter Space (square feet) – total leasable ticket counter space in the Terminal.
B. Ground Floor – Total Airline Queuing Space (square feet) – total lobby queuing space in the Terminal.
C. Total Leased Airline Ticket Counter and Queuing Space (square feet) – sum of A and B.
D. Divided by Total Number of Ticket Counters – total number of ticket counters available for lease by
airlines in current Fiscal Year.
E. Average Leased Ticket Counter Space – C divided by D.
F. Saipan Main Terminal Rental Rate (per square foot) – Terminal Rental Rate calculated for the Saipan Main Terminal in current Fiscal Year.
G. Cost of Average Ticket Counters and Queuing Space – E times F.
H. Divided by 365 – 365 days in year.
I. Divided by Average Turns Per Day – approximate average number of turns per day at Airport in current
Fiscal Year.
J. PER USE FEE – TICKET COUNTERS AND QUEUING – G divided by H divided I. Exhibit E-3 Line Items (Holdrooms/Gates):
A. Second Floor – Average Holdroom B Gate Size (square feet) – average leasable space of the second floor holdroom B gates and seating area space.
B. Saipan Main Terminal Rental Rate (per square foot) – Terminal Rental Rate calculated for the Saipan
Main Terminal in current Fiscal Year.
C. Total Cost of Shared Holdrooms/Gates – A times B.
D. Divided by 365 – 365 days in year.
E. Divided by Average Turns Per Day – approximate average number of turns per day at Airport in current Fiscal Year.
F. PER USE FEE – HOLDROOMS/GATES – C divided by D divided by E.
SMA App. 187
E-8
SECTION II – COST CENTERS E.6 Direct Cost and Revenue Centers. The Direct Cost and Revenue Centers include, but are not limited to, those Cost and Revenue Centers listed in Exhibit E-4 below.
Exhibit E-4. Direct Cost and Revenue Centers Cost and Revenue Center Description of Area Included or Functional Activity
Airfield All Capital Charges, all direct and indirect Operation and Maintenance Expenses, and Revenues for those portions of the Airport System provided for the landing, taking off, and taxiing of aircraft, including without limitation, approach and turning zones, aviation or other easements, runways, taxiways, runway and taxiway light, and other appurtenances in connection therewith and the aircraft parking and maneuvering areas adjacent to the Terminal and within its boundaries of areas designated for the parking of passenger aircraft and support vehicles as may be revised from time to time.
Terminal All Capital Charges, all direct, indirect, and general administrative Operation and Maintenance Expenses, and Revenues for the Commuter Terminal Building, Main Terminal Building, Rota Terminal Building, and Tinian Terminal Building and appending structures, law enforcement and security activities, paging systems, multi-user flight information display systems, and the terminal roadway systems including entrance/exit/recirculating roadways, terminal curb front, and taxi/bus/staging areas, but excluding roadways exclusively serving the public parking areas.
E.7 Indirect Cost Centers. The Indirect Cost Centers are Cost Centers to which only Operation and
Maintenance Expenses are assigned; no Revenues are attributable to the Indirect Cost Centers. The Indirect Cost Centers include, but are not limited to, those Cost Centers listed in Exhibit E-5 below.
Exhibit E-5. Indirect Cost Centers
Cost Centers Description of Area Included or Functional Activity Administrative Functions and activities associated with the general
administrative, accounting, and weather observer services of the Airport System.
Aircraft Rescue and Fire Fighting (ARFF) Functions and activities associated with emergency medical services and crash, fire and rescue operations the Airport System.
Operations Functions and activities associated with the general operations of the Airport System.
Security Functions and activities associated with security and police of the Airport System.
Indirect Cost Centers are allocated to Direct Cost and Revenue Centers based on an equitable distribution of costs.
SMA App. 188
Exhibit CPA-6
SMA App. 189
Regular Board of Directors Meeting August 22, 2017 - Minutes Page 8
In that regard, she was approached by Docomo Pacific for havin& free Wi~Fi service at the airport. So she asked a timeline as to when we could engage in the companies to discuss this with IT&E and Docomo. This will be an added benefit for the visitors.
There is currently free Wi-Fi in the Arrival Corridor by IT&E. Chair Tudela added that it is in the works and all we have to do locate space. Director Teves asked to always include Tinian and Rota in their discussions. Director Kim stated that the company mentioned the other airports too. They know that their airports are small and operations are low, but we want tourists to enjoy the other islands too.
Director Reyes asked why it was only proposed for the Arrival Area and not the Departure. Chris stated that the presentations will cover the entire airport terminals. Director Kim looks forward to those presentations.
Agenda No. VII OLD BUSINESS
Old Bus. Item I Echo Dock Request for Proposal (RFP)
The issue that they had that include public lands has been taken out. Director Reyes then made a motion to approve the RFP. Director Villagomez seconded it.
This area includes the former Seaman's restaurant. Since Kosa Fisheries vacated the area, Phoenix has been leasing it on a month-to-month. So the committee drafted the RFP that will solicit proposals that will include restaurants, berth space for luxury vessels. More nonindustrial and more for personal use vessels. The RFP solicit proposals to have them develop that area, including the dock plus berthing. Originally CPA was thinking that a collateral benefit was to improve the lower base beach between our facilities here and echo dock which is under DPL, but we crossed that out. The developer will need to comply with a whole bunch of regulations and work with D LNR, but that is all stated on the RFP. We look up to the proposers to come up with a robust plan.
The Board was then ready to vote and since there were no objections, the motion carried.
Agenda No. VIII New Business
New Bus. Item I Presentation by Robert Christian/Star Marianas
Mr. Christian first thanked the Board and announced that this is his first time ever to talk to the Board. He went over his history since he got here back in 1985. He reported that he brought Continental Airlines here and started Island Air in Hawaii. He teaches airline and airport management. His projects are airlines. He was asked by DOT to assist flight service to Rota and it was then when he started Pacific Island Aviation (PIA).
SMA App. 190
Regular Board of Directors Meeting August 22, 2017 - Minutes Page 9
Mr. Christian went over his mission statement because he feels that theirs is similar to CPA's. After they tried to retire, they were asked by the Tinian Dynasty in 2008 to come out and assist them. So they had a discussion with Taga Air and negotiated for them to surrender their certificate. This made Freedom Air the sole provider between Saipan and Tinian. He recommended that the Dynasty work with Freedom Air because they aware not interested in taking on another airline project. But that did not work.
In August 1008, they submitted documents to FAA and were granted certificate for Star Marianas Air. In February 2009, they signed the Signatory Agreement with CPA and flew between Saipan and Tinian using a single-engine carrier. They did not advertise and were solely here for the purpose of dragging Tinian Dynasty's customers back and forth. The Tinian Dynasty continued to rely on ferry.
From December 1009 to March 1010, in anticipation of the Dynasty's plan to discontinue the ferry, they acquired three (3) more Cherokees. Then in March 2010, the Tinian Dynasty suspended the ferry service. In August 2010, the military wanted to put live fire ranges on Tinian. That would have restricted airspace between Tinian and Saipan for single-engine aircrafts. So that made them purchase twin-engine aircrafts.
In May 2on, at the request of the Rota Mayor's Office, they started cargo service for them between Saipan, Rota and Guam. Freedom Air had already suspended their service for a month or so. So in May 2on, they signed an agreement with CPA for space on Rota. They paid $301 with utilities with no access to the back so all the cargo had to be processed, collected and taken to the west end of the building where they had access to the ramp. That is still the case today.
In August lOU, because of suspension of regular ferry service, they had to store fuel on Saipan. Before that, they were storing on Tinian. And after several months of discussion, they were at the point where they had to stop flying if they could not come to an agreement with CPA. So SMA was eventually allowed to store fuel that they flew in from the states in 6,ooo gallon isotainers on Saipan. He noted that they have eight to nine isotainers at any one time to make sure that they do not run out of gas. It costs about $40,000 to $6o,ooo and are subject to landing fees, etc. They also had to write a secondary spill program and get the berms up because there is no suitable facility on any of the islands. So it created operational problems because they were not allowed to park it on the tarmac thus were situated at the long-term parking area at the Saipan Airport. There were some safety and other issues which is what they were discussing with CPA, but after three years, they are now allowed to store them on the Airside Operation Area (AOA).
At the request of the Tinian Mayor's Office in December 1on, SMA started allowing residents to fly on their "repo" flights. They flew a whole bunch of flights to Tinian even during late hours. Then they are forced to bring the planes to Saipan back empty. So the Mayor's Office asked again for help to fly customers, but they did not want to give times of when they were flying because that would require publishing a schedule and they were not doing that. So the locals started coming and everyone was charged a $10 service charge.
SMA App. 191
Regular Board of Directors Meeting August 22, 2017- Minutes Page 10
They loved it. But on December Z-41 they received a letter from CPA that we were supposed to be collecting Passenger Facility Charges (PFC} on these flights, but we were never given notice. He stated that they were not revenue flights but just repo flights. Mr. Christian did not think that they should not have been subjected even if they were qualifying and required to do the PFC's. But CPA said that SMA owed them $350,ooo with no notice. So they met with CPA to try to resolve the issue, namely former Comptroller Derek Sasamoto, but that did not go well because CPA legal counsel informed them on April 12, if they did not pay $42.710001 they were going to evict SMA. So they raised that issue. It eventually went to the FAA and the FAA came back saying that notice was given and was not correct. The CPA then took a hostile position which basically said that they are of view that SMA does not think they need to collect PFC's and disclaim responsibility, SMA has a duty to collect PFCs and remit only by its own backwards self·serving logic, because they said that if they did not collect it, then SMA does not owe CPA. But the CPA legal counsel says that they chose humorous logic and that they will pursue it to its conclusion along with Freedom Air. He added that when CPA pursued Freedom Air, Freedom Air actually collected the $6oo,ooo PFC's which were not remitted to CPA. So this is where it took a turn.
They then raised the issue of having been assessed Head Charges, Facility Service Charges on per head charges when it was not being tied back to the other requirements on Section 7 of the AUA. This has been ongoing since 2.012.. They did not talk to CPA about it because they hoped that they could resolve it. So they were again threatened with the eviction on June 13. They then contacted the FAA Regional Office because SMA was not making progress. So on July 31 20121 the DOT found that they were fit, willing and able meaning that their management, financials and compliance with federal laws were looked at to do scheduled flights. It was then when they became a regional carrier to do scheduled flights. So on February 2.013, they started doing passenger charter service to Rota. They were again assessed $4·95 for the rental space for each person that they took to Rota on those chartered flights and still had no access to the ramps and take their passengers through the Arrival Area. So the customers check in at the counters in the Departure Area and then go to the Arrival Area. When Cape Air is there, they have to wait. At that time, Freedom Air was still operating so they had airside access.
On March 2.013, CPA informed them that FAA agreed with their position of the PFCs that CPA will not pursue the $42.01ooo that CPA demanded they pay. So in July 2.013, they began writing on every check that they were submitting to CPA that they were writing this "under protest" because CPA has not addressed the requirement to determine cost and adjust the cost annually.
In September 2.013, Freedom Air filed bankruptcy and CPA was a major creditor for the $6o9,ooo PFCs collected from the passengers. In August 2.014, they started scheduled flight service to Rota. SMA was denied access to Guam which made them take on Guam. Eventually the FAA intervened and required that the Guam International Airport Authority (GIAA) build something for them, so they built the Light Aircraft Terminal Facility. For 4oo,ooo square feet, they are charged $500 a month, with no PFCs. After March 2.015, with no progress on their contention that they are being overcharged for the landing fees, they stopped paying. They turned over the PFCs and still do because it is the public's money. So
SMA App. 192
Regular Board of Directors Meeting August 22, 2017- Minutes Page 11
they start the Guam flight to Rota. He then went on about the charges that the CPA was assessing: For the month of February 2016, they were charged $U.J,ooo ($531000 for the PFC's but another $7o,ooo for space).
So on March 2016, The Dynasty stopped its operation and saw a huge economic consequence to the people of Tinian, so they boosted their Discovery flights for the Chinese to subsidize some of the overhead cost associated with the operations and managed to keep the prices the same as when they started in zooS ($42 one way).
Finally, in July 2016, after several meetings with CPA and Ricondo, Ricondo informed that CPA is changing their methodology for assessing the fees. CPA is now going per square foot charge for preferential space assessing common use space based on a percentage of enplaned. And they are eliminating signatory rates for landing fees. They were presented with a letter on August 216, wherein Ricondo said that they used this methodology and computed from 2009 what could have been charged and determined that CPA overcharged SMA. But in July 2017, they get another letter wherein they used the new methodology, that they undercharged by $11200. He understands that there are good and bad days. So he wants to know how it got to this point when they are supposed to be on the same boat.
He pointed out Chapter u is good because it is appropriate in charging for different airlines. Then they look at Ricondo's methodology referring to the Commercial Compensatory Rate and compare it and it looks consistent with Chapter n. Ricondo also used an equalized methodology of taking all of the costs of the airports, wrapping it into one and using the percentage of what the commuter should be. SMA did not dispute from the get go that the AU A was absolutely ok. They only disputed that it was not being followed. They also do not dispute that Ricondo's methodology is something you can do, but they do look at something that CPA should do. There is a broad range of opportunities to assess charges and if we go back to our mission statements, he questioned if we using Ricondo to really develop transportation to its fullest. He welcomes Ricondo to look at an alternative method that would result in lower fees and compare. CPA has a lot of other revenues from other activities going on here from the Chinese flights coming in. SMA has more revenue because of their Discover flights. They are willing to use the money from those flights to help subsidize to Tinian and Rota to keep those prices stable. He suggests that if we all do not look at ways to keep our rates stable, he will need to make adjustments accordingly. If we could take another look to see what could he done to take the burden off of transportation to and from these outer islands, he pleads to let us make our money that way, but just keep the cost low. Because if not, we have minimum wage increases coming up, insurance costs, legal fees, etc. He again asked to work together to keep the costs low. He is only interested in seeing if this is something you would do. He then thanked the Board for their time.
Normally, because this falls under his committee, Director Teves makes dosing remarks, but this time because SMA has filed a case against CPA, he is reserving his comments. In response to that, Mr. Christian stated that they actually asked CPA to sue SMA first. SMA was thanked for their comments. Mr. Christian ended by saying that he hopes to meet [with the Board] more often rather than once every zo years.
SMA App. 193
Exhibit CPA-7
SMA App. 194
Office of Airport Compliance and Management Analysis
800 Independence Ave, SW. Washington, DC 20591
Mr. Richard L. Richards Jason Goldstein Richards Goldstein LLP 55 Miracle Mile, Suite 310 Coral Gables, Florida 33134 [email protected][email protected] Mr. Robert T. Torres, Esq. Law Offices of Robert T. Torres Plata Drive, Whispering Palms (Chalan Kiya) P.O. Box 503758 CK Saipan, MP 96950 [email protected] Dear Messrs. Richards, Goldstein, and Torres: Re: Star Marianas Air, Inc. v. Commonwealth Ports Authority, Commonwealth of the
Northern Marianas Islands, FAA Docket No. 16-18-01 Enclosed is a copy of the Order of the Director issued in the above-referenced matter. The complaint is dismissed, and the reason for dismissal are set forth in the enclosed Order. This Order is an initial agency determination and does not constitute a final decision, and this Order is subject to judicial review. 14 CFR § 16.247(b)(2). A party adversely affected by the Director’s Order may appeal the initial determination to the FAA Associate Administrator for Airports under 14 CFR § 16.33(c) within 30 days after the service of the Director’s Order. Sincerely, Kevin C. Willis Director, Office of Airport Compliance and Management Analysis Enclosure
SMA App. 195
Viola E-CTR Cijntje
Stamp
UNITED STATES DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION
WASHINGTON, DC ____________________________________________ Star Marianas Air, Inc.,
Complainant, v. FAA Docket No. 16-18-01 Commonwealth Ports Authority,
This matter is before the Federal Aviation Administration (FAA) on the complaint filed by Star Marianas Air, Inc., against the Commonwealth Ports Authority, under the FAA’s Rules of Practice for Federally Assisted Airport Enforcement Proceedings, 14 C.F.R. part 16. Star Marianas Air, Inc., (Complainant or Star Marianas) filed a Complaint under part 16 against the Commonwealth Ports Authority (Respondent or Ports Authority), owner and operator of the airports in the Commonwealth of the Northern Marianas Islands (CNMI or Commonwealth).
Star Marianas contended that Ports Authority is operating CNMI airports in a discriminatory manner by imposing excessive, unreasonable, and discriminatory charges, including head taxes without any basis or support (FAA Exhibit 1, Item 1, pp. 1-6). Star Marianas further stated that these charges do not relate to the Ports Authority's costs and result in revenue surpluses (FAA Exhibit 1, Item 1, pp. 1-2). Finally, Star Marianas alleged that the Ports Authority permits airside access at one of the Ports Authority terminals (Rota Airport) to Star Marianas' competitors, while denying Star Marianas the same or similar access (FAA Exhibit 1, Item 1, p. 6).
Ports Authority denied the allegations (FAA Exhibit 1, Item 6, and FAA Exhibit 1, Item 10). Ports Authority responded that it applied the ratemaking methodology consistently to all airlines operating at the three airports, in conformance with the Department of Transportation Rates and Charges Policy (78 Fed. Reg. 55330 (Sept. 10, 2013)), and it consults with the airlines on the proposed rates and charges, and fees (FAA Exhibit 1, Item 10, p. 37). Ports Authority differentiated the rates so that the airlines with fewer passengers and smaller aircraft, operating at the Saipan Commuter, Rota, and Tinian terminals, pay less than the airlines in the Saipan International Terminal Building (FAA Exhibit 1, Item 10, p. 30). Ports Authority admitted that final rates and charges calculations for fiscal years 2009-2014 were reconciled in 2016, and it provided refunds to individual airlines (FAA Exhibit 1, Item 10, p. 37).
As discussed below, the Director dismisses the Complaint. The Director also denies all motions.
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II. PARTIES
Complainant
Star Marianas is a CNMI corporation. It operates as a FAA certificated air carrier conducting scheduled and on-demand passenger and cargo operations between the islands of Tinian, Rota, Saipan, and Guam (FAA Exhibit 1, Item 1, pp. 6-7). Star Marianas operates twelve aircraft – 7 single engine and 5 multi-engine aircraft (FAA Exhibit 1, Item 19).
Airport
Ports Authority is an autonomous, public, CNMI corporation. It is the owner, operator, and sponsor of the CNMI public airports, including Saipan International Airport, Rota International Airport, and Tinian International Airport (FAA Exhibit 1, Item 1, pp. 2-3). These airports were developed using FAA Airport Improvement Program (AIP) grants, authorized by the Airport and Airway Improvement Act of 1982, as amended, Title 49 U.S.C. § 47101, et seq. Since 1982, Ports Authority has accepted more than $246,470,368. The most recent AIP grants were in 2019 (FAA Exhibit 1, Item 24, and FAA Exhibit 1, Item 25, and FAA Exhibit 1, Item 26).
III. PROCEDURAL HISTORY AND BACKGROUND
A. Procedural History
See Index of Administrative Record.
B. Background
April 27, 2009 Star Marianas and Ports Authority executed an Airline Use Agreement (AUA) (FAA Exhibit 1, Item 1, p. 7, and FAA Exhibit 1, Item 1, Exhibit C).
May 2011 Star Marianas signed a lease with Ports Authority for use of 344 square feet of preferential use premises at Rota Airport and 233 square feet at Tinian Airport (FAA Exhibit 1, Item 1, p. 8, and FAA Exhibit 1, Item 1, Exhibit C). Star Marianas paid $302 in monthly rent, which included utilities. The preferential use premises did not have direct access to the ramp, so all the cargo had to be processed, collected, and taken to the west end of the Rota terminal where Star Marianas could access the ramp (FAA Exhibit 1, Item 7, Exhibit 25, p. 9).
December 2011 Star Marianas allowed residents to fly on their reposition flights between Tinian and Rota Airports at the request of the Tinian Mayor’s office. This request was due to the limited access to fast transportation between the two islands. Star Marianas charged a $10 service charge to the passengers (Exhibit 1, Item 7, Exhibit 25, p. 10).
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December 4, 2011 Ports Authority notified Star Marianas for failure to remit $350,000 in Passenger Facility Charges (PFCs) to Ports Authority (FAA Exhibit 1, Item 1, p. 12).
July 31, 2012 FAA certified Star Marianas as a regional carrier to conduct scheduled
flights (Exhibit 1, Item 7, Exhibit 25, p. 10).
September 4, 2012 Ports Authority requested Honolulu Airports District Office (HON ADO) to review whether the methodology of assessing charges on a per-passenger basis for the use of the airport facility rental and facility charges violated the Anti-Head Tax Act (FAA Exhibit 1, Item 6, Exhibit 3).
January 3, 2013 HON ADO responded to a Ports Authority written request. HON ADO informed Ports Authority that its methodology of establishing terminal rents does not represent an illegal head tax. However, HON ADO suggested that Ports Authority change the terminology in the airport rate agreement to avoid the incorrect representation that the fees are a head tax (FAA Exhibit 1, FAA Item 6, Exhibit 5).
February 19, 2013 HON ADO responded to a Ports Authority letter concerning Star Marianas alleged failure to remit Passenger Facility Charges (PFCs). HON ADO informed Ports Authority that the airline use agreement was insufficient to provide the required notice under 14 C.F.R. part 158 (FAA Exhibit 1, Item 7, Exhibit 6).
February 20, 2013 Star Marianas began passenger service to Rota. Ports Authority claims that it notified Star Marianas of a $4.95 departure facility charge imposed on each ticket originating at Rota (Exhibit 1, Item 7, Exhibit 25, p. 10; NMIAC § 40-10.1-1215). Star Marianas passengers check in at the departure area and then moved to the arrival area to board the aircraft (Exhibit 1, Item 7, Exhibit 25, p. 10).
March 8, 2013 Star Marianas claimed that Ports Authority informed Star Marianas that FAA agreed with Star Marianas’ position regarding the lack of PFC public notice, and Star Marianas did not have to remit $427,919 in unremitted PFCs to Ports Authority (FAA Exhibit 1, Item 1, p. 13).
July 2013 Star Marianas began writing “under protest” on every check submitted to Ports Authority because Star Marianas claimed Ports Authority had not addressed the requirements to determine costs and to adjust the costs annually (FAA Exhibit 1, Item 7, Exhibit 25, p. 10).
October 2, 2013 HON ADO informed Ports Authority that the FAA was aware that Ports Authority had failed to comply with requirements related to PFC collection and that, as a result, an airline had failed to remit PFCs and airline use fees for two years. The FAA stated that Ports Authority needed
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4
to address its noncompliance within 30 days (FAA Exhibit 1, Item 6, Exhibit 7).
November 18, 2013 Ports Authority responded to HON ADO’s letter of October 2, 2013 (FAA
Exhibit 1, FAA Item 6, Exhibit 9). Ports Authority detailed several corrective actions already taken and under consideration including updating the rate study for the PFCs, and the retention of Ricondo and Associates (Ricondo) to help answer specific questions or concerns by tenants (FAA Exhibit 1, Item 6, Exhibit 9).
December 6, 2014 Ricondo entered into a Professional Services Contract with Ports Authority. Ricondo contractually agreed to provide Ports Authority an updated airports rates and charges study, and conduct rates and charges training to Ports Authority accounting staff (FAA Exhibit 1, Item 6, Exhibit 12).
July 19, 2016 Ports Authority and Ricondo met with Star Marianas to discuss Ports Authority changing their rates and charges methodology for assessing the fees (FAA Exhibit 1, Item 6, Exhibit 16).
August 26, 2016 Ports Authority presented Star Marianas with a letter. In the letter, Ricondo wrote that they used Ports Authority’s new airport rates and charges methodology and reconciled Star Marianas rates and charges between fiscal years 2009 - 2014. That letter claimed Ports Authority overcharged Star Marianas by $101,729 (FAA Exhibit 1, Item 1, Exhibit M, and FAA Exhibit 1, Item 6, Exhibit 17).
December 28, 2016 Ports Authority published proposed amendments in the Commonwealth Register to update the existing Airport Rules and Regulations governing the establishment of its Airport fees. The proposed revisions removed Fees for Non-Signatory Carriers; updated the Landing Fees; revised Departure Facility Service Charges to the Terminal Rental Rate; revised the International Arrival Facility Service Charge to Per Use Fees; and updated the Public Parking Fees (FAA Exhibit 1, Item 1, Exhibit O).
July 13, 2017 Star Marianas received a letter from Ports Authority stating Star Marianas owed Ports Authority $12,708 for FY 2015. Ports Authority offered Star Marianas to use its credit of $101,729. Ports Authority also requested that Star Marianas provide direction to Ports Authority as to how to handle its balance of $89,021 (FAA Exhibit 1, Item 1, Exhibit N).
August 1, 2017 Star Marianas filed a civil complaint, Docket No. 17-00012, in the U.S. District Court for the Northern Marianas Islands against Ports Authority. Star Marianas accused Ports Authority of breach of contract, violating the Anti-Head Tax Act (49 U.S.C. § 40116), and establishing unreasonable user fees for Star Marianas. Star Marianas alleged that the user fees were
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not related to the requirements in Section 7 of the AUA (Exhibit 1, Item 7, Exhibit 25, p. 9).
February 21, 2018 Star Marianas received a letter from Ports Authority that stated Star
Marianas owed $117,061 to Ports Authority for FY 2016. Ports Authority deducted $117,061 from Star Marianas’ remaining balance of $89,021 from FY 2009-2014, resulting in Star Marianas owing $27,994 for FY 2016 (FAA Exhibit 1, Item 14, Exhibit 1).
IV. FAA POLICY AND GUIDANCE
A. The Airport Improvement Program
Airport sponsors receiving Federal grants under the Airport Improvement Program (AIP) are subject to a number of statutory conditions. 49 U.S.C. § 47101, et seq., provides for federal financial assistance for the development of public-use airports under the AIP. 49 U.S.C. § 47107 sets forth certain assurances to which an airport sponsor must agree to as a condition of receiving Federal financial assistance. These assurances become a binding contractual obligation between the airport sponsor and the FAA.
B. FAA Enforcement Responsibilities
The Federal Aviation Act of 1958, as amended, 49 U.S.C. § 40101, assigns the FAA Administrator broad responsibilities for the regulation of air commerce in the interests of safety, security, and development of civil aeronautics. Commitments assumed by airport owners or sponsors in property conveyance or grant agreements are important factors in maintaining a high degree of safety and efficiency in airport design, construction, operation and maintenance, as well as ensuring the public reasonable access to the airport. Pursuant to 49 U.S.C. § 47122, the FAA has a statutory mandate to ensure that airport owners comply with their federal grant assurances.
C. The FAA Airport Compliance Program
The FAA discharges its responsibilities for ensuring airport owners' compliance with their federal obligations through its Airport Compliance Program. The program is designed to ensure the availability of a national system of safe and properly maintained public-use airports operated in a manner consistent with the airport owners' federal obligations and the public's investment in civil aviation. FAA Order 5190.6B sets forth policies and procedures for the Airport Compliance Program. In addressing allegations of noncompliance, the FAA will make a determination as to whether an airport sponsor is currently in compliance with the applicable federal obligations.
D. Statutes, Sponsor Assurances, and Relevant Policies
As a condition precedent to providing airport development assistance under the AIP, the FAA must receive certain assurances from the airport sponsor. Title 49 U.S.C. § 47107(a) sets forth certain sponsorship requirements to which an airport sponsor receiving federal financial
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assistance must agree. The FAA has a statutory mandate to ensure that airport owners comply with these sponsor assurances.
FAA Order 5190.6B provides the FAA with policies and procedures to follow in carrying out its compliance program. The grant assurances relevant to this Complaint are listed below, as are other relevant statutes and policies.
Grant Assurances:
1. Grant Assurance 1, General Federal Requirements
Assurance 1, General Federal Requirements, states that: “[The airport sponsor] will comply with all applicable federal laws, regulations, executive orders, policies, guidelines, and requirements as they relate to the app1ication, acceptance and use of Federal funds for this project ....”
Among the list of Federal Regulations included in this grant assurance, 14 C.F.R. part 16 covers the steps and actions leading to a Director’s Determination and, if appealed, the Final Decision and Order issued by the Associate Administrator.
2. Grant Assurance 22, Economic Nondiscrimination
Grant Assurance 22, Economic Nondiscrimination, requires the owner of any airport developed with Federal grant assistance to operate the airport for the use and benefit of the public and to make it available to all types, kinds, and classes of aeronautical activity on fair and reasonable terms, and without unjust discrimination. Grant Assurance 22 deals with both the reasonableness of airport access and the prohibition of adopting unjustly discriminatory conditions as a potential for limiting access. Grant Assurance 22 implements the provisions of 49 U.S.C. § 47107(a) (1) through (6), and requires, in pertinent part, that the sponsor of a federally obligated airport:
will make its airport available as an airport for public use on reasonable terms, and without unjust discrimination, to all types, kinds, and classes of aeronautical activities, including commercial aeronautical activities offering services to the public at the airport (Grant Assurance 22(a)).
...may establish such fair, equal, and not unjustly discriminatory conditions to be met by all users of the airport as may be necessary for the safe and efficient operation of the airport (Grant Assurance 22(h)).
...may...limit any given type, kind, or class of aeronautical use of the airport if such action is necessary for the safe operation of the airport or necessary to serve the civil aviation needs of the public (Grant Assurance 22(i)).
Subsection (h) qualifies subsection (a), and subsection (i) represents an exception to subsection (a) to permit the sponsor to exercise control of the airport sufficient to preclude unsafe and inefficient conditions that would be detrimental to the civil aviation needs of the public.
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In all cases involving restrictions on airport use imposed by airport owners for safety and efficiency reasons, the FAA will make the final determination on the reasonableness of such restrictions when those restrictions deny or limit access to, or use of, the airport (See FAA Order 5190.6B, ¶14.3).
FAA Order 5190.6B describes the responsibilities under Grant Assurance 22 assumed by the owners or sponsor of public use airports developed with Federal assistance. Among these is the obligation to treat in a uniform manner those users making the same or similar use of the airport and to make all airport facilities and services available on reasonable terms without unjust discrimination. (See FAA Order 5190.6B, Chapter 9).
The owner of an airport developed with Federal assistance is required to operate the airport for the use and benefit of the public and to make it available to all types, kinds, and classes of aeronautical activities on reasonable terms and without unjust discrimination (See FAA Order 5190.6B, ¶9.1.a).
3. Grant Assurance 23, Exclusive Rights
Grant Assurance 23, Exclusive Rights, implements the provisions of 49 U.S.C. §§ 40103(e) and 47107(a)(4), and requires, in pertinent part, that the owner or sponsor of a federally obligated airport:
will permit no exclusive right for the use of the airport by any persons providing, or intending to provide, aeronautical services to the public.
will not, either directly or indirectly, grant or permit any person, firm, or corporation, the exclusive right at the airport to conduct any aeronautical activities...
In FAA Order 5190.6B, the FAA discusses its exclusive rights policy and broadly identifies aeronautical activities as subject to the statutory prohibition against exclusive rights. While public-use airports may impose qualifications and minimum standards upon those who engage in aeronautical activities, FAA has taken the position that the application of any unreasonable requirement or any standard that is applied in an unjustly discriminatory manner may constitute the constructive grant of an exclusive right. Courts have found the grant of an exclusive right where a significant burden has been placed on one competitor that is not placed on another (See e.g. Pompano Beach v. FAA, 774 F2d 1529 (11th Cir, 1985)).
Leasing all available airport land and improvements planned for aeronautical activities to one enterprise will be construed as evidence of intent to exclude others unless it can be demonstrated that the entire leased area is presently required and will be immediately used to conduct the activities contemplated by the lease (FAA Order 5190.6B, ¶8.9.d).
4. Grant Assurance 24, Fee and Rental Structure Grant Assurance 24, Fee and Rental Structure, implements the provisions of the AAIA, 49 U.S.C. § 47107(a) (13), and requires, in pertinent part, that the sponsor of a federally obligated airport assure that:
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It will maintain a fee and rental structure for the facilities and services at the airport which will make the airport as self-sustaining as possible under the circumstances existing at the particular airport, taking into account such factors as the volume of traffic and economy of collection (Assurance 24).
Grant Assurance 24 addresses fees the owner or sponsor levies on airport users in exchange for the services the airport provides and satisfies the requirements of 49 U.S.C. § 47107(a) (13) by addressing self-sustainability. The intent of the assurance is for the airport operator to charge fees that are sufficient to cover as much of the airport's costs as is feasible while maintaining a fee and rental structure consistent with the sponsor's other Federal obligations.
5. Grant Assurance 25, Airport Revenues
Grant Assurance 25, Airport Revenues, states:
a. All revenues generated by the airport and any local taxes on aviation fuel established after December 30, 1987, will be expended by it for 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 which are directly and substantially related to the actual air transportation of passengers or property; or for noise mitigation purposes on or off the airport. The following exceptions apply to this paragraph: 1. If covenants or assurances in debt obligations issued before September 3,
1982, by the owner or operator of the airport, or provisions enacted before September 3, 1982, in governing statutes controlling the owner or operator’s financing, provide for the use of the revenues from any of the airport owner or operator’s facilities, including the airport, to support not only the airport but also the airport owner or operator’s general debt obligations or other facilities, then this limitation on the use of all revenues generated by the airport (and, in the case of a public airport, local taxes on aviation fuel) shall not apply.
2. If the Secretary approved the sale of a privately owned airport to a public
sponsor and provides funding for any portion of the public sponsor’s acquisition of land, this limitation on the use of all revenue generated by the sale shall not apply to certain proceeds from the sale. This is conditioned on repayment to the Secretary by the private owner of an amount equal to the remaining unamortized portion (amortized over a 20-year period) of any airport improvement grant made to the private owner for any purpose other airport improvement grant made to the private owner for any purpose other than land acquisition on or after October 1, 1996, plus an amount equal to the Federal share of the current fair market value of any land acquired with an airport improvement grant made to that airport on or after October 1, 1996.
3. Certain revenue derived from or generated by mineral extraction, production,
lease, or the means at a general aviation airport (as defined at Section 47102
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of title 49 United States Code), if the FAA determines the airport sponsor meets the requirements set forth in Sec. 813 of Public Law 112-95.
b. As part of the annual audit required under the Single Audit Act of 1984, the
sponsor will direct that the audit will review, and the resulting audit report will provide an opinion concerning, the use of airport revenue and taxes in paragraph (a), and indicating whether funds paid or transferred to the owner or operator are paid or transferred in a manner consistent with Title 49, United States Code and any other applicable provision of law, including any regulation promulgated by the Secretary or Administrator.
c. Any civil penalties or other sanctions will be imposed for violation of this assurance in accordance with the provisions of Section 47107 of Title 49, United States Code.
Related Authority:
1. 49 U.S.C. § 47107(b) (1), Use of Revenue
The Secretary of Transportation may approve a project grant application under this subchapter for an airport development project only if the Secretary receives written assurances, satisfactory to the Secretary, that local taxes on aviation fuel (except taxes in effect on December 30, 1987) and the revenues generated by a public airport will be used for the capital or operating costs of (A) the airport; (B) the local airport system; or (C) other local facilities owned or operated by the airport owner or operator and directly and substantially related to the air transportation of passengers or property.
2. 49 U.S.C. § 47133, Restriction on Use of Revenues
Local taxes on aviation fuel (except taxes in effect on December 30, 1987) or the revenues generated by an airport that is the subject of federal assistance may not be expended for any purpose other than the capital or operating costs of (1) the airport; (2) the local airport system; or (3) any other local facility that is owned or operated by the person or entity that owns or operates the airport that is directly and substantially related to the air transportation of passengers or property.
3. 49 U.S.C. § 40116, Anti-Head Tax Act
The Anti-Head Tax Act provides that states and political subdivisions may collect a tax on a commercial aircraft flight only if the flight takes off or lands within the locality. Additionally, 49 U.S.C. § 40116(e)(2) states that a state or political subdivision may levy or collect “reasonable rental charges, landing fees, and other service charges from aircraft operators for using airport facilities of an airport owned or operated by that State or subdivision.” Title 49 U.S.C. § 40116(b) provides, in part, that state and local governmental entities (including a local airport authority) “may not levy or collect a tax, fee, head charge, or other charge on (1) an individual traveling in air commerce; (2) the transportation of an individual traveling in air commerce; (3) the sale of air transportation; or (4) the gross receipts from that air commerce or transportation.”
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E. The Complaint and Investigative Process
Pursuant to 14 C.F.R. § 16.23, a person directly and substantially affected by any alleged noncompliance may file a complaint with the FAA. The complainant shall provide a concise, but complete statement of the facts relied upon to substantiate each allegation and describe how the complainant was directly and substantially affected by the things done or omitted by the respondents. If there is a reasonable basis for further investigation, the FAA will investigate. The regulations governing Part 16 proceedings provide that, if the parties’ pleadings supply “a reasonable basis for further investigation,” the FAA should investigate “the subject matter of the complaint” (14 C.F.R. § 16.29(a)).
V. ANALYSIS AND DISCUSSION
A. Affirmative Defense: Ports Authority Motion to Dismiss
Ports Authority filed a pleading captioned Notice of Complainant’s Failure to Make Substantial and Reasonable Good Faith Efforts to Informally Resolve Disputed Matter Per 14 C.F..R. § 16.21 (b), dated February 22, 2018 (FAA Exhibit 1, Item 3) and Motion to Dismiss the Amended Complaint on March 29, 2018 (FAA Exhibit 1, Item 6). Ports Authority argued that Star Marianas failed to engage in good faith to resolve this disputed matter informally under 14 C.F.R. §16.26(b) and (c). Ports Authority contended that Star Marianas continuously held that its position on the AUA is correct. Ports Authority argued that Star Marianas repeatedly stated its commitment to informal resolution and then failed to participate. Ports Authority contended that Star Marianas decided instead to file a lawsuit in U.S. District Court for Northern Marianas Islands, and submitted a Part 16 Complaint to the FAA (Am. Compl., Star Marianas Air, Inc. v. Commonwealth Ports Authority, Aug. 1, 2017, No. 17-00012 (D.N. Mar. Is.) (FAA Exhibit 1, Item 3, and FAA Exhibit 1, Item 6). Star Marianas filed its response to the Motion to Dismiss the Amended Complaint on April 9, 2018 (FAA Exhibit 1, Item 14). Star Marianas contended that Ports Authority’s arguments are without merit because Ports Authority acknowledged written and verbal communications between the parties from 2012 to 2017. Star Marianas contended that it has met its burden under 14 C.F.R. § 16.21 to establish substantial pre-complaint attempts to resolve this matter informally over an extended period of time (FAA Exhibit 1, Item 14, p. 5). The Director notes that the Star Marianas and Ports Authority dispute has been ongoing since 2012. The considerable dialogue between the parties documented their good faith effort made informally to resolve the dispute. For this reason, the Director denies the Motion to Dismiss.
B. Issues
The Complainant raises five issues: 1. Whether Ports Authority violates Grant Assurance 1, General Federal Requirements 2. Whether Ports Authority violates Grant Assurance 22, Economic Nondiscrimination 3. Whether Ports Authority violates Grant Assurance 23, Exclusive Rights 4. Whether Ports Authority violates Grant Assurance 24, Fee and Rental Structure 5. Whether Ports Authority violates Grant Assurance 25, Airport Revenues
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1. Whether Ports Authority violates Grant Assurance No. 1, General
Federal Requirements Star Marianas alleged that Ports Authority violated Grant Assurance 1, General Federal Requirements, by imposing unreasonable and excessive charges on a per passenger basis without a maximum limitation based on: fair market value; Ports Authority’s operational costs; and the weight of Star Marianas landed aircraft (FAA Exhibit 1, Item 1, p. 26). Star Marianas also alleged Ports Authority is imposing fees or head charges on an individual traveling in air commerce contrary to 49 U.S.C. § 40116(b) (FAA Exhibit 1, Item 1, p. 5-6). Star Marianas also alleged the Ports Authority violated the Anti-Head Tax Act (AHTA) by charging head taxes on passengers traveling through its airports. Ports Authority denied Star Marianas’ allegation that it violated the AHTA. Ports Authority contended that the charges currently imposed are for its airports’ use, and they are consistent with applicable law and FAA policies (FAA Exhibit 1, Item 10, p. 37). Ports Authority argued its facility user fees reflect the airport’s debt service, equipment, maintenance, and planned future development costs. The Record shows that Star Marianas made these same or similar allegations under other claims in their Amended Complaint. The Director only will consider the Complainant’s allegation that Ports Authority violated AHTA in this section. The Director will address all other repeated claims in more applicable sections in this determination. The Record showed that Star Marianas expanded from a cargo carrier to provide passenger services at Saipan in 2009. Ports Authority required that Star Marianas pay an additional user fee of $4.95 per passenger in its rates and charges for common use passenger areas in the airport terminals. Star Marianas claimed that its rent jumped from $302 to $3200 per month because the additional common use fees were based by per passenger. (FAA Exhibit 1, Item 1, p. 30). Star Marianas also provided exhibits concerning AHTA. These documents showed Ports Authority and HON ADO had a teleconference call on August 3, 2012. In that teleconference call, they discussed the Star Marianas claim that the Ports Authority’s rates and charges were, in part, a violation of the AHTA. HON ADO requested that Ports Authority respond to the claim (FAA Exhibit 1, Item 6, p. 13). The Record shows that Ports Authority responded to HON ADO on September 4, 2012. Ports Authority provided information to HON ADO, which they argued that the assessed charges on a per passenger basis for the use of the airport facility rental and facility charges did not violate AHTA or applicable FAA policy (FAA Exhibit 1, Item 6, Exhibit 3). HON ADO responded to Ports Authority and Star Marianas and provided its determination on January 3, 2013. HON ADO determined that the cost allocation methodology applied to the Ports Authority airports rates and charges did not represent an illegal head tax under AHTA and FAA policy. Nevertheless, HON ADO recommended changing the allocation’s terminology to avoid the perception that the charges were a head tax (FAA Exhibit 1, Item 6, Exhibit 5).
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The Ports Authority’s rates and charges background and methodology was reviewed to ascertain whether any rates and charges were illegal under AHTA. The Record showed on November 18, 2013, Ports Authority wrote to HON ADO that it retained a financial consultant, Ricondo and Associates (Ricondo), to train the Ports Authority accounting staff, audit the rates and charges, review the PFC programs, and reconcile any issues they identified (FAA Exhibit 1, Item 6, Exhibit 9). As part of Ports Authority contract with Ricondo, Ricondo prepared draft Projected Rates and Charges Analyses for Airline Negotiations for Saipan International Airport, Rota International Airport and Tinian International Airport for FYS 2016 and 2017 for Ports Authority (FAA Exhibit 1, Item 10, Exhibit 2, and FAA Exhibit 1, Item 10, Exhibit 3). Ricondo prepared the draft FY 2016 document November 4, 2015, and the draft FY 2017 document on October 23, 2016 (FAA Exhibit 1, Item 10, Exhibit 2, and FAA Exhibit 1, Item 10, Exhibit 3). Both draft documents show Ports Authority’s airports rates and charges formulas are primarily “compensatory” (FAA Exhibit 1, Item 10, Exhibit 2, p. 2). Ricondo defined the Ports Authority airport rates and charges methodology as:
• A “cost center residual” landing fee rate for the Airfield Cost Center using total
landed weight as the divisor.
• A “cost center compensatory” average terminal rental rate for the Terminal Cost Center using total rentable square feet as the divisor.
• Cost centers that are consistent with industry practices.
(FAA Exhibit 1, Item 10, Exhibit 2, p. 2). FAA internal guidance provide that the compensatory methodology permits airport sponsors to allocate capital and operating costs to airport cost centers and formulates rates to recover costs. The costs allocated to a cost center are listed in a base rate, which the airport recovers from aeronautical users through the aeronautical rates (FAA Order 5190.6B, ¶¶18-6 through 18-9). The methodology described how Ports Authority developed the airlines rates and charges, and fees, assessed to airlines for each cost center and common use areas. Ports Authority determines the common use area rates and charges by the percentage of passenger traffic generated by each airline. Both Ricondo analyses showed a transparent and reasonable methodology used by Ports Authority to establish the airport budgeted rates and charges for each fiscal year. The Record showed Ports Authority did not prepare accurate settlements between fiscal years 2009-2015 under the AUA. Ports Authority has since calculated settlements in 2016 and attempted to settle with the airlines (FAA Exhibit 1, Item 10, p. 25). Ports Authority submitted the airport rates and charges settlement letter to Star Marianas dated August 26, 2016 (FAA Exhibit 1, Item 6, Exhibit 22). The AUA allowed the Ports Authority to extend the current annual airline rates and charges until recalculated for the next fiscal year, and then provide credit or refund the airline if overcharged (FAA Exhibit 1, Item 1, Exhibit C, pp. 28-29). Ports Authority also stated that it is committed the charges would be updated on an annual basis to reflect the current year’s budget and expected passenger and landed weight activity.
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Under 49 U.S.C. § 47129, the FAA may only determine whether a fee is reasonable or unreasonable. FAA may not set the level of the fee as provided in internal guidance (FAA Order 5190.6B, ¶18-7). Based on the review of the Ports Authority’s current compensatory methodology, the Director find that nothing in these documents appears to conflict with acceptable methodologies for establishing airport rates and charges with airlines. Consequently, the current Ports Authority’s compensatory methodology used to establish the airport’s rates and charges, and fees is fair and reasonable. A properly formulated rates and charges methodology does not constitute an illegal head tax. Based on the descriptions of the methodologies provided by the Ports Authority, the Director finds that Star Marianas has not provided persuasive evidence showing how the Ports Authority rates and charges assessed for each cost center and common use areas was, or currently is, a violation of AHTA. Thus, there is no substantive evidence of Ports Authority levying or collecting a targeted tax, fee, a head charge, or other charge on (1) an individual traveling in air commerce; (2) the transportation of an individual traveling in air commerce; (3) the sale of air transportation; or (4) the gross receipts from that air commerce or transportation in violation of 49 U.S.C. § 40116. Therefore, the Director finds Ports Authority’s description of its rates and charges methodology does not constitute an illegal head tax, and reaffirms HON ADO’s finding that Ports Authority’s rates and charges methodology did not represent an illegal head tax under AHTA. The Part 16 process determines whether sponsors are currently in compliance with Federal obligations, and does not provide restitution or financial damages. Star Marianas’s allegations against Ports Authority’s anti-head taxes are for Fiscal Years 2009 through 2014. Star Marianas filed this complaint in February 2018. In response, the Ports Authority has taken action to update its annual rates and charges in a timely manner (FAA Exhibit 1, Item 10, p. 25). Consequently, “the FAA will consider the successful action by the airport to cure any alleged or potential past violation of applicable Federal obligations to be grounds for dismissal of such allegations” (See Wilson Air Center v. Memphis and Shelby County Airport Authority, FAA Docket No. 16-99-10, (August 30, 2001) (Final Decision and Order), p. 5). The Director dismisses this issue on this additional ground. Therefore, the Director finds that Ports Authority does not violate AHTA under 49 U.S.C. § 40116, as provided in Grant Assurance No. 1, General Federal Requirements.
2. Whether Ports Authority violates Grant Assurance 22, Economic Nondiscrimination
Star Marianas alleged that Ports Authority is not making terminals available for public use on reasonable terms and without unjust discrimination to all types, kinds, and classes of aeronautical activities, including commercial aeronautical activities (FAA Exhibit 1, Item 1, p. 27). Star Marianas alleged that Ports Authority violated the FAA policy on rates and charges; that fees are unreasonably high; and that there is a head tax in violation of federal law related to the sale of air transportation (FAA Exhibit 1, Item 1, pp. 27-28). Star Marianas argued that the rates and charges should be set to allow for recovery of operating costs, not to make a profit (FAA Exhibit 1, Item 1, p. 28).
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Star Marianas argued that the Ports Authority charges are beyond what is permitted in the AUA and Airport Rules and Regulations and that these charges were imposed after it started passenger services. Star Marianas argued that the Ports Authority’s retroactive charges are unreasonable because Star Marianas cannot recoup the additional costs from the passengers when Ports Authority delayed its calculations for the prior years, in violation of the AUA (FAA Exhibit 1, Item 1, p. 29). Star Marianas also contended that Ports Authority imposed a fee on Star Marianas unrelated to the adjusted annual costs of terminal operations, that the fee is based solely on the number of Star Marianas passengers enplaned, and that these fees do not have a bearing on Ports Authority’s operational expenses. Star Marianas argued that the rental fee of $302 per month and the additional $3,200 charge for the Star Marianas passengers to use of the terminals are not based on proportional recovery of the terminal costs (FAA Exhibit 1, Item 1, pp. 29-30). Star Marianas also alleged that Ports Authority’s landing fees are unreasonable because they do not relate to Star Marianas’s landed weight at the terminals (FAA Exhibit 1, Item 1, p. 30). Star Marianas argued that Ports Authority applied an arbitrary landing fee rate and then applied 50% of that rate to the terminals. Star Marianas contended that Ports Authority did not provide any transparent explanation or analysis for landing fee charges between FYs 2009 and 2014, and the rates allocated to Star Marianas are not reasonable. Star Marianas also argued that it is not able to be competitive with other air carriers; thus, Ports Authority is economically discriminating against Star Marianas (FAA Exhibit 1, Item 1, pp. 30-34). Ports Authority answered that it met with Star Marianas multiple times to discuss its current and future rates and charges methodologies (FAA Exhibit 1, Item 10, p. 19). Ports Authority stated that Star Marianas is confused about the different sections of AUA, and noted that the appropriate section for landing fees rates is Section 7.02. Ports Authority contended that Star Marianas misrepresented Section 7.08 of the AUA. Ports Authority stated that it would mail a copy of the budget to Star Marianas prior to the next fiscal year. Ports Authority contended that it allowed Star Marianas to comment and consider the comments. Ports Authority will provide Star Marianas a copy of the adopted budget, and the new rates, charges, and fees for the ensuing fiscal year (FAA Exhibit 1, Item 10, pp. 15-17). Ports Authority also stated that the methodology used for establishing Joint Use Charges for common use space by more than one airline established by enplanements is a commonly accepted methodology (FAA Exhibit 1, Item 10, p. 22). Ports Authority affirmed that its new methodology reflects the operating and net capital costs of the facilities and is an acceptable method of valuation (FAA Exhibit 1, Item 10, p. 22). Ports Authority finally argued that Star Marianas contractually obligated itself to the AUA (FAA Exhibit 1, Item 10, p. 17). The Record shows that although Ports Authority failed to establish its rates and charges based on an annual evaluation required under the AUA, it has now satisfactorily provided evidence that it has done so retroactively and intends to continue to do so going forward. The Director is satisfied that the Ports Authority current rates and charges methodology is transparent and reasonable. The Part 16 process only determines whether sponsors are currently in compliance with Federal obligations, and does not provide restitution or financial damages. Consequently, “the FAA will consider the successful action by the airport to cure any alleged or potential past
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violation of applicable Federal obligations to be grounds for dismissal of such allegations” (See Wilson Air Center v. Memphis and Shelby County Airport Authority, FAA Docket No. 16-99-10, (August 30, 2001) (Final Decision and Order), p. 5). Finally, Star Marianas made allegations but it did not provide the Director with any substantive or persuasive evidence to support its allegations of any current Grant Assurance 22 violation. Part 16 requires “the burden of proof is on the complainant to show noncompliance with an Act or any regulation, order, agreement or document of conveyance issued under the authority of an Act” (14 C.F.R. § 16.23(k)(1)). Therefore, the Director dismisses these allegations under Grant Assurance 22, Economic Nondiscrimination. However, Star Marianas also alleged that Ports Authority provided exclusive airside access to other airlines at the Rota Terminal and required Star Marianas to enplane cargo and passengers through the main terminal building, thus discriminating against Star Marianas to compete against other similarly situated airlines (FAA Exhibit 1, Item 1, p. 33). Star Marianas argued that Ports Authority refused Star Marianas airside access or support any alternatives for Star Marianas like its competitors (FAA Exhibit 1, Item 1, p. 34). Since Star Marianas claimed this specific allegation also is an exclusive rights violation, the Director elects to address this specific claim in the next section.
3. Whether Ports Authority violates Grant Assurance No. 23, Exclusive Rights
Star Marianas stated that the airline entered into a lease with Ports Authority at Rota International Airport in 2011. At that time, Star Marianas only operated cargo services. When Star Marianas expanded to provide scheduled passenger service in 2013, Star Marianas requested airside access at the terminal like other similarly situated air carriers. Ports Authority denied the request, and it required Star Marianas to enplane its passengers and cargo at the far West end of the Rota Terminal (FAA Exhibit 1, FAA Item 1, pp. 11-12). Star Marianas argued that Ports Authority granted special rights or privileges to other air carriers and has denied this same right to Star Marianas (FAA Exhibit 1, Item 1, pp. 34-35).
Ports Authority answered that Star Marianas has airside access at the Rota terminal, and that access is neither direct nor exclusive. Ports Authority contends that another airline, Arctic Circle, also must enplane its passengers and cargo through the West end of the terminal building to access aircraft. Ports Authority argues that the reason for the non-exclusive location is that both airlines do not require Transportation Security Administration (TSA) screening1 (FAA Exhibit 1, Item 10, p. 7).
1 Commercial airport sponsors are required to comply with Transportation Security Administration Regulations Part 1542 (14 C.F.R. part 1542) for airport security. TSA requires commercial airlines’ passengers and cargo be screened and held in sterile areas prior to boarding their flights. Prior to boarding, the sterile areas separate TSA cleared scheduled passengers and cargo from TSA non-cleared scheduled passengers and cargo, and the public. Star Marianas did not provide any evidence that its passengers require TSA screening.
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The Director notes that, if its passengers do not require TSA screening, it is reasonable that Star Marianas passengers cannot share the same areas with such passengers and that other space is required for unscreened passengers to board and unload from small aircraft. Under these circumstances, Ports Authority provided reasonable terms and without unjust discrimination to Star Marianas without adversely affecting the efficiency and utility of the airport in the Rota airport security program. Star Marianas did not provide any response to Ports Authority’s argument of compliance with TSA security requirements. FAA internal policy provides that an exclusive rights violation is the denial of an opportunity to be an on-airport aeronautical service provider by the airport sponsor to other qualified parties (FAA Order 5190.6B, ¶8-10). In this matter, Ports Authority provides Star Marianas reasonable access to the airport under the existing requirements. Furthermore, Star Marianas failed to show which carrier had obtained an exclusive right that Star Marianas itself was denied. Thus, Ports Authority remains in compliance with its grant assurances and federal surplus property obligations. Therefore, the Director dismisses allegations under Grant Assurance No. 23, Exclusive Rights and Grant Assurance 22, Economic Nondiscrimination.
4. Whether Ports Authority violates Grant Assurance 24, Fee and Rental Structure
Star Marianas contends that the fact that Ports Authority’s revenue exceeds its operational expenses each fiscal year constitutes a violation of Grant Assurance 24. (FAA Exhibit 1, Item 1, pp. 36-38). Ports Authority denied these allegations. Grant Assurance 24, Fee and Rental Structure, requires an airport sponsor to maintain a fee and rental structure which will make the airport as self-sustaining as possible under the circumstances existing at that particular airport. This is best achieved through the use of a rate-setting methodology which quantifies airfield costs and services currently in use and establishes charges linked to those costs (See Robert Kihlstrom v. Port of Orcas, Washington State, FAA Docket No. 16-02-07, (September 1, 2004) (Director’s Determination), p. 25). Federal law does not prescribe a single approach to rate-setting; airports may utilize their preferred methodology as long as that methodology is applied consistently to similarly situated aeronautical users and conforms to other requirements outlined in the FAA’s Rates and Charges Policy (See 61 Fed. Reg 31944, 32019 (Jun. 21, 1996); and Union Flights, Inc. v. San Francisco International Airport and City & County of San Francisco, FAA Docket No. 16-99-11, (February 15, 2000) (Director’s Determination), p. 15). Consistent with its responsibilities under Grant Assurance 24, a sponsor has the right to accumulate reasonable surpluses to protect itself against financial contingencies, debt service and future development (See Aerodynamics of Reading, Inc. v. Reading Reg'l Airport Auth., FAA Docket No. 16-00-03, (July 23, 2001)(Final Decision and Order), pp. 20-21). Deloitte and Touche (Deloitte), Ports Authority’s independent auditor, conducted the Ports Authority Financial Audited financial information for fiscal years ending September 30, 2015 and September 30, 2016 (FAA Exhibit 1, Item 12, and FAA Exhibit 1, Item 13). These independent audits were reviewed as part of this investigation. Contrary to the Star Marianas’ allegation, FAA did not find in the Deloitte audits that there was an accumulation of excessive surplus funds for capital and operation costs, or reserves for the local airport system. Deloitte
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also did not make any finding in its independent audits that Ports Authority had accumulated excessive surplus funds (FAA Exhibit 1, Item 12, and FAA Exhibit 1, Item 13). Part 16 requires “the burden of proof is on the complainant to show noncompliance with an Act or any regulation, order, agreement or document of conveyance issued under the authority of an Act” (14 C.F.R. § 16.23(k)(1)). Star Marianas has not provided the Director any substantive detailed financial evidence to support its allegation that there was an unreasonable amount of surplus funds to cover the capital and operating costs, and unreasonable reserves for the Ports Authority airports system. The Director finds there was a lack of surplus funds in the independent audits is persuasive evidence. Therefore, the Director dismisses the allegations under Grant Assurance 24, Fee and Rental Structure.
5. Whether Ports Authority is violating Grant Assurance No. 25, Airport Revenues
Star Marianas alleged that a Deloitte independent audit dated October 4, 2016, shows Ports Authority failed to manage its finances. Star Marianas contended that the audit shows Ports Authority imposed PFCs on the airlines, including Star Marianas, for FAA-approved projects that it never commenced, for projects the FAA never approved, and that the Ports Authority failed to properly report its expenditures and revenue. Star Marianas also argued that the audit states Ports Authority disbursed $1,514,000 in PFC funds to airport projects the FAA had not approved and failed to maintain records to identify these projects (FAA Exhibit 1, Item 1, pp. 36-38). Star Marianas alleged that Ports Authority lost a large amount of money and improperly used airport revenues to offset the losses. Star Marianas further contended that Ports Authority is unable to attribute what expenses it paid because of its poor documentation. Therefore, Star Marianas argued that the excessive surpluses also violate Grant Assurance 25 (FAA Exhibit 1, Item 1, pp. 36-38). Ports Authority admitted that its independent audit in 2016 found that the Ports Authority’s lack of monitoring, lack of awareness of program requirements, and failure to maintain a separate accounting record for PFC projects caused the discrepancies. Ports Authority worked with the independent auditor to implement corrective measures for any discrepancies flagged by the auditor. Ports Authority also hired a consultant in 2015 to assist in reconciling expenditures and bringing the required reporting up to date (FAA Exhibit 1, Item 10, p. 18). As the Director previously determined, violations of the PFC statute or regulations are outside the jurisdiction of 14 C.F.R. part 16. Facts pertaining to relevant PFCs may be used only as background. Therefore, allegations related to PFCs in this complaint are dismissed as outside the jurisdiction of this Director’s Determination (FAA Exhibit 1, Item 3, Exhibit 2, pp. 2-3). FAA Policy permits sponsors to use airport revenue for the capital or operating costs of the airport, the local airport system, or other local facilities that are owned or operated by the airport owner or operator; and directly and substantially related to the air transportation of passengers or property. Such costs may include reimbursements to a state or local agency for received and
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documented services, subject to the terms of the Revenue Use Policy. Operating costs for an airport may be either direct or indirect and may include all of the expenses and costs recognized under the generally accepted accounting principles and practices that apply to the airport enterprise funds of state and local government entities (FAA Order 5190.6B, ¶15-4). The Record shows Deloitte conducted the independent Ports Authority Audited Financial Statements for fiscal years ending September 30, 2015 and September 30, 2016 (FAA Exhibit 1, Item 12, and FAA Exhibit 1, Item 13). Although Ports Authority implemented corrective measures for identified discrepancies in both audits, Deloitte did not make any independent findings that Ports Authority diverted airport revenue to non-airport purposes. “The burden of proof is on the complainant to show noncompliance with an Act or any regulation, order, agreement or document of conveyance issued under the authority of an Act” (14 C.F.R. § 16.23(k)(1)). However, Star Marianas did not provide any substantive evidence to overcome the audits that Ports Authority had unlawfully diverted airport revenue for non-airport purposes from the Ports Authority airport system. The review of the entire Record also did not identify any misuse of airport revenue for non-airport purposes. Therefore, for the reasons stated, the Director dismisses the allegations under Grant Assurance No. 25, Airport Revenues. VI. FINDINGS AND CONCLUSIONS
Upon consideration of the submissions, responses by the parties, the record herein, applicable law and policy, and for the reasons stated above, the Director of the FAA Office of Airport Compliance and Management Analysis finds that the Commonwealth Ports Authority is currently not in violation of:
• Grant Assurance 1, General Federal Requirements • Grant Assurance 22, Economic Nondiscrimination • Grant Assurance 23, Exclusive Rights • Grant Assurance 24, Fee and Rental Structure, or • Grant Assurance 25, Airport Revenues
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ORDER
Accordingly, it is ordered that:
1. Commonwealth Ports Authority Motion to Dismiss the Amended Complaint is denied;2. The Complaint is dismissed; and3. All motions not expressly granted in this Determination are denied.
RIGHT OF APPEAL
This Order of the Director is an initial agency determination and does not constitute final agency action and order subject to judicial review. 14 C.F.R. § 16.247(b)(2). A party to this proceeding adversely affected by the Director’s Order may appeal the initial determination to the FAA Associate Administrator for Airports under 14 C.F.R. § 16.33(c) within 30 days after service of the Director’s Order.
________________________________________ ___________________ Kevin C. Willis Date Director, Office of Airport Compliance and Management Analysis
5/5/20
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Viola E-CTR Cijntje
Stamp
FAA EXHIBIT 1 DIRECTOR’S DETERMINATION
INDEX OF ADMINISTRATIVE RECORD FAA Docket 16-18-01
Item 1 Star Marianas Air, Inc., filed Amended Complaint against Commonwealth Ports
Authority on February 5, 2018. Exhibit A Policy Regarding Airport Rates and Charges, 78 Fed. Reg. 55330
(Sept. 10, 2013). Exhibit B NMIAC Title 40, Subchapter 40-10.1 Airport Rules and
Regulations, (Apr. 13, 2005). Exhibit C Airline Use Agreement between Commonwealth Ports Authority
and Star Marianas Air, Inc., dated April 27, 2009. Exhibit D NMIAC Title 40, Subchapter 40-10.1 Part 1200 Schedule of Fees
and Charges (Apr. 28, 2017). Exhibit E Star Marianas Air, Inc.’s Lease with Rota International Airport,
dated May 3, 2011. Exhibit F Mr. Timothy Bellas, Star Marianas Air attorney, Letter to Mr.
Robert Torres, Commonwealth Ports Authority Counsel, dated April 18, 2012.
Exhibit G Mr. Robert Torres, Commonwealth Ports Authority Counsel,
Letter dated June 14, 2012, to Mr. Timothy Bellas, Star Marianas Air attorney.
Exhibit H Mr. Bellas, Star Marianas Air Attorney Letter dated October 5,
2015, to Mr. Torres, Commonwealth Ports Authority Counsel. Exhibit I Mr. Paz Christian, President of Star Marianas Air, Letter to
Mr. Derek Sasamoto, Commonwealth Ports Authority Controller, dated May 10, 2013.
Exhibit J Deloitte and Touche Independent Auditors, Report on Compliance
and Internal Control over Compliance with Requirements Applicable to the Passenger Facility Charge Program, dated October 4, 2015.
Exhibit K Mr. Richard Richards, Star Marianas Air Attorney, Letter to Mr. Robert Torres, Commonwealth Ports Authority Counsel, dated August 28, 2013.
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Exhibit L Shaun Christian, Star Marianas Air President, Letter to Ms. MaryAnn Lizama, Commonwealth Ports Authority Executive Director, dated May 21, 2015.
Exhibit M Mr. Christopher Tenorio, Acting Commonwealth Ports Authority
Executive Director, Letter to Mr. Shaun Christian, Star Marianas Air President, dated August 26, 2016.
Exhibit N Mr. Christopher Tenorio, Commonwealth Ports Authority
Executive Director, Letter to Mr. Shaun Christian, Star Marianas Air President, dated July 13, 2017.
Exhibit O Proposed 38 Com. Reg. 039040 (Dec. 28, 2016). Exhibit P FAA Airport Improvement Program Airport Sponsor Assurances
(March 2014). Item 2 FAA issued Notice of Docketing on February 22, 2018. Item 3 Commonwealth Ports Authority filed Notice of Complainant’s Failure to Make
Substantial and Reasonable Good Faith Efforts to Informally Resolve Disputed Matter Per 14 C.F.R. §16.21 (b), dated February 22, 2018. Exhibit 1 Sworn Declaration of Skye Aldan, Commonwealth Ports Authority
Comptroller, dated February 22, 2018. Exhibit 2 Order of Dismissal, Star Marianas Air. Inc. v. Commonwealth
Ports Authority of the Commonwealth of the Northern Mariana Islands, FAA Docket No. 16-14-02 (Apr. 18, 2014).
Item 4 Commonwealth Ports Authority filed Motion for An Extension of Time to File Its
Response, dated March 12, 2018. Item 5 FAA granted Motion of Extension of Time for Commonwealth Ports Authority to
File Its Response to the Complaint until March 24, 2018, dated March 15, 2018. Item 6 Commonwealth Ports Authority filed Motion to Dismiss Star Marianas Air
Amended Complaint, dated March 29, 2018.
Exhibit 1 Mr. Edward DeLeon Guerrero, Commonwealth Ports Authority Executive Director, Letter to Mr. Robert Christian, Star Marianas Air President, dated August 7, 2012.
Exhibit 2 Mr. Robert Torres, Commonwealth Ports Authority Counsel,
Letter to FAA Honolulu Airports District Office Mr. Gordon Wong, Lead Program Manager, dated August 28, 2012.
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Exhibit 3 Mr. Robert Torres, Commonwealth Ports Authority Counsel, Letter to FAA Honolulu Airports District Office Mr. Gordon Wong, Lead Program Manager, dated September 4, 2012.
Exhibit 4 Mr. Ronnie Simpson, FAA Honolulu Airports District Office
Manager, Letter on Excessive Fees for Use of Airport Space to Mr. Edward DeLeon Guerrero, Commonwealth Ports Authority Executive Director, dated January 3, 2013.
Exhibit 5 Mr. Ronnie Simpson, FAA Honolulu Airports District Office
Manager, Letter on Use of Head Tax for Assessing Fees to Mr. Edward DeLeon Guerrero, Commonwealth Ports Authority Executive Director, dated January 3, 2013.
Exhibit 6 Part of Letter Concerning Star Marianas Air’s Failure to Remit
PFCs to Commonwealth Ports Authority from FAA Honolulu Airports District Office to Mr. Edward DeLeon Guerrero, Commonwealth Ports Authority Executive Director, dated February 19, 2013.
Exhibit 7 Mr. Ronnie Simpson, FAA Honolulu Airports District Office
Manager, Letter Concerning Report of Airline not Remitting Collected PFCs to Ms. Mary Ann Lizama, Commonwealth Ports Authority Executive Director, dated October 2, 2013.
Exhibit 8 Commonwealth Ports Authority Commuter Terminal User Meeting
Minutes dated October 29, 2013. Exhibit 9 Ms. Mary Ann Lizama, Commonwealth Ports Authority Executive
Director, Response Letter Concerning Report of Airline not Remitting Collected PFCs to Mr. Ronnie Simpson, FAA Honolulu Airports District Office Manager, dated November 18, 2013.
Exhibit 10 Ricondo and Associates Proposal to Provide Financial Planning
Services to Commonwealth Ports Authority, dated June 19, 2014. Exhibit 11 Commonwealth Ports Authority Professional Services Contract
with Ricondo and Associates, signed but undated. Exhibit 12 Commonwealth Ports Authority Professional Services Signed
Contract with Ricondo and Associates Concerning the PFC program, dated December 6, 2014.
Exhibit 13 Mr. Timothy Bellas, Star Marianas Air attorney, Letter to Mr.
Robert Torres, Commonwealth Ports Authority Counsel, dated October 5, 2015.
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Exhibit 14 Mr. Timothy Bellas, Star Marianas Air attorney, Email to Mr.
Robert Torres, Commonwealth Ports Authority Counsel, dated November 16, 2015.
Exhibit 15 Commonwealth Ports Authority Change Order to Ricondo and
Associates on Rates Preparation of FY 2009 to FY 2016 Settlement and FY 2017 Budgeted Rates, dated June 22, 2016.
Exhibit 16 Mr. Shaun Christian, Star Marianas Air President, Email
Concerning Notes on new Commonwealth Ports Authority Airport Rates and Charges, to Commonwealth Ports Authority staff, dated July 28, 2016.
Exhibit 17 Mr. Christopher Tenorio, Acting Commonwealth Ports Authority
Executive Director, Letter Concerning Rates and Charges Refund Owed to Star Marianas Air between FY2009 and FY2014, to Mr. Shaun Christian, Star Marianas Air President, dated August 26, 2016.
Exhibit 18 Mr. Robert Torres, Commonwealth Ports Authority Counsel,
Emails with Ms. Bonnie Ossege, Ricondo and Associates, and Ms. Skye Aldan, Commonwealth Ports Authority Comptroller, dated December 3, 2016.
Exhibit 19 Commonwealth Ports Authority Professional Services Contract
with Ricondo and Associates, to Provide Support on the Commonwealth Ports Authority Passenger Facility Charge program, dated December 5, 2016.
Exhibit 20 Mr. Robert Torres, Commonwealth Ports Authority Counsel,
Emails with Mr. Timothy Bellas, Star Marianas Air Attorney, dated May 18, 2017.
Exhibit 21 Mr. Christopher Tenorio, Commonwealth Ports Authority
Executive Director, Letter to Mr. Shaun Christian, Star Marianas Air President, Concerning Star Marianas Air charges for FY2015, dated July 13, 2017.
Exhibit 22 Mr. Christopher Tenorio, Commonwealth Ports Authority
Executive Director, Letter to Mr. Shaun Christian, Star Marianas Air President, Concerning Commonwealth Ports Authority Rates and Charges Settlement between FY 2009 and FY 2014, dated August 26, 2016.
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Exhibit 23 Mr. Robert Torres, Commonwealth Ports Authority Counsel, Emails with Mr. Timothy Bellas, Star Marianas Air Attorney, dated August 1, 2017.
Item 1 - Commonwealth Ports Authority Board of Directors
Meeting Minutes dated August 22, 2017. Exhibit 24 Am. Compl., Star Marianas Air, Inc. v. Commonwealth Ports
Authority, Aug. 1, 2017, No. 17-00012 (D.N. Mar. Is.). Exhibit 25 Commonwealth Ports Authority Professional Services Contract
No. CPA-SS-1001-17 with Ricondo and Associates, to Provide Workshops on the Commonwealth Ports Authority Passenger Facility Charge Program, undated.
Exhibit 26 Am. Compl., Star Marianas Air, Inc. v. Commonwealth Ports Authority, Oct. 27, 2017, No. 17-00012 (D.N. Mar. Is.).
Exhibit 27 Mr. Timothy Bellas, Star Marianas Attorney, Letter to Mr.
Christopher Tenorio, Commonwealth Ports Authority Executive Director, dated March 12, 2018.
Exhibit 28 Mr. Timothy Bellas, Star Marianas Attorney, Email to Mr. Robert
Torres, Commonwealth Ports Authority Counsel, dated August 1, 2017.
Item 7 Commonwealth Ports Authority Notice of Errata and Resubmission of Specific
Exhibits to Its Answer of Complainant’s Amended Complaint, dated April 17, 2018.
Exhibit 6 Mr. Ronnie Simpson, Letter Concerning Star Marianas Air’s
Failure to Remit PFCs to Commonwealth Ports Authority from FAA Honolulu Airports District Office to Mr. Edward DeLeon Guerrero, Commonwealth Ports Authority Executive Director, dated February 19, 2013.
Exhibit 10 Mr. Geoffrey Wheeler, Letter re Ricondo and Associates Proposal
to Provide Financial Planning Services to Commonwealth Ports Authority to Ms. Mary Ann Lizama, dated June 19, 2014.
Exhibit 22 CPA Professional Services contract No. CPA-SS-1001-17 with
Ricondo and Associates, to Provide Workshops on the Commonwealth Ports Authority Passenger Facility Charge program, undated.
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Exhibit 23 Mr. Robert Torres, Commonwealth Ports Authority counsel, Emails with Mr. Timothy Bellas, Star Marianas Air attorney, dated February 15, 2017.
Exhibit 24 Am. Compl., Star Marianas Air, Inc. v. Commonwealth Ports
Authority, Aug. 1, 2017, No. 17-00012 (D.N. Mar. Is.). Exhibit 25 Commonwealth Ports Authority Board of Directors Meeting
Minutes dated August 22, 2017.
Item 8 Commonwealth Ports Authority filed an Unopposed Motion Requesting an Extension of Time until June 22, 2018, to file its Response to the Star Marianas Air Amended Complaint, dated June 14, 2018.
Item 9 FAA issues Extension of Time until June 22, 2018, for Commonwealth Ports
Authority to file its Response to the Star Marianas Air Amended Complaint, dated June 15, 2018.
Item 10 Commonwealth Ports Authority filed its Answer to Star Marianas Air Amended
Complaint, dated June 22, 2018.
Exhibit 1 Mr. Robert Torres, Commonwealth Ports Authority Counsel, Response Letter on Star Marianas Air’s Charges of Non-Compliance with Federal Law Regarding Facility User Fees/Blue Ash Charter Letters, to Mr. Timothy Bellas, Star Marianas Air attorney, dated October 24, 2013.
Exhibit 2 Commonwealth Ports Authority Projected Rates and Charges
Analyses for Airline Negotiations at Saipan International Airport, Rota International Airport, Tinian International Airport for Budget FY 2016, prepared by Ricondo and Associates, dated November 4, 2015.
Exhibit 3 Commonwealth Ports Authority Projected Rates and Charges
Analyses for Airline Negotiations at Saipan International Airport, Rota International Airport, Tinian International Airport for Budget FY 2017, prepared by Ricondo and Associates, dated October 23, 2016.
Item 11 FAA issued Extension of Time dated November 19, 2018, to issue the Director’s Determination by March 22, 2019.
Item 12 Deloitte and Touche Commonwealth Ports Authority Report on the Audit of
Financial Statements in Accordance with OMB Circular A-133 Year Ended September 30, 2015.
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Item 13 Deloitte and Touche Commonwealth Ports Authority Report on the Audit of Financial Statements in Accordance with the Uniform Guidance Year Ended September 30, 2016.
Item 14 Star Marianas Air filed Response to Respondent’s Motion to Dismiss on April 9,
2018.
Exhibit 1 Mr. Christopher Tenorio, Commonwealth Ports Authority Executive Director, Letter on Rates and Charges Refund for FY 2016 Owed to Star Marianas Air between FY2009 and FY2014, to Mr. Shaun Christian, Star Marianas Air President, dated February 21, 2018.
Item 15 Saipan International Airport AIP Grant History, dated January 23, 2019. Item 16 Rota International Airport AIP Grant History, dated January 23, 2019. Item 17 Tinian International Airport AIP Grant History, dated January 23, 2019. Item 18 FAA issued Extension of Time dated March 22, 2019, to issue the Director’s
Determination by June 21, 2019. Item 19 Star Marianas Air – Our Fleet, STARMARIANASAIR.COM, available at
https://www.starmarianasair.com/our-fleet (last visited June 24, 2019). Item 20 FAA issued Extension of Time dated June 21, 2019, to issue the Director’s
Determination by August 14, 2019. Item 21 FAA issued Extension of Time dated August 13, 2019, to issue the Director’s
Determination by October 11, 2019. Item 22 FAA issued Extension of Time dated October 18, 2019, to issue the Director’s
Determination by December 11, 2019. Item 23 FAA issued Extension of Time dated December 19, 2019, to issue the Director’s
Determination by February 28, 2020. Item 24 Saipan International Airport AIP Grant History, dated January 6, 2020. Item 25 Rota International Airport AIP Grant History, dated January 6, 2020. Item 26 Tinian International Airport AIP Grant History, dated January 6, 2020. Item 27 FAA issued Extension of Time dated March 4, 2020, to issue the Director’s
CERTIFICATE OF SERVICE I HEREBY CERTIFY that on May 5, 2020, I sent via electronic mail a true copy of the foregoing document addressed to: FOR COMPLAINANT Mr. Richard L. Richards Jason Goldstein Richards Goldstein LLP 55 Miracle Mile, Suite 310 Coral Gables, Florida 33134 [email protected][email protected] FOR RESPONDENT Mr. Robert T. Torres, Esq. Law Offices of Robert T. Torres Plata Drive, Whispering Palms (Chalan Kiya) P.O. Box 503758 CK Saipan, MP 96950 [email protected] Copy to: FAA Part 16 Airport Proceedings Docket (AGC-600) FAA Office of Airport Management and Management Analysis (ACO-100) _____________________________ Viola Cijntje Office of Airport Compliance
