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Part 16 Dockets V UNITED STATES DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION RECEIVED WASHINGTON, DC Star Marianas Air, Inc., SEP 012020 Complainant, PART 16 DOCKETS V. FAA Docket No. 16-18-01 Commonwealth Ports Authority, Respondent. STAR MARIANAS, INC.'S SURREPLY AND MOTION FOR LEAVE TO FILE SURREPLY BRIEF I. INTRODUCTION Pursuant to 14 C.F.R. § 16.33, Complainant, Star Marianas Air, Inc. ("Star Marianas"), respectfully requests leave to file this Surreply to Respondent Commonwealth Ports Authority's ("Ports Authority") Reply to Complainant's Appeal (the "Reply"). In compliance with 14 C.F.R. § 16.33(f), please find a petition requesting the entrance of new evidence which explains why the new issue or evidence was not presented to the Director. (See the § 16.33(f) Petition attached as Exhibit "A"). The Ports Authority would have the Director's Determination stand as is. However, and as the Petition and accompanying affidavit by Robert F. Christian, Chairman of Star Marianas (the "Affidavit"), will show, new events and evidence have transpired between Star Marianas' filing of the Amended Complaint on February 2, 2018, and the Director's Determination filed on May 5, 2020. (See the Affidavit of Robert F. Christian attached as Exhibit "B"). Star Marianas' Appeal and Surreply are necessary for the Associate Administrator to properly assess the current situation between the parties. II. LEGAL STANDARD On appeal, the Associate Administrator considers whether (1) the findings of fact in the Director's Determination are not supported by a preponderance of reliable, probative, and substantial evidence contained in the record, (2) whether the conclusions in the Director's Determination were not made in accordance with law, precedent, and policy, (3) whether the questions on appeal are substantial, and (4) whether any prejudicial errors have occurred. 14 C.F.R. § 16.33(e). Ill. ARGUMENT Star Marianas appeals three issues in the Director's Determination: (1) whether the Ports Authority violated Grant Assurance 1, General Federal Requirements; (2) whether the Ports Authority Violated Grant Assurance 22, Economic Nondiscrimination; and (3) whether the Ports Authority Violated Grant Assurance 23, Exclusive Rights. These issues may be summarized by reviewing the following questions: (1) whether the Ports Authority, by not following the requirements to determine rates and charges in the Airline Use Agreement between the Ports Authority and the Star Marianas (the "AUA") violate the Anti - Head Tax Act ("AHTA") or (2) the Ports Authority's obligation under Grant Assurance 22 to make the airport available on fair and reasonable terms and without unjust economic discrimination; and (3) whether the Ports Authority has denied a request for terminal space at Rota Airport in violation of Grant Assurance 23. A. Ports Authority's Excessive Rates and Charges Ports Authority states 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 ofAHTA. 2 However, the Associate Administrator will note that the Ports Authority has not provided Star Marianas with the proper information, as dictated by Section 7.06 in the AUA, related to each of Ports Authority's cost centers, and therefore, not providing Star Marianas with the tools needed to present this persuasive evidence. As confirmed in the Affidavit, there were a series of letter communications between Star Marianas and the Ports Authority from June 22, 2020, to August 13, 2020, regarding the Ports Authority's Fiscal Year 2021 Budget, and after various communications, Star Marianas could see that the Ports Authority had failed to apply Section 7.06 of the AUA to the creation of this budget. On June 22, 2020, the Ports Authority sent a letter to all Signatory Air Carriers, which includes Star Marianas, regarding the Commonwealth Ports Authority's Fiscal Year 2021 Budget, in which the Ports Authority provided a one-page budget as a way to comply with Section 7.08 of the AUA. (See "June 22, 2020, Ports Authority's Fiscal Year 2021 Budget Letter" attached as Exhibit "C"). On July 23, 2020, Star Marianas replied to the Ports Authority noting that the one-page budget "does not comply with the specific requirements of Section 7.06 of the AUA because it fails to provide sufficient significant detail to allow for meaningful comment on the amounts stated in the document." (See "July 23, 2020, Star Marianas Letter" attached as Exhibit "D"). On July 29, 2020, the Ports Authority replied to the July 23, 2020, Star Marianas Letter reiterating that the document provided complied with the requirements of the AUA. However, despite that alleged compliance, the Ports Authority provided further details on the proposed Fiscal Year 2021 budget. (See "July 29, 2020, Ports Authority to Star Marianas Letter" attached as Exhibit "E"). 3 Upon further review though, the additional documents still did not provide the information that was needed by Star Marianas. The Supplemental Ports Authority's Fiscal Year 2021 Budget Documents provided did not divide the amounts by cost centers. (See "July 29, 2020, Supplemental Ports Authority's Fiscal Year 2021 Budget Documents as Exhibit "F"). On August 4, 2020, Star Marianas replied to the Ports Authority requesting more information on how their annual budget estimated the Airline Revenues at the various airports. (See "August 4, 2020, Star Marianas Letter" attached as Exhibit "G"). Star Marianas would like to point out that if the estimates were not based on the cost recovery required by Section 7.06 of the AUA, the only other possible method was by applying a per passenger fee on airline transportation. On August 13, 2020, the Ports Authority replied to the August 4, 2020, Star Marianas Letter, however there was still no mention of Section 7.06 of the AUA. (See "August 13, 2020, Ports Authority Letter" attached as Exhibit "H") Under Sec. 7.06, the Ports Authority has a right to assess fees to cover the costs of operations and maintenance of the terminal buildings that have been allocated for Star Marianas' use at the Ports Authority's airports. It requires the budget to break out the following: 1. Direct and Indirect maintenance and operating expenses of the terminal buildings used by Star Marianas (as defined in Section 2 of the AUA). As provided for in Section 7.02 of the AUA, those expenses may not include the expenses resulting from the Ports Authority's requirements under 14 CFR Part 139 because Star Marianas only operates aircraft with eight (8) passenger seats or fewer. 2. The other costs must also be limited to "services or facilities which Ports Authority is required or mandated to provide by any governmental entity (other than Ports Authority acting within its proprietary capacity) having jurisdiction over the Airport." 3. The expenses allowable in item one (1) must be reduced by total amount of the Terminal Cost and Revenue Center's Non-airline revenue. Star Marianas would like to indicate that in 1994, the Ports Authority hired A.J. Parry and Associates, Inc. to perform the Airline Traffic and Earnings Report in accordance with the requirements of the AUA and Section 7.06. Mr. Rex I Palacios, a CPA, made several recommendations to the Ports Authority, including the recommendation to provide accounting records that would segregate costs between the Main Terminal and the Commuter Terminal. On a report dated April 15, 1994, the Ports Authority purported to take the action recommended. (See "April 15, 1994, A.J. Parry and Associates, Inc. Recommendations and Action Taken Report" attached as Exhibit "I"). However, that action was never taken. B. The airport has not been made available to Star Marianas on fair and reasonable terms and without unjust economic discrimination in accordance with Grant Assurance 22 The Director determined that the Ports Authority's rates and charges methodology is transparent and reasonable and that the Ports Authority had cured any alleged past violations. Ports Authority also states that it is currently working to reconcile rates and charges for Fiscal Years 2017 through 2020. The delay in the reconciliations was due to protracted delays in the completion of the Ports Authority's Fiscal Year 2017 annual audit, which was not completed until January 2019. The Ports Authority states that it is committed to completing these reconciliations expeditiously. 5 Star Marianas would like to point out that the way the AUA is intended to function is as an agreement, entered by both parties wherein each party agrees to be bound by the provisions of the agreement. The Ports Authority is required to estimate its costs in a transparent manner and Star Marianas is required to make its best guess regarding its estimated number of passengers. Based on good faith estimates, the estimated allowable charges are divided by estimated number of passengers and an initial assessed amount is established on a "per-estimated-person" basis and is not therefore a "Head Tax" per se. Section 7.08 articulates the method to be used when making adjustments. As per Sec. 7.08 of the AUA, "[i]f calculation of the new rates for rentals, fees, and charges is not completed by Authority and the notice provided in this Section 7.08 is not given on or prior to the end of the then current Fiscal Year, the rates for rentals, fees, and charges then in effect shall continue to be paid by Airline until such calculations are concluded and such notice is given. Upon the completion ofsuch calculations and the giving ofsuch notice, Ports Authority shall determine the difference(s), if any, between the actual rentals, fees, and charges paid by Airline to date for the then current Fiscal Year and the rates for rentals, fees, and charges that would have been paid by Airline ifsaid rates have been in effect beginning on the first day of the Fiscal Year.
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