So Your Airport Sponsor Is Trying To Dictate Your Rate Structure For Subtenants And Customers?

Part two of a six part series on airport tenant relations and aviation legal matters

Well, for better or for worse, this is not prohibited. In fact, in some circumstances, your Airport Sponsor may have an affirmative obligation under its grant assurances to do so. That said, here is a brief primer on when and why your Airport Sponsor is allowed to dictate a rate structure for your services and how to protect yourself from unjust or arbitrary efforts to do so.

Let’s review the recent Part 16 decision in Valley Aviation Services, LLP v. City of Glendale, AZ, FAA Docket 16-09-06 (May 24, 2011) to illustrate some of these issues.

A Part 16 Case Study

In Valley Aviation Services, Complainant, Valley Aviation Services, LLP (“Valley”), was a tenant of Glendale Municipal Airport (KGEU) in Glendale, Arizona, and operator of the Glendale Airport Hangars on the southern end of the airport, inclusive of large hangars, T-hangars, T-shades, office, and ramp space. In total, Valley had 104 hangars and 112 tie-downs for aircraft. Complainant Valley was assigned the relevant leasehold interests for the Glendale Airport Hangars on January 1, 1999, though several of the issues raised in the context of this Part 16 action arose prior to that date.

Respondent, City of Glendale, owns and operates the airport; KGEU is a federally funded airport. In accordance with its lease, Complainant Valley was permitted to sublet its premises, including its hangars and tie-down spaces.

The Respondent airport advised Valley in January 2009 that it was required to lower its hangar and tie-down rates or face default under the terms of its lease. As a result, Complainant alleged in its Part 16 action that Respondent violated Grant Assurance 22, Economic Nondiscrimination, through its imposition of a rental rate structure to be charged by Complainant Valley to its subtenants and customers. Respondent airport denied that its imposition of a rate structure upon Complainant Valley was in violation of Federal Grant Assurance 22 and argued, rather, that its action “Was necessary to increase occupancy rates at the airport and to ensure subtenants are charged fair and reasonable rates.”

Grant Assurance 22

Federal Grant Assurance 22, governing economic nondiscrimination, requires airport sponsors to make federally funded airports available “For the use and benefit of the public and to make it available to all types, kinds, and classes of aeronautical activity on reasonable terms, and without unjust discrimination.”

Federal Grant Assurance 22 further requires airport sponsors “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.

In short, Complainant Valley’s position was that the airport’s imposition of a rental rate structure was in violation of Federal Grant Assurance 22 because, among other issues, said rental rate structure was not likewise imposed upon all similarly situated tenants at the airport.

Further, Complainant Valley argued that the rate structure was not imposed on reasonable terms, as it was based upon an appraisal that not only failed to include hangar and tie-down rates charged by other tenants at the same airport (including Respondents itself and at least four hangar associations), but that it also erroneously relied upon rental rates charged by public sponsor owners at other regional airports, for which rental rates are at least partially subsidized.

Respondent KGEU’s position, by contrast, was that it not only had the right to impose such a rental rate structure upon Complainant, but an affirmative obligation to do so in accordance with Federal Grant Assurance 22.

Pursuant to Federal Grant Assurance 22, airport sponsors have an obligation “To ensure the terms imposed on aeronautical users of the airports for services, including rates and charges, must be reasonable and applied without unjust discrimination, whether by the owners or by a licensee or tenant who has been granted rights to offer services or commodities normally required at the airport.”

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