It is sometimes difficult to determine whether a federally funded airport with a single FBO has granted an Exclusive Right in violation of Federal Grant Assurance 23.
The purpose of this article is to help identify whether a single FBO airport is an Exclusive Right, or simply a situation where there is an allowable Proprietary Exclusive Right or a situation where there is legitimately no qualified competition.
An Exclusive Right
Federal Grant Assurance 23 implements 49 U.S.C. §40103(e) and 49 U.S.C §47107(a)(4) and prohibits an airport sponsor from entering into any Exclusive Rights agreements. Specifically it provides that a federally obligated airport:
- Will permit no exclusive right for the use of the airport by any person providing, or intending to provide, aeronautical services to the public ... and that it will terminate any exclusive right to conduct an aeronautical activity now existing at such an airport before the grant of any assistance under Title 49, United States Code.
The FAA defines an Exclusive Right as follows:
- A power, privilege, or other right excluding or debarring another from enjoying or exercising a like power, privilege, or right. An exclusive right can be conferred either by express agreement, by the imposition of unreasonable standards or requirements, or by any other means. Such a right conferred on one or more parties, but excluding others from enjoying or exercising a similar right or rights, would be an exclusive right.
According to FAA policy, “The intent of the prohibition on exclusive rights is to promote fair competition at federally-obligated, public use airports for the benefit of aeronautical users.
“... any unreasonable requirement or standard that is applied in an unjustly discriminatory manner may constitute a constructive grant of an exclusive right.”
So can there be a single FBO airport without an Exclusive Right?
A single FBO can exist without an impermissible Exclusive Right in two circumstances: (1) when there is a Proprietary Exclusive Right; and (2) when there is no qualified competition.
A Proprietary Exclusive Right
The owner of a public use airport may elect to provide any or all of the aeronautical services needed by the public at the airport. This is known as a Proprietary Exclusive Right. FAA uses the term owner and airport sponsor interchangeably and defines those terms as follows:
“A person or agency who has the legal authority to act on behalf of the airport. Unless the airport is owned and operated by a private entity, the airport sponsor is generally a public agency that owns and/or operates the airport. Here, the Naples Airport Authority is the sponsor of the airport for federal grant purposes.
Jet 1 Center, Inc. v. Naples Airport Authority, FAA Docket No. Docket No. 16-04-03 (January 4, 2005) (Director determined that an airport authority operating the airport pursuant to 99-year lease with the City of Naples was an appropriate exercise of the proprietary Exclusive Right).
An owner, may not exercise a Proprietary Exclusive Right through a management contract. “If the airport sponsor opts to provide an aeronautical service exclusively, it must use its own employees and resources.” FAA Order 5190.6B (“Airport Compliance Manual”) at Section 8.9. It is a violation of Grant Assurance 23 for an airport sponsor to designate an independent commercial enterprise to exclusively provide FBO services, even as an agent for the airport sponsor. See AC 150/5190-6 at Appendix 1, 1.1(k).
An airport owner or sponsor can elect to exercise its right to a proprietary Exclusive Right at any time. See Jet 1 Center, Inc. v. Naples Airport Authority, FAA Docket No. Docket No. 16-04-03 (January 4, 2005) (“An airport sponsor or owner does not lose its ability to invoke a proprietary exclusive right on its airport regardless of previous arrangements. So long as the airport owner or sponsor is not violating any of its grant obligations by doing so, it may invoke its proprietary exclusive right at any time.”
Single FBO Airports
So when can there be a single FBO because of Lack of Qualified Competition? FAA Order 5190.6B (“Airport Compliance Manual”) expressly acknowledges that a single FBO airport can exist without creating an Exclusive Right. The Airport Compliance Manual specifically provides:
- 8.6. Airports Having a Single Aeronautical Service Provider: Where the sponsor has not entered into an express agreement, commitment, understanding, or an apparent intent to exclude other reasonably qualified enterprises, the FAA does not consider the presence of only one provider engaged in an aeronautical activity as a violation of the exclusive rights prohibition. The FAA will consider the sponsor’s willingness to make the airport available to additional reasonably qualified providers. (See paragraph 8.9.b of this chapter.)
Whether a potential competitor is reasonably qualified is often a source of controversy. Often, a finding that a potential competitor is reasonably qualified involves a determination as to whether the competitor is safe. An airport sponsor can deny a prospective aeronautical service provider the right to engage in an on-airport aeronautical activity for reasons of safety and efficiency.
The FAA, however, is the ultimate arbiter of whether a certain aviation activity is unsafe. Simply stated, an FAA certificated entity is presumed safe and a denial of access on the basis of safety may give rise to an Exclusive Right in violation of Grant Assurance 23. Decisions by an airport sponsor to block access based on safety is permissible when the airport sponsor determines that an aeronautical activity as a whole is inconsistent with safety and efficiency of the airport and the FAA concurs.
A second source of controversy arises when an airport sponsor is accused of placing restrictions on a tenant that are insurmountable. An airport sponsor is not permitted to place unreasonable restrictions on an entity seeking to compete with an airport’s sole FBO. Notwithstanding that, “The mere fact that lease payments are not identical does not necessarily constitute ‘unjust discrimination’ in prices or the grant of an ‘exclusive right.” Penobscot Air Servs. v. FAA, 164 F.3d 713 (1st Cir. 1999).
Impermissible Exclusive Rights
The following are some examples of airport sponsor conduct found to be impermissible Exclusive Rights in violation of Grant Assurance 23:
- Norwood Airport Commission’s failure to provide Boston Air Charter with access to utilities necessary to conduct fueling operations precluded Boston Air Charter from self-fueling and forced Boston Air Charter to fuel through Eastern Air Center(the sole FBO) was found to be a constructive creation of an Exclusive Right. See Boston Air Charter v. Norwood Airport Commission, FAA Docket No. 16-07-03, June 7, 2011.
- The grant of options or preferences on future airport lease sites to a single service provider may be construed as intent to grant an Exclusive Right such that the use of leases with options or future preferences, such as rights-of-first refusal, may be held to violate Grant Assurance 23. See AC No: 150/5190-6 at 1.3(b)(3).
- An airport sponsor may not deny access to an individual FAA certificated operator based solely on the airport’s determination that the aeronautical operations are not safe because those operators having an FAA certificate are presumed safe. See Bodin v. County of Santa Clara, CA, FAA Docket No. 16-11-06 (December 19, 2011).
- “Leasing all available airport land and improvements planned for aeronautical activities to one enterprise will be construed as evidence of an intent to exclude others unless it can be demonstrated that the entire lease area is presently required and will be immediately used to conduct the activities contemplated by the lease.” Bodin v. County of Santa Clara, CA, FAA Docket No. 16-11-06 (December 19, 2011) (citing FAA Order 5190.6B. Sec. 8.9.d Space Limitation.
- Awarding favorable leases to parties that are established businesses which would erect a potentially insurmountable barrier to entry for new operators may be a grant of an Exclusive Right, as cautioned by the U.S. Court of Appeals for the 11th Circuit. See BMI Salvage Corp. v. FAA, 272 Fed. Appx. 842; 2008 U.S. App. LEXIS 7964 (11th Cir. 2008).
The following are examples of scenarios for which the FAA has determined that there is no Exclusive Rights violation of Grant Assurance 23:
- An airport sponsor may exclude an incumbent FBO from participating under a competitive solicitation in order to bring a second FBO onto the airport to create a more competitive environment. See AC No: 150/5190-6 at 1.3(b)(3).
- An airport sponsor’s refusal to permit a single FBO to expand based on the sponsor’s desire to open the airport to competition is not a violation of the Grant Assurances. See AC No: 150/5190-6 at 1.3(b)(3).
- An airport sponsor can deny a prospective aeronautical service provider the right to engage in an on-airport aeronautical activity for reasons of safety and efficiency. The FAA, however, must confirm that a certain aviation activity is unsafe. See AC No: 150/5190-6 at 1.3(a)(1).
- Allowing one FBO to occupy a priority use area within its leasehold while denying a competing FBO use of a comparable priority use area when to do so would infringe upon existing taxi ways. See Platinum Aviation v. Bloomington-Normal Airport Authority, FAA Docket No. 16-06-09 (November 28, 2007).
In conclusion, the existence of only a single FBO at a federally funded airport is not, in and of itself, evidence of an Exclusive Right in violation of Grant Assurance 23. A single FBO is permissible when you have an airport owner exercising its right to a Proprietary Exclusive Right or a lack of qualified competition.
If, however, you have a situation in which the airport sponsor is not engaged in a Proprietary Exclusive Right and is imposing unreasonable restrictions on a potential second FBO (that are not likewise imposed on the sole existing FBO), there may be a violation of Grant Assurance 23. If you believe that there is an Exclusive Right in violation of Grant Assurance 23, you should retain legal counsel to (1) evaluate your remedies under Federal and State Law; and (2) guide you in gathering and preserving evidence to support your claims.
About the Author
Alison L. McKay focuses her practice primarily on employment, litigation, and insurance. Among her more noteworthy matters litigated was the successful defense of an airport fixed base operator from Rehabilitation Act claims.
Alison is a member of NBAA’s Employment Issues Working Group, which was created to address the specialized issues associated with aviation employment. In addition to Alison’s employment practice, she has extensive experience defending multi-district and complex multi-jurisdictional litigation arising from aviation accidents.