Northwest Airlines, Inc., Delta Air Lines, Inc., AirTran Airways, Inc., Continental Airlines, Inc. and Southwest Airlines, Inc. v. Indianapolis Airport Authority, Indianapolis International Airport, BAA-Indianapolis LLC

FAA Airport Docket No. 16-07-04

April 13, 2007

Joint Complaint

April 24, 2007

Notice of Docketing

May 1, 2007

Motion of Respondents Requesting Extension of Time

May 2, 2007

Answer of Complainants to Motion Requesting Extension of Time

May 3, 2007

Motion of Southwest to Joint Complainant as a Joint Complainant

May 17, 2007

Order Granting Southwest's Motion to Become Joint Complainant

June 4, 2007

Answer of Respondents and Motion to Dismiss

Exhibits:

Exhibit A	Exhibit B	Exhibit C	Exhibit D	Exhibit E
Exhibit F	Exhibit G	Exhibit H	Exhibit I	Exhibit J
Exhibit K	Exhibit L	Exhibit M	Exhibit N	Exhibit O
Exhibit P

June 8, 2007

Unopposed Motion of Complainants for Extensions of Time

June 22, 2007

Declaration of Erin L. Heitkamp

June 25, 2007

Complainants' Reply and Answer to Motion to Dismiss - Bookmarked

The Answer contains a patchwork of misguided and irrelevant arguments, inapplicable precedent, and contentions contrary to law, regulation, or fact. It tries, but fails, to distract attention away from the simple factual and legal reality here and the crux of the Joint Complaint. That is, the financial burden of the Landing Fee Rent Credits, which Respondents have granted to Federal Express Corporation for the next 20-plus years as part of FedEx Lease Amendment No. 3, will fall on all carriers serving IND, including the Joint Complainants.

The central facts surrounding the Joint Complaint are uncontested. Respondents do not dispute that they entered into an agreement with FedEx (Lease Amendment No. 3), which provides that they will build the FedEx Cargo Apron at a cost of approximately $49,000,000; that the FedEx Cargo Apron will be for FedEx's exclusive use; that FedEx will receive rent credits for 20 years against up to 100% of the rent for the cargo apron, equal to 75% of the incremental landing fees paid by FedEx above an adjusted baseline landed weight; or that any resulting shortfall in the rents for the FedEx Cargo Apron will necessarily be included in the airfield cost center requirement and thus in the landing fees paid by all airlines serving IND, including the Joint Complainants.

The Joint Complainants will pay higher landing fees because every dollar of rent not paid by FedEx as a result of the Landing Fee Rent Credits is shifted to the airfield cost center requirement and thereby passed on to the Joint Complainants in the form of higher landing fees than they would pay absent the Rent Credits. Consequently, a significant portion of the cost of building FedEx's exclusive Cargo Apron will be borne by those other airlines in violation of 49 U.S.C. 47107, Grant Assurances 22, 23, and 24, the FAA's Airport Revenue Diversion Policy, and the FAA's Airport Rates/Charges Policy. Respondents admit as much by acknowl-edging that the Landing Fee Rent Credits for FedEx will affect landing fees at IND as they will be calculated "based on . . . the net benefits after the credit is considered."

Despite its volume, the Answer fails to rebut these central facts. If the Landing Fee Rent Credits work the way FedEx and Respondents intend for them to work, the Joint Complainants will pay higher landing fees than they would pay absent the Landing Fee Rent Credits. Burdening the other carriers at IND with tens of millions of dollars in costs for an exclusive facility to be built by the Airport for the exclusive use by another carrier is unreasonable, unjustly discriminatory, and unlawful for the reasons set forth in the Joint Complaint.

IND has structured its deal to attract new business to the airport by building the hub carrier, FedEx, a special facility, the costs of which will be borne by all carriers at the airport. If IAA believed, as it claims, that this arrangement would benefit all users, it should have agreed to hold other airlines harmless from the impact of the transaction on landing fees through the duration of the FedEX transaction. They did not do that. Instead, IAA unilaterally imposed on the Joint Complainants additional costs associated with the Rent Credit. The DOT and FAA have heretofore held that building exclusive facilities for a hub carrier and charging the costs of such facilities to other carriers would be unlawful. If the FAA accepts IAA's scheme, it would represent a sea-change in the FAA's RatesICharges Policy, which will result in similarly structured deals at airports around the country to benefit the airports' largest tenants. This is both bad policy and bad law.

Counsel: Hogan & Hartson, Patrick Rizzi, 202-637-5659, prizzi@hhlaw.com for Northwest and United / Crowell & Moring, Lorraine Halloway, 202-624-2538, lhalloway@crowell.com for Continental / Robert Kneisley, bob.kneisley@wnco.com for Southwest / Richard Magurno for AirTran / Joseph Zang for Delta

July 16, 2007

Rebuttal - Bookmarked

The Complaining Airlines' story is simple, and might even be compelling if it were true. They claim that the Authority made a sweetheart deal with FedEx, and now is sticking the Complaining Airlines with the bill. The reality is that the Authority negotiated the most advantageous deal it could obtain from FedEx - one that is consistent with the Authority's Grant Assurances. The resulting agreement is one that provides substantial benefits not only to FedEx and the Authority but also to the Airport's other users, including the Complaining Airlines. The Complaining Airlines make it appear that they have been harmed only by focusing selectively on parts of the story.

As explained in detail in Respondents' Answer and Motion to Dismiss and as elaborated below, the Authority staff negotiated a carefully crafted contract with FedEx that protects other Airport users from any negative landing fee rate effects of the FedEx deal. By design, the rent credit to which the Complaining Airlines object will always be less than the incremental landing fees paid by FedEx above a baseline amount (based, initially, on the amount of weight that FedEx was landing at the time the deal was struck), because the credit is defined as a percentage of the incremental landing fees (up to a maximum of 75%). Thus, if FedEx's landing fee revenues fail to exceed the baseline amount in any given year, there will be no credit and FedEx will pay (via "Additional Special Facility Rent") the full amortization of the cargo apron expansion. If FedEx's landing fees do exceed the baseline revenue level, then FedEx receives a rent credit limited to a percentage of the incremental revenue, up to (and capped by) the amount of the Additional Special Facilities Rental. The balance of FedEx's incremental landing fees go to reducing the landing fees payable by other airlines. Thus, contrary to their central claim, FedEx is paying for its own facilities. The Complaining Airlines are not paying for them.

To claim to be "harmed" by the FedEx transaction, the Complaining Airlines are forced to disconnect the rent credit from the rest of Amendment No. 3, to look at it in isolation, and to assume that they would have received (and would be entitled to) all of the benefits of the FedEx transaction regardless of the rent credit. However, there is no evidence that such a deal was possible. The business deal negotiated at length and memorialized in Amendment No. 3 is the best deal that the Authority was able to negotiate. Without the rent credit offered to FedEx, FedEx would not have expanded its facilities and, consequently, would not be able to increase its operations at the Airport. By seeking to claim the benefits of FedEx's additional landing fees and rent without taking account of the corresponding rent credits, the Complaining Airlines seek to reap the benefits of a deal that was never negotiated and does not exist.

Counsel: Spiegel & McDiarmid, Pablo Nuesch, 202-879-4000

July 30, 2007

Motion for Leave to File and Response of Complainants'

Respondents failed to rebut the indisputable fact that, in Respondents' own words, "to the extent FedEx's] financial obligations to the Authority are reduced by the Additional Special Facilities Rental Credit, the Complaining Airlines will be forced to pay comparatively more than what they would have paid otherwise had the rent credits not been available." That is the crux of the Joint Complaint, and the Respondents have not, and cannot, dispute that central fact. If the FedEx arrangement works the way the Respondents expect it to work, FedEx will not pay for the apron, and every dollar of cost not paid by FedEx goes into the airfield cost center to be paid by the Joint Complainants. Regardless of whether airline landing fees end up higher as a result of these added costs or whether their effect is offset by FedEx's landings, the landing fees paid by other airlines will be higher than they would without the Landing Fee Rent Credit.

Respondents claim that there is nothing unlawful about the Landing Fee Rent Credit because (1) FedEx and the passenger carriers pay the same landing fee rates; (2) the residual rate methodology, to which the carriers have agreed, and the Department's decision in the Miami Rates and Charge Case. authorizes the rent credit scheme, and (3) the airlines cannot cherry pick the bad from the good in the FedEx deal because this is the "best deal the Authority was able to negotiate." Respondents' claims are without merit.

Counsel: Hogan & Hartson, Patrick Rizzi, 202-637-5659, prizzi@hhlaw.com for Northwest and United / Crowell & Moring, Lorraine Halloway, 202-624-2538, lhalloway@crowell.com for Continental / Robert Kneisley, bob.kneisley@wnco.com for Southwest / Richard Magurno for AirTran / Joseph Zang for Delta

August 9, 2007

Respondents' Answer to Complaining Airlines' Motion for Leave to File and Response

The Complaining Airlines' motion is an extra-procedural surreply that merely reargues matters that were briefed fully during the two rounds of pleadings that are contemplated by the rules of procedure for Part 16 investigations. The Complaining Airlines' positions lack merit for reasons that the Respondents have already explained and that are reiterated briefly below. Moreover, FAA should make clear that it will entertain no further unsolicited pleadings prior to issuance of the Director's Determination in this investigation.

The Complaining Airlines seek leave to surreply in order to "(i) address new points raised by Respondents and misstatements of applicable precedent and (ii) explain how Respondents' Rebuttal tried but failed to obfuscate the central issue in this case." Motion at 1. However, the matters raised in Respondents' rebuttal were not new and were neither misstatements nor obfuscations. Respondents should be able to answer the allegations made against them without being subject to extra-procedural filings that add nothing to the administrative record.

The central facts are that the Authority and FedEx negotiated a long-term extension (and expansion) of FedEx's leasehold, enabling FedEx to expand its facilities and operations at the Airport. As part of that lease amendment, the Authority and FedEx negotiated a carefully-tailored rent credit applicable to one component of FedEx's rent and mathematically limited to ensure that the amount of the credit (if any) would always be less than the incremental landing fee revenue produced by FedEx's operations resulting from the expanded facilities. Respondents have shown that Amendment No. 3 (including the rent credit) produces net benefits that reduce the residual landing fee rate paid by the Airport's Signatory Airlines. The Complaining Airlines reply that, no matter how much lower the net benefits of FedEx's transaction drive the airport's residual landing fee rates, those rates could be lower still if they reflected FedEx's additional revenue and landed weight but not the rent credit through which (along with other aspects of the deal) those benefits were obtained. FedEx's rent credit cannot be viewed in isolation from the incremental activity that FedEx will be required to generate before it qualifies for the rent credit.

Counsel: Spiegel & McDiarmid, Pablo Nuesch, 202-879-4000