Airport tenants may generally be aware that a federally funded airport sponsor has various federal obligations tied to the airport sponsor’s federal funding. One of the most commonly known federal obligations is the airport sponsor’s prohibition against providing exclusive rights to airport tenants. It may be lesser known to airport tenants, however, that the prohibition against exclusive rights is limited to aeronautical activity. An airport sponsor is within its rights to grant exclusive rights to airport tenants that involve nonaeronautical activity. This article examines this exception to an airport sponsor’s exclusive rights prohibition.
Grant Assurances Applicable to Airport Sponsors
Under federal grant programs, an airport sponsor will agree to certain federal obligations in the application for federal funding. Those federal obligations get built into the grant offer, thereby binding the airport sponsor upon receipt of the federal funds to develop the airport.
The primary grant program applicable to airport sponsors is the Airport Improvement Program (AIP), pursuant to the Airport and Airway Improvement Act of 1982 (AAIA), as amended. See 49 U.S.C. § 47101, et seq. When an airport sponsor accepts funds under the AIP, the airport sponsor agrees to comply with the Federal Aviation Administration’s (FAA) airport sponsor grant assurances (“Grant Assurances”).
Grant Assurance 22 – Prohibition Against Exclusive Rights
The Grant Assurances contain 39 obligations that an airport sponsor is bound by upon accepting AIP funds. One of the most well-known and commonly litigated Grant Assurances is Grant Assurance 23 – Exclusive Rights. Grant Assurance 23 provides in relevant part that an airport sponsor “will permit no exclusive right for the use of the airport by any person providing, or intending to provide, aeronautical services to the public.”
Grant Assurance 22 is the oldest federal obligation applicable to federally funded airports. It applies to both private and public airport sponsors who accept federal funds. Airport sponsors remain obligated to comply with Grant Assurance 22 in perpetuity as long as the airport remains an airport.
The primary intent of Grant Assurance 22 is to ensure fair competition and protect against monopolies at federally obligated airports. Indeed, FAA Order 5190.6B - FAA Airport Compliance Manual - Change 2 (the “Airport Compliance Manual”), provides that the “FAA has taken the position that the existence of an exclusive right to conduct any aeronautical activity at an airport limits the usefulness of the airport and deprives the public of the benefits of competitive enterprise. The FAA considers it inappropriate to provide federal funds for improvements to airports where the benefits of such improvements will not be fully realized by all users due to the inherent restrictions of an exclusive monopoly on aeronautical activities.” Chapter 8.4.c.
Grant Assurance 22 Only Prohibits Exclusive Rights Involving Aeronautical Activity
An airport sponsor’s prohibition against providing an exclusive right at a federally funded airport is not absolute. To the contrary, law and applicable FAA guidance clarify that a federally obligated airport sponsor’s prohibition against providing exclusive rights does not apply to nonaeronautical activity.
First and foremost, the plain language of Grant Assurance 22 makes this clear. Specifically, it limits the prohibition to an “exclusive right for the use of the airport by any person providing, or intending to provide, aeronautical services to the public.”
Case law also clarifies that the prohibition against providing exclusive rights only applies to aeronautical activity. In Ashton v. City of Concord, NC, Docket No. 16-00-01, April 17, 2001, the FAA held that “the prohibition against the granting of an exclusive right only applies to aeronautical activity. It does not protect a user's ability to conduct nonaeronautical activity.” (Emphasis added.) Likewise, in In the Matter of Compliance with Federal Obligations by the City of Santa Monica, California; Docket No. 16-02-08, May 14, 2009, the FAA, relying in part on a 1941 legal opinion by the United States Attorney General, held that the prohibition against exclusive rights applies solely to aeronautical activity.
The Airport Compliance Manual also confirms that the prohibition against exclusive rights does not apply to nonaeronautical activity. Specifically, Section 8.4.b(1) states that “[a]ll nonaeronautical activities … are excluded from the prohibition” against providing exclusive rights. The Airport Compliance Manual further provides that “nonaeronautical activities … are not covered under the grant assurances or covenants in conveyances of federal property.” Section 10.2. Additionally, Section 8.1 of the Airport Compliance Manual provides that a federally obligated airport sponsor “may not grant a special privilege or a monopoly to anyone providing aeronautical services on the airport or engaging in an aeronautical use.”
In sum, the Grant Assurances, case law, and the Airport Compliance Manual make clear that a federally funded airport sponsor’s prohibition against exclusive rights only applies to aeronautical activity. A federally funded airport sponsor may permissibly provide exclusive rights to airport tenants concerning nonaeronautical activities.
Aeronautical Activity and Nonaeronautical Activity Defined
Given that a federally obligated airport sponsor can confer exclusive rights to an airport tenant concerning nonaeronautical activity, this begs the question: what is aeronautical activity and what is nonaeronautical activity? Initially, the FAA interpreted aeronautical activity as related to exclusive rights prohibitions as activity involving the airfield, such as air carrier and flight schools, for example. The FAA later extended the interpretation of aeronautical activity to “all aeronautical activities … that involve, make possible, or are required for the operation of aircraft; or that contribute to, or are required for the safety of such operations.” Airport Compliance Manual, Section 8.4.b. “Activities within this definition, commonly conducted on airports include, but are not limited to, the following: general and corporate aviation, air taxi and charter operations, scheduled and nonscheduled air carrier operations, pilot training, aircraft rental and sightseeing, aerial photography, crop dusting, aerial advertising and surveying, aircraft sales and services, aircraft storage, sale of aviation petroleum products, repair and maintenance of aircraft, sale of aircraft parts, parachute or ultra light activities, and any other activities that, because of their direct relationship to the operation of aircraft, can appropriately be regarded as aeronautical activities.” BMI Salvage Corp. v. FAA, 488 Fed. Appx. 341, 345-346 (July 19, 2012).
Nonaeronautical activity includes the following: “public parking, rental cars, ground transportation, as well as terminal concessions such as food and beverage and news and gift shops.” Airport Compliance Manual, Section 18.3.c; see also FAA Order 5190.1A, Section 6.b.(2) (“ground transportation (taxis, car rentals, and limousines); restaurants; barber shops; and auto parking lots” are not considered aeronautical activities). Additionally, The Airport Compliance Manual specifies that “[a]viation-related uses that do not need to be located on an airport, such as flight kitchens and airline reservation centers, are considered nonaeronautical uses.” Section 18.3.c.
Although the distinctions discussed above between aeronautical activity and nonaeronautical activity may seem straightforward and easily discernible, that is not always the case. For example, in BMI Salvage Corp. v. FAA, the FAA ruled that aircraft salvage and demotion operations are not aeronautical activities. Supra, at 347. The FAA reasoned that: (1) the official FAA definition of aeronautical activities did not include salvage and demolition; (2) the list of activities that would qualify as aeronautical, although not exhaustive, evidenced an intent to focus on the "direct relationship to the operation of aircraft”, which does not apply to demolition and salvage; and (3) aircraft demolition and salvage are analogous to aircraft manufacturing, which FAA does not consider to be aeronautical activity. Id., 346-47. The United States Court of Appeals for the Eleventh Circuit agreed with the FAA’s reasoning, and likewise concluded that aircraft demolition and salvage is not an aeronautical activity. Id., 347.
Most disputes will have unique or differing facts. As such, determining whether an activity constitutes aeronautical activity should be analyzed on a case-by-case basis.
Conclusion
Based upon the foregoing, although a federally funded airport sponsor cannot lawfully provide an exclusive right to an airport tenant for an aeronautical activity such as charter operations or a flight school, the airport sponsor can lawfully provide an exclusive right to an airport tenant involving nonaeronautical services such a car rental service or a restaurant. As discussed above, however, whether an activity is nonaeronautical activity, thus justifying a permissive exclusive right, may not always be a simple question.
If you have questions about whether an airport sponsor is providing an impermissible exclusive right to an airport tenant, you should consider consulting with counsel to help assess your rights and ensure that your interests are being protected.
