                        United States Court of Appeals


                     FOR THE DISTRICT OF COLUMBIA CIRCUIT


 Argued November 21, 1997                           Decided January 30, 1998 


                                 No. 97-1356


                          Asiana Airlines, et al., 

                                 Petitioners

  
                                      v.


                     Federal Aviation Administration and 

    	   Barry Valentine, Acting Administrator, Federal Aviation 
                               Administration, 

                                 Respondents


                          Air New Zealand Limited, 

                                  Intervenor


				   ---------


                              Consolidated with 

                   Nos. 97-1357, 97-1358, 97-1359, 97-1360,

                          97-1362, 97-1363, 97-1364


				   ---------


                 On Petitions for Review of an Order of the 

                       Federal Aviation Administration


				    ---------




     Robert W. Kneisley argued the cause for petitioners, with 
whom Geoffrey P. Gitner, M. Roy Goldberg, Frederick S. 
Hird, Jr., Joseph E. Schmitz, David W. Miller, Moffett B. 
Roller, Don H. Hainbach, Paul V. Mifsud, Carl W. Vogt, 
Frederick Robinson and James S. Campbell were on the 
briefs.  Jeffrey N. Shane entered an appearance.

     Peter R. Maier, Attorney, United States Department of 
Justice, argued the cause for respondents, with whom Frank 
W. Hunger, Assistant Attorney General, Mary Lou Leary, 
United States Attorney, and Robert S. Greenspan, Attorney, 
United States Department of Justice, were on the brief.

     Before:  Wald, Sentelle and Henderson, Circuit Judges.

     Opinion for the court filed by Circuit Judge Sentelle.

     Sentelle, Circuit Judge:  Petitioners challenge an FAA 
Interim Final Rule imposing annual fees totaling nearly $100 
million on flights that neither take off from nor land in the 
United States.  We reject their claims that the FAA acted 
unlawfully in employing an expedited procedure which pre-
cluded a round of notice and comment before the effective 
date of the Rule, and that the regulation violated the antidis-
crimination provisions of various international aviation agree-
ments.  However, the FAA's allocation of fixed and common 
costs using a value-oriented "Ramsey pricing" methodology 
did violate the statutory directive that the fees for overflights 
be directly related to the agency's cost of providing services.  
We therefore vacate the Interim Final Rule and remand for 
further proceedings.

                                      I


     Section 273 of the Federal Aviation Reauthorization Act, 49 
U.S.C. s 45301 (the "Act"), enacted October 9, 1996, directs 
the Federal Aviation Administration ("FAA") to establish a 
fee schedule and collection process to cover "[a]ir traffic 
control and related services provided to aircraft other than 
military and civilian aircraft of the United States government 
or of a foreign government that neither take off from, nor 



land in, the United States."  49 U.S.C. s 45301(a)(1).  The 
statute directs the FAA to "ensure that each of the [required] 
fees ... is directly related to the Administration's costs of 
providing the service rendered," and states that covered 
services "include the costs of air traffic control, navigation, 
weather services, training and emergency services which are 
available to facilitate safe transportation over the United 
States, and other services provided by the Administrator or 
by programs financed by the Administrator to flights that 
neither take off nor land in the United States."  49 U.S.C. 
s 45301(b)(1)(B).  The statute authorizes the FAA "to recov-
er in fiscal year 1997 $100,000,000," 49 U.S.C. 
s 45301(b)(1)(A).  Finally, the statute directs that a special 
procedure shall apply:  the FAA "shall publish in the Federal 
Register an initial fee schedule and associated collection 
process as an interim final rule, pursuant to which public 
comment will be sought and a final rule issued."  49 U.S.C. 
s 45301(b)(2).

     Acting upon this apparent message to take prompt regula-
tory action, the FAA issued an Interim Final Rule ("IFR") 
establishing a fee schedule and collection process, with an 
effective date of May 19, 1997.  62 Fed. Reg. 13496 (March 
20, 1997).  The IFR provided that the FAA would accept 
comments until July 18, 1997, after which the FAA would 
develop a final rule.

     The IFR established fees structured as follows.  Based 
upon an "Analysis of Overflights:  Costs and Pricing" by 
private consultant GRA, Inc. (the "GRA Study"), the FAA 
noted that its services provided to overflights required both 
incremental expenditures, increasing with the quantity of 
services provided, and fixed and common expenditures for 
facilities and other expenses that could not be attributed to 
particular flights or classes of flights.  The GRA Study 
allocated fixed costs among all classes of users using a 
methodology called "Ramsey pricing."  This methodology 
distributes fixed costs among classes of users based on the 
elasticity of their demand for services in an effort to minimize 
the effect of the regulation on the behavior of users.  Thus, 
under this method of allocating fixed costs, classes of users 



less sensitive to changes in price are allocated a relatively 
greater share of fixed and common costs.  See M. Wohl & C. 
Hendrickson, Transportation Investment and Pricing Princi-
ples 208-09 (John Wiley & Sons 1984).

     The petitioners, including several foreign airlines and an 
association of Canadian airlines, ask us to vacate the IFR for 
a variety of reasons.  First, they assert that, despite the 
procedures specified in 49 U.S.C. s 45301(b)(2), the FAA 
violated both the Administrative Procedure Act ("APA"), 5 
U.S.C. s 553, and the consultation provisions of several in-
ternational aviation agreements, by making the new fee 
structure effective before considering their comments and 
objections.  They also contend that the IFR violated the 
antidiscrimination provisions of international agreements by 
imposing fees on overflights which had a disparate impact on 
foreign airlines.  Finally, they argue that the IFR's alloca-
tion of fixed and common costs using Ramsey pricing violat-
ed the statutory requirement that "each of the fees ... [be] 
directly related to the Administration's costs of providing the 
service rendered."  49 U.S.C. s 45301(b)(1)(B).

                                      II


     The petitioners first argue that the FAA unlawfully im-
posed the fees set forth in the IFR before allowing opportuni-
ty for affected parties to comment or consult.  They base this 
claim on the notice and comment requirements of the APA, as 
well as the provisions of several international aviation agree-
ments.

                                      A


     Section 553 of the APA requires agencies to publish "[g]en-
eral notice of proposed rule making," and "give interested 
persons an opportunity to participate in the rule making...."  
5 U.S.C. s 553(b)-(c).  Such rule-making proceedings must 
provide both notice and meaningful opportunity to comment.  
See Home Box Office, Inc. v. FCC, 567 F.2d 9, 35-36 (D.C. 
Cir. 1977) ("[T]he opportunity to comment is meaningless 
unless the agency responds to significant points raised by the 



public.").  Section 553 provides that an agency may depart 
from normal notice and comment procedures for "good 
cause."  5 U.S.C. s 553(b)(B).  The APA also recognizes that 
Congress may modify these requirements, but provides that a 
"[s]ubsequent statute may not be held to supersede or modify 
this subchapter ... except to the extent that it does so 
expressly."  5 U.S.C. s 559.

     In this case, the FAA acknowledged that it issued the IFR 
"without public notice and comment" as ordinarily required 
by s 553, and did not properly invoke the "good cause" 
exception to normal APA procedures.  62 Fed. Reg. at 13502.  
Instead, the IFR expressly relied on a procedural directive 
contained within the Act as "subsequent and specific authori-
ty" that trumped the otherwise-applicable APA s 553.  Id. 
Within a section of the Act entitled "Limitations," Congress 
instructed the FAA to "publish in the Federal Register an 
initial fee schedule and associated collection process as an 
interim final rule, pursuant to which public comment will be 
sought and a final rule issued."  49 U.S.C. s 45301(b)(2).  
Keeping in mind Congress's goal to begin fee collection as 
soon as possible, the FAA interpreted the directive to proceed 
via "interim final rule" as obviating the usual first step of 
providing notice of a proposed rule.

     We have looked askance at agencies' attempts to avoid the 
standard notice and comment procedures, holding that excep-
tions under s 553 must be "narrowly construed and only 
reluctantly countenanced" in order to assure that "an agen-
cy's decisions will be informed and responsive."  New Jersey 
v. EPA, 626 F.2d 1038, 1045 (D.C. Cir. 1980).  For example, 
in New Jersey, the EPA issued an immediately effective final 
rule with no prior notice or solicitation of comments, believing 
that the schedule for promulgation of the rule made it imprac-
ticable to engage in the notice and comment process.  Id. at 
1041.  We held that the "tight statutory schedule" set forth in 
the Clean Air Act for designation of "attainment" and "nonat-
tainment" areas did not, without more, justify departure from 
ordinary APA procedures, because "under the facts of this 
case, the Administrator could have reconciled the commands 
of the two acts by publishing the designations ... as pro-



posed rules."  Id. at 1047.  Similarly, in Air Transport Ass'n 
of Am. v. Department of Transportation, 900 F.2d 369 (D.C. 
Cir. 1990), vacated for mootness, 933 F.2d 1043 (D.C. Cir. 
1991), we characterized New Jersey as holding that a "statu-
tory deadline did not constitute good cause to forgo notice 
and comment absent 'any express indication' by Congress to 
this effect."  Id. at 378-79 (quoting New Jersey, 626 F.2d at 
1043).  Cf. Petry v. Block, 737 F.2d 1193, 1200-02 (D.C. Cir. 
1984) (holding that "extraordinary factors" justified invocation 
of the good cause exception under s 553).  However, none of 
those decisions involved statutory language similar enough to 
that in this case as to create precedent binding our construc-
tion, as none presented a specific directive to adopt proce-
dures other than those of the APA.

     Applying s 559, the Supreme Court has held that "[e]x-
emptions from the terms of the Administrative Procedure Act 
are not lightly to be presumed in view of the statement in 
[s 559] that modifications must be express."  Marcello v. 
Bonds, 349 U.S. 302, 310 (1955) (citation omitted).  Marcello 
relied upon statutory language and legislative history to hold 
that the 1952 Immigration and Nationality Act displaced the 
hearing requirements of the APA.  Id.;  see also Ardestani v. 
INS, 502 U.S. 129, 134 (1991) (reaffirming Marcello, holding 
that the APA does not "displace the INA in the event that 
the regulations governing immigration proceedings become 
functionally equivalent to the procedures mandated for adju-
dications governed by [APA] s 554.").  And, as we have pre-
viously stated, "the import of the s 559 instruction is that 
Congress's intent to make a substantive change be clear."  
Ass'n of Data Processing Serv. Orgs., Inc. v. Board of Gover-
nors, 745 F.2d 677, 686 (D.C. Cir. 1984) (emphasis in origi-
nal).  The question here is whether Congress has established 
procedures so clearly different from those required by the 
APA that it must have intended to displace the norm.

     Our closest precedent is Methodist Hospital of Sacramento 
v. Shalala, 38 F.3d 1225 (D.C. Cir. 1994).  There, a statute 
directing the Secretary of Health and Human Services to 
establish new Medicare regulations expressly provided for an 
"expedited regulatory process":



     The Secretary shall cause to be published in the Federal 
     Register a notice of the interim final ... rates ... no 
     later than September 1, 1983, and allow for a period of 
     public comment thereon.  Payment on the basis of pro-
     spective rates shall become effective on October 1, 1983, 
     without the necessity for consideration of comments re-
     ceived, but the Secretary shall, by notice published in the 
     Federal Register, affirm or modify the amounts by De-
     cember 31, 1983, after considering those comments.

Social Security Amendments of 1983 ("Amendments"), 97 
Stat. 65, 168 (April 20, 1983).  The Secretary claimed that this 
specific required procedure displaced APA requirements, ar-
guing in the alternative that the "good cause" exception made 
notice and comment unnecessary if the APA applied.  Meth-
odist Hospital, 38 F.3d at 1235.

     We held for the Secretary but did not clearly differentiate 
between the two arguments.  Citing Petry, we noted that the 
Secretary confronted a statute different from those which 
allowed the agency "a substantial period of time within which 
to propose regulations, the promulgation of which it knew was 
both necessary and forthcoming in the future."  Id. at 1237 
(citations and quotation marks omitted).  We concluded that 
"the strict deadlines and special procedures imposed" on the 
Secretary by the amended act under which she was operating 
"constituted sufficiently 'good cause' ... for bypassing the 
APA's notice and comment requirement."  Id. (quoting 5 
U.S.C. s 553(b)(B)).  Methodist Hospital clearly did not disa-
vow reliance on the good cause exception found in s 553.  We 
think that it could have.  Statutory language imposing strict 
deadlines, standing alone, does not constitute sufficient good 
cause under s 553 or an express modification pursuant to 
s 559 justifying departure from standard notice and com-
ment.  But, as we said in Methodist Hospital, when Congress 
sets forth specific procedures that "express[ ] its clear intent 
that APA notice and comment procedures need not be fol-
lowed," an agency may lawfully depart from the normally 
obligatory procedures of the APA.  Id.



     In the Act, Congress provided express direction to the 
FAA regarding its procedure for establishing fees for over-
flights:  "the Administrator shall publish in the Federal Reg-
ister an initial fee schedule and associated collection process 
as an interim final rule, pursuant to which public comment 
will be sought and a final rule issued."  49 U.S.C. 
s 45301(b)(2).  This language at least in part specifies proce-
dures which differ from those of the APA:  the agency was to 
issue not a proposed rule, but an "interim final rule," and 
comment was to be sought "pursuant to," not in anticipation 
of, that rule.  The Act also authorized the Administrator "to 
recover in fiscal year 1997 $100,000,000."  49 U.S.C. 
s 45301(b)(1)(A).  This language, along with the statutory 
directive that the IFR specify procedures for collecting fees, 
demonstrates that the statute contemplated that the IFR 
would be issued and implemented during fiscal 1997.  Given 
that the Act was not passed until after the beginning of fiscal 
1997, the agency had to move quickly to establish a fee 
schedule and collection process in order to fulfill this statuto-
ry goal.  The legislative history of the Act also demonstrates 
that Congress sought rapid action from the agency to begin 
recovering costs of services provided to overflights through 
FAA-controlled airspace which heretofore had been "free 
riders."  See, e.g., Report of the Committee on Commerce, 
Science, and Transportation on S. 1994, S. Rep. No. 104-333, 
at 37 (1996) ("It is envisioned that the FAA will move as 
quickly as possible to develop and impose these fees and 
systems.  The sooner funds can be drawn from the proposed 
fees on international overflights ... the better off the FAA 
will be in the short-term.").

     In this statutory scheme, Congress specified procedures 
under s 45301(b)(2) that cannot be reconciled with the notice 
and comment requirements of s 553.  A cardinal principle of 
interpretation requires us to construe a statute "so that no 
provision is rendered inoperative or superfluous, void or 
insignificant."  C.F. Communications Corp. v. FCC, 128 F.3d 
735, 739 (D.C. Cir. 1997) (internal quotation marks omitted) 
(quoting Mail Order Ass'n of America v. United States 
Postal Service, 986 F.2d 509, 515 (D.C. Cir. 1993)).  The 
petitioners have not advanced any reasonable construction of 



s 45301(b)(2) that would harmonize with simultaneous appli-
cation of s 553.  Were we to hold that the FAA had to issue a 
proposed rule and allow meaningful opportunity to comment 
before issuing the IFR, the resulting process would be so 
nearly indistinguishable from normal notice and comment as 
to deprive this special procedural provision of any effect, and 
to thwart the apparent intent of Congress in enacting the 
special procedure.  It is therefore not difficult to conclude 
that Congress in this case purposely and expressly created an 
exception to the otherwise-applicable APA notice and com-
ment procedures.

     Admittedly, Congress did not speak as clearly here as it 
had in Methodist Hospital.  There, the Amendments not only 
specified proceeding by means of an interim final rule, but 
also established a timetable for the IFR, including the effec-
tive date of new rates and a target date for the final rule.  
Furthermore, the Amendments specifically noted that the 
rates "shall become effective ... without the necessity for 
consideration of comments received."  Amendments, supra.  
Even though s 45301(b)(2) does not establish a specific time-
table for every step in the regulatory process, it plainly 
expresses a congressional intent to depart from normal APA 
procedures.  The FAA followed that congressional intent as 
far as it went.  It is probably the case that once the FAA 
issued the IFR, the APA once again became controlling for 
all subsequent proceedings, but that is not the question 
before us.  For present purposes, given the "entire set of 
circumstances before us," Petry, 737 F.2d at 1203, the FAA 
has conformed to applicable law.

     To summarize, we hold that, to the extent that s 45301 
specified otherwise, the FAA was not required to conform to 
APA s 553 procedures.  Because the FAA complied with 
s 45301, the process by which it implemented fees for over-
flights withstands the petitioners' challenge.

                                      B


     The petitioners also argue that international aviation agree-
ments create a duty to provide "[r]easonable notice ... prior 



to changes in user charges," to engage in "consultations," and 
to "exchange such information as may be necessary to permit 
an accurate review of the reasonableness" of charges.  See, 
e.g., U.S.-Canada Air Transport Agreement, s 8(C).  Because 
the FAA must "act consistently with obligations of the United 
States government under an international agreement," 49 
U.S.C. s 40105, the petitioners claim that the FAA unlawfully 
failed to receive and respond to comments before the new fee 
structure went into effect.  The FAA responds that none of 
these agreements creates an enforceable duty to provide 
notice or consultation, and if they did, any obligation under 
s 40105 to comply with these agreements is superseded by its 
more recently enacted and more specific duty to comply with 
s 45301 in implementing fees for overflights.

     We agree with the FAA that its actions did not violate any 
duties actually imposed by international aviation agreements.  
Most of the agreements relied upon by petitioners speak of 
general aims, not specific obligations.  For example, the U.S.-
Canada Air Transport Agreement imposes no duty to consult 
prior to changes in user fees.  It provides only that "[e]ach 
Party shall encourage consultations between the competent 
charging authorities ... and the airlines ... and shall en-
courage the competent charging authorities ... to exchange 
such information as may be necessary to permit an accurate 
review of the reasonableness of the charges...."  U.S.-
Canada Air Transport Agreement, s 8(C) (emphasis added).  
The strongest language petitioners advance, found in the 
same agreement, says no more than that "[r]easonable notice 
shall be given prior to changes in user charges."  Id.  In this 
case, the FAA published the new fee structure sixty days 
before its effective date.  The new regulation was not sprung 
upon any user without that user having advance knowledge 
that its activities would incur these new fees.  Petitioners 
offer us no basis to conclude that this is not reasonable notice.

     The petitioners have not cited any international agreement 
that comes close to imposing a duty to consult.  But even if 
such a duty could be found in an agreement only to "encour-
age consultations," the record does not indicate that the FAA 
failed to consult with affected foreign users.  Prior to the 



effective date of the IFR, FAA staff held informal meetings 
as well as a public meeting with representatives of foreign 
airlines, provided copies of materials from the docket relevant 
to the IFR's development, and accepted forty comments on 
the rule.  Although these exchanges may not have influenced 
the content of the regulations made effective on May 19, 1997, 
the terms "consultation" and "exchange of information" in the 
cited international agreements do not import the full notice 
and comment apparatus of APA s 553.  The procedures 
adopted by the FAA cannot be said to have breached the 
terms of these international agreements.

                                     III


     Substantively, petitioners argue that the rule adopted by 
the FAA unlawfully discriminates against foreign air carriers 
in violation of the provisions of several international aviation 
agreements.  On this point petitioners' quarrel is with Con-
gress, not the FAA.  The agency did nothing more than 
implement the express terms of the statutory mandate.  But 
we need not linger long over the issue.  The regulation does 
not discriminate against foreign carriers by applying fees to 
overflights.  The Act directs the agency to develop a fee 
structure for services provided to aircraft that "neither take 
off from, nor land in, the United States."  49 U.S.C. 
s 45301(a)(1).  On its face, this language is completely neu-
tral, applying to all overflights regardless of nationality.  In 
fact, several U.S. carriers have already been charged fees for 
services provided to overflights.

     Of course, a facially neutral statute may be no more than a 
pretext to mask discriminatory intent and effects--but we 
find no pretext in this case.  The United States has for many 
years expended tax dollars to provide air traffic control and 
other services to aircraft flying through its airspace.  Before 
this enactment, the FAA collected user fees to support its 
operations via taxes imposed on carriers only at takeoff and 
landing, and further subsidized overflight services from its 
general operating budget.  Thus, any flight which originated 
or terminated in U.S. territory not only paid for its share of 



services, but to some degree cross-subsidized the provision of 
services to flights which used U.S. services without touching 
the ground in the U.S.  Flights crossing through U.S. air-
space require facilities and staff to manage them.  Hereto-
fore, these flights have not borne their share of the costs of 
services provided to them by the FAA.  It is not discrimina-
tory to impose fees on this group of users for services that 
they use but for which they have not previously been charged, 
regardless of whether the group is disproportionately com-
posed of foreign carriers.

                                      IV


     Petitioners argue that the FAA exceeded the scope of its 
statutory authorization by establishing fees for providing in-
flight services to aircraft crossing oceanic territory served by 
the FAA.  They base this argument on a single phrase 
embedded within the statute's limitations clause, namely, that 
"services" only include those "which are available to facilitate 
safe transportation over the United States."  49 U.S.C. 
s 45301(b)(1)(B).  The petitioners assert that a "plain mean-
ing construction" of the term "over the United States" places 
a geographic limitation on the FAA's authority to impose 
overflight fees.  They say this constitutes a clear statement 
by Congress addressing "the precise question at issue," Chev-
ron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 
467 U.S. 837, 843 (1984), and conclude that the portion of the 
regulation addressing oceanic overflights is ultra vires.

     Reading this phrase in its context demonstrates the weak-
ness of this argument.  The limitations clause defines "ser-
vices" to include

     the costs of air traffic control, navigation, weather ser-
     vices, training and emergency services which are avail-
     able to facilitate safe transportation over the United 
     States, and other services provided by the Administrator 
     or by programs financed by the Administrator to flights 
     that neither take off nor land in the United States.



49 U.S.C. s 45301(b)(1)(B).  Under the most natural reading 
of the statutory language, the phrase "which are available to 
facilitate safe transportation over the United States" modifies 
"training and emergency services," not the entire range of 
possible services.  At most, the phrase modifies the list of 
items beginning with "air traffic control," and concluding with 
"training and emergency services."  In no way can it sensibly 
be construed to modify "costs," the object of the verb "in-
clude" which is modified by the whole prepositional phrase 
beginning with "of" and including the words "and other 
services provided by the Administrator."  That last item in 
the list, "other services provided by the Administrator," plain-
ly expresses a congressional intent to include in the relevant 
"costs" services outside those set forth in the earlier list, no 
matter how many of the listed nouns are modified by the 
phrase including the critical term "over the United States."

     Therefore, not only does the section not express a clear 
congressional intent to prevent the FAA from imposing fees 
for oceanic overflights, but the natural reading of the statuto-
ry language is that Congress has expressed its intent that the 
agency recover its costs for services provided to flights 
through U.S.-controlled airspace without regard to whether 
an aircraft crosses U.S. land territory.  Under Chevron, this 
is enough;  we need not address whether the FAA reasonably 
could construe the statute to allow it not to impose fees on 
such flights.  Insofar as there is any ambiguity in Congress's 
intent on the question, we can only require that an agency's 
interpretation be a reasonable one.  Chevron, supra.  The 
statute can at least reasonably be interpreted to allow the 
FAA to charge for services provided to an aircraft that 
neither takes off nor lands in the United States, regardless of 
whether its flight path takes it "over the United States."

                                      V


     Finally, petitioners argue that the FAA exceeded its statu-
tory authority by basing fees, at least in part, on the value to 
the recipient of services provided instead of on costs.  Peti-
tioners contend that the statutory directive to "ensure that 



each of the fees required ... is directly related to the 
Administration's costs of providing the service rendered," 49 
U.S.C. s 45301(b)(1)(B), prohibits such value-based pricing.  
The FAA does not dispute petitioners' interpretation of the 
statute.  The FAA Office of Aviation Policy and Plans ex-
pressly recognizes that "Congress has mandated the fee 
should be service based and not based on value...."  Regu-
latory Evaluation at 7.  The IFR itself states that one option 
proposed by the GRA Study, charging based on aircraft 
weight, would violate this limitation:  "when viewed as a 
measure of value of the service to the user [the use of weight] 
is not consistent with the FAA's current authority."  62 Fed. 
Reg. at 13501.  We agree with petitioners that, insofar as the 
FAA allocated fixed and common costs using the Ramsey 
pricing methodology, its fee structure impermissibly included 
a component based on value to the user.

     The FAA estimated the total annual cost of air traffic 
control and related services to be $6.3 billion, including $2.2 
billion in incremental costs directly attributable to provision 
of in-flight services to all flights.1  See FY 1995 Cost Alloca-
tion Study at 6-12, 6-19, & 6-22.  Incremental costs vary 
with the quantity of service provided and include, for exam-
ple, controller staff time and facility operating costs.  Peti-
tioners do not contest that a component of fees based on 
these costs is indeed "directly related to the Administration's 
costs of providing the service rendered" to each flight.  The 
remaining $4.1 billion reflects the fixed and common costs of 
providing air traffic services, including, for example, radar 
installations and computer software.  The FAA asserts that 
"excluding such costs from the rate base for overflights would 
effectively perpetuate a system in which operators of such 
flights do not fully reimburse the agency for the services they 
receive," and that "the exclusion of these costs from the rate 
base would conflict with Congress's directive that 'the fees 
shall be based on the direct total cost of providing the 
service.' "  FAA Br. at 22 (quoting H.R. Conf. Rep. No. 

__________
     1 Overflights accounted for approximately one percent of these 
totals.



104-848, 104th Cong., 2d Sess. 110, reprinted in 1996 
U.S.C.C.A.N. 3703, 3732).  Petitioners do not dispute that the 
agency may recover fixed costs;  they simply argue that the 
FAA did not "allocat[e] its indirect costs in a way that ... 
met statutory standards."  Pet. Repl. Br. at 14.  The difficul-
ty with determining the portion of fixed and common costs 
attributable to overflights is that by definition these costs are 
shared among a great number of users besides overflights 
and so, in a sense, do not directly relate to the quantity of 
services consumed.  Thus, a method must be devised to 
apportion these costs among all the users who benefit from 
them, without violating the strictures of the statute.

     The apportionment methodology adopted by the FAA in-
volved an optimization technique called "Ramsey pricing."  
Ramsey pricing varies the share of total fixed and common 
costs allocated to a user based on the likely impact of such a 
cost change on that user's behavior.  This impact is related to 
the user's elasticity of demand and to the relationship be-
tween the amount to be charged and the user's total operat-
ing costs.

     In applying that method to allocate fixed costs, the GRA 
Study classified flights into "User Types," including Commer-
cial Users, General Aviation Users, Public Users, and Over-
flights, with the first three further broken down into twelve 
subtypes.  Each of these thirteen categories was assigned a 
demand elasticity based on a rough estimate from earlier 
studies.  The GRA Study categorized 1995 flight data by 
User Type and divided them into seven flight distance catego-
ries.  GRA then computed the average operating cost (includ-
ing crew, oil, fuel, maintenance, and taxes) and the average 
incremental air traffic services cost for each of the 612 Type-
Distance combinations.  Using a "mathematical optimization 
technique," it finally determined the Ramsey prices for each 
combination.  While its description of this process is, charita-

__________
     2 Matching the twelve subtypes and Overflights against the seven 
distance categories yielded 91 combinations, but 30 of these had an 
insignificant number of flights and so were included in the next 
higher distance block.



bly speaking, rather opaque, it appears that this involved 
finding the optimum total cost (including operating costs and 
incremental and fixed air traffic services costs) for each 
combination based on the demand elasticity and the differ-
ence between price and incremental cost.  Subtracting out 
the operating costs yielded the "Ramsey price" for each 
category, including both incremental and fixed costs.  Signifi-
cantly, the study noted that "[t]he allocation of those common 
and fixed costs depends heavily on the overall flight cost.  As 
the price of air traffic services becomes a smaller fraction of 
total costs, the optimization will assign a higher Ramsey price 
to higher cost flights (holding all else constant)."  GRA Study 
at 51.  Finally, the Ramsey prices for the overflight catego-
ries were adjusted for services not provided to oceanic over-
flights and for inflation and cost increases since 1995, and run 
through a regression to arrive at the per-mile cost equations 
found in the IFR.

     The FAA offered good reasons for adopting this approach.  
Ramsey pricing "varies the shares of common or fixed costs 
allocated to a user type based on the likely impact of such a 
cost change on user behavior."  GRA Study at 38.  It results 
in pricing which theoretically ensures the most economically 
efficient use of services.  (The most efficient price structure, 
in terms of forcing users to internalize the costs of their 
operations, is to set fees equal to marginal costs.  Ramsey 
pricing aims to preserve incentive neutrality when adding a 
fixed cost component to marginal-cost prices.)  Ramsey pric-
ing could also have a positive impact on the FAA's primary 
mission of air traffic safety:  some cost-sensitive users, if 
charged a large share of fixed costs, might in response lower 
their utilization of air traffic services to an unsafe level.

     The difficulty with the FAA's justification is that not all 
good reasons are lawful reasons.  See, e.g., American Petrole-
um Inst. v. EPA, 52 F.3d 1113, 1119 (D.C. Cir. 1995) (An 
agency "cannot rely on its general authority to make rules 
necessary to carry out its functions when a specific statutory 
directive defines [its] relevant functions ... in a particular 
area.").  No matter how strong the justification, s 45301 
prohibits basing fees on the value of the service to the user 



rather than cost.  And Ramsey pricing appears to do just 
that.  As described by the FAA, Ramsey pricing "takes a cost 
amount from another source and allocates that cost among 
particular users based on the value of the service to them."  
FAA Br. at 21;  see also id. at 5 ("Ramsey Pricing methodolo-
gy takes a given cost amount and allocates it among particu-
lar users based on the value of the service to them.").  In its 
brief, the FAA insists that the petitioners wrongly suggest 
that it used Ramsey pricing to "establish costs based on the 
value of such costs to users."  Id. at 21 (emphasis added).  
This distinction drawn by the FAA illuminates the very pit 
into which it has fallen:  although it is true that the total cost 
figure is based on real cost data and not on a "market price" 
for services, the fact is that the FAA has distributed those 
costs among all users of the system based on the value of 
services as perceived by each group of users.  The problem 
arises because the FAA chooses to understand "costs" at too 
high a level of generality.  The FAA seems to think it has 
complied with Congress's mandate simply because "[t]otal 
fees assessed for using each type of airspace (domestic and 
oceanic) do not exceed the costs of providing services within 
that type of airspace."  62 Fed. Reg. 13499.  But that is not 
what Congress mandated.

     Statutory language requiring that "each" fee be "directly 
related to ... the costs of providing the service rendered" 
expresses a clear congressional intent that fees must be 
established in such a way that each flight pays according to 
the burden associated with servicing that flight.  There may 
be methods to reasonably determine an appropriate fraction 
of the FAA's fixed costs to assign to each overflight, and if 
the FAA does not have enough information to precisely 
determine the burdens imposed by individual flights, it may 
proceed based on the best data available.  See Radio Ass'n 
on Defending Airwave Rights, Inc. v. Department of Trans-
portation, 47 F.3d 794, 806 (6th Cir.), cert. denied, 116 S. Ct. 
59 (1995).  However, it may not set fees on a basis other than 
cost.  In this case it attempted to do so when it apportioned 
its costs among user groups based on each group's relative 
sensitivity to the amount charged.  This regulation cannot be 



saved by the fact that the total amount recovered would equal 
the FAA's total cost of providing services, when the fees 
charged a flight are not "directly related" to the agency's cost 
of providing "each service."

                                  CONCLUSION


     Although the FAA adopted procedures consistent with the 
statutory requirements, we hold that the fee structure im-
posed by the IFR was impermissibly based, at least in part, 
on the value of services to users.  Because the IFR and the 
underlying record material suggest no way to circumscribe a 
component of the fees based entirely on direct costs of 
services, we vacate the fee schedule in its entirety and 
remand to the FAA for further proceedings consistent with 
this opinion.

   
