 United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT




Argued November 8, 2011               Decided January 6, 2012

                        No. 11-1018

                  REPUBLIC AIRLINE INC.,
                       PETITIONER

                             v.

     UNITED STATES DEPARTMENT OF TRANSPORTATION,
                     RESPONDENT



            On Petition for Review of an Order
            of the Department of Transportation



     Christopher T. Handman argued the cause for the
petitioner. Robert E. Cohn, Patrick R. Rizzi and Dominic F.
Perella were on brief.

     Timothy H. Goodman, Senior Trial Attorney, United
States Department of Transportation, argued the cause for the
respondent. Robert B. Nicholson and Finnuala K. Tessier,
Attorneys, United States Department of Justice, Paul M.
Geier, Assistant General Counsel for Litigation, and Peter J.
Plocki, Deputy Assistant General Counsel for Litigation, were
on brief. Joy Park, Trial Attorney, United States Department
of Transportation, entered an appearance.
                              2

   Before: HENDERSON, Circuit Judge, and WILLIAMS and
RANDOLPH, Senior Circuit Judges.

    Opinion for the Court filed by Circuit Judge HENDERSON.

     KAREN LECRAFT HENDERSON, Circuit Judge: Republic
Airline Inc. (Republic) challenges an order of the Department
of Transportation (DOT) withdrawing two Republic “slot
exemptions” at Ronald Reagan Washington National Airport
(Reagan National) and reallocating those exemptions to Sun
Country Airlines (Sun Country). In both an informal letter to
Republic dated November 25, 2009 and its final order, DOT
held that Republic’s parent company, Republic Airways
Holdings, Inc. (Republic Holdings), engaged in an
impermissible slot-exemption transfer with Midwest Airlines,
Inc. (Midwest). In so holding, DOT summarily dismissed
Republic’s argument that, under both DOT and Federal
Aviation Administration (FAA) precedent, the Republic-
Midwest slot-exemption transfer was permissible because it
was ancillary to Republic Holdings’ acquisition of Midwest.
Because DOT has departed from its precedent without
adequate explanation, its decision cannot survive arbitrary and
capricious review. Accordingly, we grant Republic’s petition
for review and vacate DOT’s order.
                      I. BACKGROUND
     In an effort to improve airport safety and efficiency, FAA
limits the number of take-offs and landings at several of the
nation’s most congested and frequently delayed airports. See,
e.g., Operating Limitations at N.Y. LaGuardia Airport, 71
Fed. Reg. 77,854 (Dec. 27, 2006). Historically, FAA
distributed a limited number of “slots”—i.e., take-off and
landing rights—at five so-called high-density airports,
including Reagan National. See 14 C.F.R. § 93.123. The
                                3
resulting slot-allocation rules are collectively known as the
High Density Rule (HDR). City of New York v. Minetta, 262
F.3d 169, 172 (2d Cir. 2001) (citing 14 C.F.R. §§ 93.121-
93.133, 93.211-93.229).
     “By the early 1990s, however, the HDR was perceived
as a barrier to improved service, in part because new air
carriers were unable to establish service due to the lack of slot
availability.” Id. at 172-73 (citing H.R. Rep. No. 106-167, pt.
1, at 77-79 (1999)). As a result, in 1994, the Congress
amended the statutory scheme to enable DOT to grant a
limited number of exemptions to the slot limits. See Pub. L.
No. 103-305, § 206, 108 Stat. 1569, 1584 (1994) (codified, as
amended, at 49 U.S.C. § 41714(c) (2000)). These aptly-
named “slot exemptions” permit take-offs and landings in
addition to those available under the HDR. See id.1
    Today, the HDR has been phased out at four of the five
high-density airports.2 Only Reagan National continues to
operate under it. At Reagan National, DOT has 20 slot
exemptions which can be issued to any carrier providing non-
stop service to an airport within a 1,250 mile radius. See 49


1
     In practice, a slot exemption authorizes an airline to provide
nonstop service to or from a slot-controlled airport during a
particular time frame—for example, from Reagan National to
Kansas City, Missouri, daily at the 1 p.m. time period.
2
      The FAA lifted the HDR at Newark Liberty International
Airport in the early 1970s. See High Density Airports; Notice of
Reagan National Airport Lottery Allocation Procedures, 69 Fed.
Reg. 67,382 (Nov. 17, 2004) (discussing elimination of HDR at
Newark). In 2000, the Congress eliminated the HDR at Chicago
O’Hare International Airport (effective July 1, 2002) and
LaGuardia Airport and John F. Kennedy International Airport
(effective January 1, 2007). See Pub. L. No. 106-181, § 231, 114
Stat. 61, 108 (2000) (codified at 49 U.S.C. § 41715(a)).
                               4
U.S.C. §§ 41718(b), 49109. The DOT distributes the
exemptions
    in a manner that promotes air transportation—
         (1) by new entrant air carriers and limited
             incumbent air carriers;
         (2) to communities without existing nonstop air
             transportation to [Reagan National];
         (3) to small communities;
         (4) that will provide competitive nonstop air
             transportation on a monopoly nonstop route
             to [Reagan National]; or
         (5) that will produce the maximum competitive
             benefits, including low fares.
Id. § 41718(b). Importantly, “[n]o exemption . . . may be
bought, sold, leased, or otherwise transferred by the carrier to
which it is granted.” Id. § 41714(j).
     On July 31, 2009, Republic Holdings acquired Midwest
in a 100% stock purchase, making Midwest its wholly-owned
subsidiary. At the time of the acquisition, Midwest provided
three nonstop round-trip flights between Kansas City
International Airport (KCI) and Reagan National each day.
One of the three flights was made possible by the two slot
exemptions at issue here. Two months later, on September 30,
2009, Republic sent a letter to DOT outlining the details of
the acquisition and explaining that “as of November 3, 2009,
Republic will operate all of Midwest’s schedules under the
d/b/a trade name Midwest Airlines and become the holder and
operator of Midwest’s [Reagan National] slot exemptions.”
Letter from Robert Cohn to Todd Homan, at 1 (Sep. 30,
2009). Republic further noted that, although section 41714(j)
prohibits an airline from buying, selling, leasing or otherwise
transferring slot exemptions:
                               5
    [DOT] precedent in the America West/US Airways,
    American Airlines/Reno Air, and Southwest
    Airlines/ATA acquisitions establish[es] that the
    prohibition against transferring slot exemptions does
    not apply to ancillary transfers which are the product
    of a corporate acquisition or merger, such as
    Republic/Midwest.
Id. at 4. Republic assured DOT that, just as in the cited cases,
it intended to use the slot exemptions in the same manner for
which they had been granted. Although Republic planned to
replace Midwest’s Boeing 717s with Embraer regional jets,
“there [would] be no [other] perceptible change to the
services offered.” Id. at 2. Indeed, Republic even maintained
Midwest’s brand name. Id. (“Republic will continue the
Midwest branded service, including services at slot controlled
airports . . . under the d/b/a trade name Midwest Airlines.”).
     On November 25, 2009, DOT sent Republic an informal
letter rejecting Republic’s proposed action and “conclud[ing]
that a ‘transfer’ of exemptions ha[d] in fact occurred.” Letter
from Susan Kurland to Robert Cohn, at 1 (Nov. 25, 2009)
(November 25th Letter). According to DOT, once acquired,
Midwest no longer existed as a carrier; thus, Republic’s right
to the exemptions resulted from an impermissible slot-
exemption transfer. Id. at 1-2. DOT informed Republic that it
could continue to use the slot exemptions pending a formal
reallocation proceeding and could apply, through that
proceeding, to keep the slot exemptions. Id. at 2 (“[T]he
Department will resolicit applications for the two [Reagan
National] slot exemptions, and then determine which
application best satisfies the criteria imposed in section
41718(b). Republic is of course invited to submit an
application for Kansas City (or for any other service it
believes will best satisfy the statutory criteria).” (emphasis
removed)).
                               6
     Republic did just that. On September 30, 2010, Republic
applied to retain the slot exemptions for KCI/Reagan National
round-trip service, arguing inter alia that it offered the lowest
fares, that continuing the route would maximize competition
and that Kansas City’s economy would suffer from the loss of
a daily direct flight to Reagan National. See Application of
Republic Airline Inc., Docket No. DOT-OST-2000-7182, at
8-10 (Sep. 30, 2010). Republic also renewed its argument that
the slot exemptions were “categorically not subject to
reallocation” because “under well-settled precedent,
[Republic Holdings’] acquisition of Midwest [] did not
constitute a prohibited transfer that would have warranted
reallocation.” Id. at 11 n.9.
     On December 10, 2010, DOT issued Order No. 2010-12-
16 (Final Order), withdrawing the exemptions and
reallocating them to Sun Country for nonstop round-trip
service between Lansing, Michigan and Reagan National.
Final Order at 1. In two brief footnotes, DOT rejected
Republic’s argument that its transfer did not violate section
41714(j). According to DOT, it had “carefully considered,
and rejected, these arguments in [its] [November] 25, 2009
letter to Republic[’s] counsel,” id. at 11 n.14, and it directed
Republic to the earlier letter “for a full discussion as to why
[it] found that the proposed transfer would violate section
[41714(j)],” id. at 2 n.1.
    Republic petitions for review pursuant to 49 U.S.C.
§ 46110(a) and (c) and 5 U.S.C. § 706.
                         II. ANALYSIS
     The Administrative Procedure Act instructs us to “hold
unlawful and set aside agency action, findings, and
conclusions found to be [] arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.” 5 U.S.C.
§ 706(2)(A). Although the scope of review under the arbitrary
                              7
and capricious standard is narrow and a court is not
empowered to substitute its judgment for that of the agency,
Rural Cellular Ass’n v. FCC, 588 F.3d 1095, 1105 (D.C. Cir.
2009), the agency must provide a “rational connection
between the facts found and the choice made” so as to afford
the reviewing court the opportunity to evaluate the agency’s
decision-making process. Motor Vehicle Mfrs. Ass’n v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (quoting
Burlington Truck Lines, Inc. v. United States, 371 U.S. 156,
158 (1962)). One of the core tenets of reasoned decision-
making is that “an agency [when] changing its course . . . is
obligated to supply a reasoned analysis for the change.” Id. at
42; see also Kreis v. Sec’y of the Air Force, 406 F.3d 684, 687
(D.C. Cir. 2005) (“It is axiomatic that an agency must treat
similar cases in a similar manner unless it can provide a
legitimate reason for failing to do so.” (internal quotation
marks omitted)). That said, an agency is not required to
distinguish every precedent cited to it by an aggrieved party.
See Bush-Quayle ‘92 Primary Comm., Inc. v. Fed. Election
Comm’n, 104 F.3d 448, 454 (D.C. Cir. 1997) (“We may
permit agency action to stand without elaborate explanation
where distinctions between the case under review and the
asserted precedent are so plain that no inconsistency
appears.”). But where, as here, “a party makes a significant
showing that analogous cases have been decided differently,
the agency must do more than simply ignore that argument.”
LeMoyne-Owen Coll. v. NLRB, 357 F.3d 55, 61 (D.C. Cir.
2004).
    As Republic outlined at considerable length in its
September 30, 2009 letter, DOT and FAA precedent in the
America West/US Airways, American Airlines/Reno Air and
Southwest Airlines/ATA acquisitions establish that the
prohibition against transferring slot exemptions does not
apply to a transfer that is part-and-parcel of a corporate
acquisition or merger. DOT first confronted this issue in
                                 8
1999, after American Airlines, Inc. (American Airlines)
announced its plan to “purchase all outstanding stock” of
Reno Air, Inc. (Reno Air) so that Reno Air would become the
wholly-owned subsidiary of the parent company. See Appl. of
Reno Air, Inc. for Exemption, Order No. 99-2-26, 1999 WL
95072, at *1 (DOT Feb. 23, 1999) (Order on Motion to
Reopen the Record) (Reno Air). A competitor filed a protest
with DOT, arguing that Reno Air’s slot exemptions at O’Hare
International Airport should be reallocated because the
merger resulted in a prohibited “transfer” of the exemptions.
See id. at *4. DOT dismissed the challenge. Id. According to
DOT:
    The proscription of selling, trading and transferring
    slot exemption authority was intended to prevent the
    formation of a market for slot exemption authority.
    Because mergers present a substantially different
    market than one trading slot exemptions, the
    Department has the discretion to treat the effect of
    the merger . . . as not violating the proscription . . . .
Id.3 Accordingly, it allowed the newly-formed American
Airlines subsidiary to continue to hold the exemptions
originally granted to Reno Air.

3
     Although, as DOT notes, Reno Air is “not a [s]ection 41714(j)
DOT precedent, as it arose prior to enactment of the statute,”
Respondent’s Br. at 15, we nonetheless find it persuasive. The
provision of the 1994 DOT order at issue in Reno Air is nearly
identical to section 41714(j). Compare Appl. of Reno Air, Inc.,
Order No. 94-9-30, 1994 WL 521207, at *4 (DOT Sep. 20, 1994)
(carrier prohibited from “selling, trading, transferring, or
conveying” exemption), with 49 U.S.C. § 41714(j) (exemption may
not be “bought, sold, leased, or otherwise transferred by the carrier
to which it is granted”). DOT has provided no sound reason why it
interprets similar language differently. Indeed, DOT itself cited
Reno Air in America West, infra, which is a section 41714(j) case.
                                  9
     DOT reached the same result seven years later when U.S.
Airways, Inc. (U.S. Airways) merged with America West
Airlines (America West). See Pet. of the Air Carrier Ass’n of
Am., Order No. 2006-3-6, 2006 WL 2658672 (DOT Mar. 7,
2006) (America West). After the merger was announced, an
industry group petitioned DOT, arguing that America West
was attempting to “transfer or convey its slot exemptions to
the new US Airways/America West entity” and that, under
section 41714(j), the exemptions should be reallocated. Id. at
*2. Relying on Reno Air, DOT once again dismissed the
challenge and held that, while an acquisition of corporate
assets only (including slot exemptions) might be an
impermissible transfer, “the type of merger at issue here”—
namely, a complete corporate merger—does not involve
“monetizing the exemptions by selling or transferring them
for other considerations to other parties, an obvious abuse at
the center of the statute’s prohibition.” Id. at *4.
     FAA reached a similar result in a 2008 decision involving
the bankruptcy of ATA Airlines (ATA). See Congestion
Mgmt. Rule for LaGuardia Airport, 73 Fed. Reg. 64,883,
64,884 (Oct. 31, 2008) (ATA). At the time of its bankruptcy
filing, ATA held fourteen slots at LaGuardia Airport.4 The


See Pet. of the Air Carrier Ass’n of Am., Order No. 2006-3-6, 2006
WL 2658672, at *4 n.10 (DOT Mar. 7, 2006).
4
     As noted above, FAA distributes slots, see 14 C.F.R.
§§ 93.121-93.133, 93.211-93.229, but DOT issues slot exemptions,
see 49 U.S.C. § 41714(c). Although ATA involves slots, not slot
exemptions, it is nonetheless analogous here. In practice, both slots
and slot exemptions enable an aircraft to take off or land at a certain
airport at a certain time. Moreover, the provision at issue in ATA is
similar to section 41714(j). Compare 71 Fed. Reg. at 77,857
(“sales, purchases, or transfers of [slots] will not be permitted”),
with 49 U.S.C. § 41714(j) (exemption may not be “bought, sold,
leased, or otherwise transferred by the carrier to which it is
                               10
slots were subject to a FAA order which, much like section
41714(j), barred their “sale[], purchase[], or transfer[].” See
Operating Limitations at N.Y. LaGuardia Airport, 71 Fed.
Reg. at 77,857. When FAA was asked if a post-bankruptcy
purchaser could retain the non-transferable slots, it answered
in the affirmative. See Congestion Mgmt. Rule for LaGuardia
Airport, 73 Fed. Reg. at 64,884. So long as the buyer acquired
ATA’s “business as a whole,” it could continue to maintain
the slots without violating FAA’s no-transfer order. Id.
    Rather than attempt to distinguish these cases, DOT has
ignored them completely. Indeed, despite Republic’s efforts,
which twice directed DOT’s attention to DOT and FAA
precedent, neither DOT’s November 25th Letter nor its Final
Order even mentions the cases. The totality of DOT’s
reasoning is found in three sentences in its November 25th
Letter:
    After careful review, we have concluded that a
    ‘transfer’ of exemptions has in fact occurred.
    Midwest, the party to which the awards were
    granted, has now ceased to exist as a carrier. Unlike
    Frontier, which was acquired by Republic but still
    operates as a subsidiary under its own operating
    certificate, Midwest clearly no longer holds or
    operates the exemptions, and Republic’s claim to
    these exemptions arises only as a result of its
    transaction with Midwest.
November 25th Letter at 1-2. DOT’s Final Order references
these three sentences, calling them the “full discussion as to
why [DOT] found that the proposed transfer would violate
[section] 41714(j).” Final Order at 2 n.1.

granted”). In neither its November 25th Letter nor its Final Order
did DOT explain why FAA precedent is not, at the very least,
persuasive.
                              11
     It escapes us how this so-called “full discussion” explains
DOT’s decision. In both Reno Air and America West, the
“party to which the awards were granted” (like Midwest)
eventually “ceased to exist as a carrier” (again, like Midwest).
November 25th Letter at 1; see Reno Air, 1999 WL 95072, at
*1; America West, 2006 WL 2658672, at *2-*5. In both cases,
the acquiring carrier’s (like Republic’s) “claim to the
exemptions ar[ose] only as a result of its transaction” with the
carrier it acquired (like Midwest). November 25th Letter at 2;
see Reno Air, 1999 WL 95072, at *1; America West, 2006
WL 2658672, at *4. Yet in both cases, DOT allowed the
acquiring entities to retain the slot exemptions. See Reno Air,
1999 WL 95072, at *5; America West, 2006 WL 2658672, at
*4. Similarly, when Southwest Airlines (Southwest) acquired
ATA’s business as a whole in the ATA bankruptcy
proceeding, ATA “ceased to exist as a carrier” and no longer
“h[eld] or operat[ed]” the slots. November 25th Letter at 1;
see 73 Fed. Reg. at 64,884. Nevertheless, FAA allowed
Southwest to retain and utilize the slots originally issued to
ATA. 73 Fed. Reg. at 64,884.
     Moreover, while it is true that—unlike Frontier Airlines
which Republic acquired in July 2009—Midwest no longer
intended to operate under its “own operating certificate,”
DOT’s scant analysis fails to explain why this fact has any
bearing on whether an impermissible slot transfer occurred.
An air operator’s certificate (AOC) is simply FAA’s approval
to operate an aircraft for commercial purposes. See 14 C.F.R.
§ 119.5(b). Because Midwest intended to change the aircraft
servicing the KCI/Reagan National route (from Boeing 717s
to EmbrBaer regional jets), it was required to obtain a new
AOC. But rather than explain how a new AOC could be
relevant to determining if a slot-exemption transfer occurs,
DOT asks us in effect to guess at its underlying reasoning.
But we cannot uphold its action based on speculation. See
Williams Gas Processing-Gulf Coast Co. v. FERC, 475 F.3d
                              12
319, 328-29 (D.C. Cir. 2006) (“Arbitrary and capricious
review strictly prohibits us from upholding agency action
based only on our best guess as to what reasoning truly
motivated it.”).
     DOT asserts a new reason for distinguishing the
Republic/Midwest merger in its brief on appeal. According to
DOT’s new position, what really matters is when the acquired
airline ceases to exist: “[I]f an air carrier is acquired by
another company, but continues post-acquisition to operate,
DOT has determined that no [] transfer of control over the slot
exemptions has occurred.” Respondent’s Br. at 12. But this
argument fails for two reasons. First, it is post hoc
rationalization that cannot support DOT’s action. See State
Farm, 463 U.S. at 50 (“[T]he courts may not accept appellate
counsel’s post hoc rationalizations for agency action.”);
Manin v. Nat’l Transp. Safety Bd., 627 F.3d 1239, 1243 (D.C.
Cir. 2011) (“[T]he law does not allow us to affirm an agency
decision on a ground other than that relied upon by the
agency.”). Second, Midwest did not cease to exist as an
operating entity when it was acquired. Indeed, Republic
Holdings completed the stock purchase nearly three months
before seeking to merge Midwest’s operations with
Republic’s. DOT’s post hoc rationalization therefore would
do nothing to advance its case.
     For the foregoing reasons, we grant Republic’s petition
for review and vacate DOT Order No. 2010-12-16.
                                                   So ordered.
