Legal Status and Jurisdiction Over Improvements Made by the Air Carriers at Washington National Airport

Published by the Government Accountability Office on 1971-09-10.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         COMPTROLLER     GENERAL   OF   THE

                                                                            lll~lll   llllllIlBllll
,-i   Dear Senator    Spong:

              In our report to you entitled     "Growth And Use of Washington
      Area Airports"       (B-159719, dated August 18, 19711, we stated that
      we planned to furnish you a report at a later date in response to
      your questions concerning the,legal         status and jurisdiction        over
      improve_ments made by the air carriers        at Washington National
      Airport    (National)     in the event the airport  is sold.      Information
      on this matter follows.

            In January 1966, the Federal Aviation           Administration       (FAA)
      issued a statement to repremf'ives            of-air    carriers     serving the
      Washington area explaining       that some of the air carriers           operating
      at National had approached FAA with requests to improve or con-
      struct certain     facilities   at National for their exclusive            use and
      occupancy.     According to FAA's statement,         the air carriers'       requests
      contemplated    the leasing of land area and unoccupied space in the
      main terminal,     and undertaking    improvements and construction            at
      their own expense.

               In its statement, FAA advised the carriers        that (1) the
      Government would entertain          requests from any scheduled air carrier
      operating      at National    for improvement of existing     faci-.$t>es,
      rental of unused facilities,          or rental of land area; (2) any agree-
      ment with an air carrier          must commence on'"a mutually agreeable date
      and expire on or before September 30, 1971; and (3) an air carrier's
      rights under such an agreement would not be permitted               to interfere
      with the Government's         plans or preparations   for any improvement it
      might decide to make in the airport           areas in which the carrier's
      facilities      were located.

            As shown in the following  listing of information      furnished    by
      FAA, 12 air carriers  have improved and constructed     facilities     at
      National  since 1965.

                                 50TH   ANNIVERSARY           1921-   1971 /i!fEEq

            Air    Carrier                                    cost

United       Air Lines
          Ticketing    and hold rooms, and
          in-flight    food kitchen                     $     900,000

Eastern Airlines
      Ticketing  and hold          rooms                    1,500,000

American Airlines
      Ticketing   and passenger            facilities       3,200,OOO

Northwest/Trans          World Airlines
      Ticketing         and passenger facilities            6,500,OOO

National Airlines
      Ticketing   and passenger            facilities         470,000

Northeast Airlines
      Operations   and hold         room facilities           200,000

Piedmont Airlines
     Ticketing    and hold         rooms                       50,000

Braniff       International
          Ticketing     and hold   room                        85,000

Delta Air Lines
      Hold room                                               109,000

Lake Central Airlines
     Ticketing  and hold           room                        25,000

Allegheny Airlines
       Ticketing  and hold room                               250,000

                  Total estimated cost of new
                  facilities  and improvements          $13,289,000


       All of the above listed improvements and new construction                     had
been completed by April 1970.           FAA  considered     that    the  air   carriers'
improvements to existing      facilities       at National     were covered by the
use agreements in effect      and made no additional            charges as a result
of such improvements,      Nine of the 12 air carriers,               who have made
improvements and constructed          new facilities     involving      the use of
additional     land area at an estimated cost of about $3.6 million,
have entered into agreements with FAA for the use and disposition
of new facilities.      The remaining three air carriers--Northwest
Airlines,    Trans World Airlines,       and American Airlines--have             con-
structed new facilities     at an estimated cost of about $9.7 million
but had not, at the time of our inquiry,             entered into agreements
with FAA for their use and disposition,              An FAA official         advised
us that a meeting with the three air carriers               was scheduled for
September 8, 1971, at which time he expected the carriers                     to sign
agreements with FAA,

       FAA agreements with the nine air carriers--applicable       to their
new facilities--     provide for an annual charge of $.15 a square foot
for the ground space occupied at National.         The same charge has
been imposed on, and paid by, Northwest,       Trans World, and American
Airlines     even though these air carriers  had not entered into agree-
ments with FAA covering their facilities.

      Eight of the nine agreements covering new facilities      expire on
September 30, 1971, and one expired on July 31, 1971. In the case
of the expired agreement, FAA officials    advised us that, until a new
agreement could be consummated, they were continuing       to charge the
air carrier   for ground space at the rate prescribed    in the expired

      Under the terms of each of the nine agreements,      legal title     to
the facilities  constructed   by the air carriers passes to the Govern-
ment upon the expiration    of the period fixed in the agreements.
Since one agreement has expired,    title to the applicable     facilities
has passed to the Government.
      If National   is sold prior to the expiration      of FAA's agreements
with the eight air carriers,     the purchaser of National would acquire
the rights of the Government to the transfer        of title  in accordance
with the provisions    of the agreements9    After expiration    of the


agreements (September 30, 19711, the Government would acquire title
to the air carrier-constructed      facilities    and the purchaser would
acquire title     to the facilities   upon consummation of the sale.       In
the latter    situation,  however, there could be new FAA agreements
with the air carriers,      and the purchaser ordinarily     would take title
subject to the leasehold interests         of each of the air carriers  pur-
suant to such agreements0

        The draft of the agreement being negotiated          by FAA with Northwest
Airlines    and Trans World Airlines     for the new joint facilities        con-
structed includes provisions        for the passage of title       to the facilities
to izhe Government and for lease charges similar            to those in the nine
executed agreements, and for the re-leasing           of the facilities    to the
two carriers     after September 30, 1971. The agreement being negotiated
with American Airlines      contains similar    provisions.

        We were advised by an FAA official       that the entering      into
agreements with Northwest and Trans World Airlines             and with American
Airlines    has been delayed because of difficulty         in reaching accord
on terms relating       to the leasing fees to be charged these air carriers
for use of the new facilities         after September 30, 1971. He advised
us also that the fees to be charged these air carriers             after
September 30, 1971, will include an offsetting           factor to reflect     the
substantial      investments   made by the three air carriers      in new ter-
minal facilities       at National.

        The FAA official     also indicated     that the agreements with the
other nine air carriers         covering their new facilities     at National
do not prescribe       the fees to be charged after the termination
dates of those agreements.           He stated that this would not be a
critical    factor in the negotiations         with these nine air carriers
because their investments         in terminal     facilities were substantially
smaller than those of Northwest,           Trans World, and American Airlines.

      The Government's  general policy regarding   charges and fees for
the leasing of Federal property is contained in Office of Management
and Budget (formerly   Bureau of the Budget) Circular    No. A-25.
Paragraph 3b of this Circular   provides as follows;


           "***Where federally    owned resources or property are leased
           or sold, a fair market value should be obtained.       Charges
           are to be determined by the application      of sound business
           management principles,    and so far as practicable   and
           feasible  in accordance with comparable commercial practices.
           Charges need not be limited     to the recovery of costs; they
           may produce net revenues to the Government."

             The apparent flaw in the adequacy of FAA's contracting    1.-- I   procedures,
     as demonstrated      in the Northwest,      Trans World, and'&erican       Airlines'
     situations    is that of permitting       air carriers   to construct    facilities
     in the absence of previously       executed agreements.        The agreements
     that finally     may be negotiated     with the three air carriers       may reflect
     pressure to include provisions,         covering    such matters as amortization
     of carrier    investments,   which may not be in the best interests              of the
     Government.      Also, the agreements may set the pattern for the renewal
     agreements with the other nine air carriers.

            For the protection       of all    parties  concerned, agreements for any
     additional     construction     should    be executed prior to the commencement
     Of  construction.

             We plan to make no further      distribution   of this report unless
     copies are specifically      requested,      and then we shall make distri-
     bution only after your agreement has been obtained or public announce-
     ment has been made by you concerning the contents of the report.               We
     did not obtain comments from the Department of Transportation              on this
     report;    this fact should be taken into consideration        in any use made
     of the information     presented.

           We trust    the information        furnished   will    serve     your purposes.

                                                      Sincerely    yours,

     The Honorable     William     B. Spong, Jr.
e!   United States     Senate