Asiana Airlines v. Federal Aviation Administration

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

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Consolidated with

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

97-1362, 97-1363, 97-1364

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On Petitions for Review of an Order of the

Federal Aviation Administration

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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.