ABC Aerolineas, S.A. de C v. v. DOT

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 26, 2018 Decided August 14, 2018

No. 17-1056

ABC AEROLINEAS, S.A. DE C.V., D/B/A INTERJET,
PETITIONER

v.

UNITED STATES DEPARTMENT OF TRANSPORTATION,
RESPONDENT

Consolidated with 17-1115

On Petitions for Review of Final Orders of
the United States Department of Transportation

Moffett B. Roller argued the cause and filed the briefs for
petitioner.

Christopher S. Perry, Acting Deputy Assistant General
Counsel, U.S. Department of Transportation, argued the cause
for respondent. With him on the brief were Robert B. Nicholson
and Frances Marshall, Attorneys, U.S. Department of Justice,
and Paul M. Geier, Assistant General Counsel.

Before: GARLAND, Chief Judge, and SILBERMAN and
SENTELLE, Senior Circuit Judges.
 2
Opinion for the Court filed by Chief Judge GARLAND.

GARLAND, Chief Judge: As a condition of approving a
cooperation agreement between two airlines, the Department of
Transportation required those airlines to give competitors 24
pairs of their takeoff and landing slots at Mexico City’s Benito
Juárez International Airport. The Department did not permit the
airlines to give any of those slots to petitioner Interjet, because
Interjet already had more than 300 slots at that airport. Interjet
challenges the Department’s orders implementing this decision,
contending that they were arbitrary, capricious, and contrary to
law. Because the Department’s decision was reasonable and
consistent with its statutory mandate, we deny Interjet’s
petitions for review.

I

The Federal Aviation Act, 49 U.S.C. § 40101 et seq., tasks
the United States Department of Transportation (DOT) with
regulating the economic aspects of commercial air travel. One
of its many provisions, 49 U.S.C. § 41309, sets forth
requirements for airlines seeking to cooperate with their
competitors. Under that provision, the Secretary of
Transportation “shall approve” a cooperation agreement “when
the Secretary finds it is not adverse to the public interest and is
not in violation of this part.” Id. § 41309(b). The Secretary may
not, however, approve any agreement that “substantially reduces
or eliminates competition,” unless she makes certain findings
not relevant to this case. Id. § 41309(b)(1). If the Secretary
approves a cooperation agreement, she may “exempt a person
affected by the order from the antitrust laws,” as necessary to
allow the agreement to operate. Id. § 41308(b).

The Federal Aviation Act also instructs DOT to consider
numerous factors in deciding whether an agreement is in the
 3
public interest. Several relate to the importance of competition:
The Department must take into account “the availability of a
variety of adequate, economic, efficient, and low-priced
services”; must “plac[e] maximum reliance on competitive
market forces and on actual and potential competition”; and
must strive to “avoid[] unreasonable industry concentration,
excessive market domination, monopoly powers, and other
conditions that would tend to allow at least one air carrier or
foreign air carrier unreasonably to increase prices, reduce
services, or exclude competition in air transportation.” Id.
§ 40101(a)(4), (6), (10).

This case arises out of an application for approval of a
cooperation agreement filed by Delta Airlines and Aeromexico,
Mexico’s flag carrier. The airlines sought to “coordinate their
respective passenger services on routes between the United
States and Mexico.” Joint Application for Approval of and
Antitrust Immunity for Alliance Agreements 1 (Mar. 31, 2015)
(J.A. 4). The airlines explained that, if the Department of
Transportation approved the agreement and granted them
antitrust immunity, they would implement “metal neutrality,”
meaning that each airline would treat the other’s flights as if
they were its own. Id. at 3 (J.A. 6). According to the airlines,
such an arrangement would allow them to increase U.S.-Mexico
air service. Id. 15-22 (J.A. 18-25).

Before deciding whether to approve the airlines’
application, DOT requested public comments. Six other
airlines, four airports, two nonprofits, and one city filed
comments concerning the proposed agreement. In addition, the
Department requested further information from the applicant
airlines, as well as from various Mexican authorities.

After the public comment period closed, the Department
filed an order that tentatively approved the agreement and
 4
granted the applicants antitrust immunity. The Department
concluded that, with certain conditions, the agreement would be
in the public interest and would not substantially reduce or
eliminate competition. Order to Show Cause 2 (Nov. 4, 2016)
(J.A. 115). As relevant here, it proposed requiring the applicant
airlines to divest 24 pairs of their takeoff and landing
authorizations (“slots”) at Mexico City’s Benito Juárez
International Airport (MEX), as well as six pairs of slots at New
York City’s John F. Kennedy International Airport (JFK). Id.1
The Department explained that the “Joint Applicants control
nearly 50% of the MEX slots, the allocation of which is
dependent on confusing and often unwritten rules, making it
extremely difficult for new entrants to launch competitive
service.” Id. at 1 (J.A. 114). The divestiture, the Department
said, was “necessary to support new entry needed to discipline
the coordinated services and planned growth of the joint
venture.” Id. at 21 (J.A. 134).

As part of its proposed remedy, DOT stated that it would
determine which airlines were eligible for the divested slots.
“[B]ecause the aim of the divestitures is to implement new
competitive service,” DOT determined that only carriers “with
a limited presence, or no presence, at the respective airports”
would be eligible to receive slots. Id. at 24 (J.A. 137). At MEX,
this policy resulted in the exclusion of Interjet, which had 313
slots -- the second most after Aeromexico. At JFK, this policy
resulted in the exclusion of JetBlue. Id. at 25 (J.A. 138).
Finally, DOT determined that the divested slots would be
“required to be deployed in the transborder market” -- that is, on
U.S.-Mexico flights. Id.

1
“A ‘slot’ is a time period allotted to an airline at a
particular airport for taking off or landing.” Virgin Atl. Airways Ltd.
v. British Airways PLC, 257 F.3d 256, 260 (2d Cir. 2001).
 5
After another round of comments, including an objection
from Interjet, the Department finalized its proposed order with
minor modifications.2 DOT’s December 2016 Order rejected
Interjet’s argument that it should be eligible for MEX slots,
reasoning that “Interjet has over 26% of the slots at MEX, more
by far than any other carrier besides Aeromexico,” and therefore
that “Interjet does not need assistance to achieve competitive
access at MEX; it already has it.” December 2016 Order 23
(Dec. 14, 2016) (J.A. 256). Although Delta and Aeromexico
filed a notice attacking DOT’s conditions as “onerous,” Notice
of the Joint Applicants 1 (J.A. 273), they did not seek judicial
review.

Thereafter, the Department began proceedings to direct, as
a condition of approving the agreement, the applicants’
divestiture of the slot-pairs at MEX and JFK to specific carriers.
On April 10, 2017, after two additional rounds of public
comment, the Department directed the divestiture of the 24 pairs
of MEX slots to five airlines, excluding Interjet. (DOT directed
the divestiture of the slot pairs at JFK to three airlines, excluding
JetBlue but including Interjet.) The Department once again
considered and rejected Interjet’s objection that it should have
received slots at MEX. See April 2017 Order 7-11 (Apr. 10,
2017) (J.A. 332-36).

II

Interjet petitions for review of only a part of the orders that
approved the Delta-Aeromexico cooperation agreement and
directed the divestiture of the MEX and JFK slots. Interjet does
not challenge the Department’s decision to approve the
cooperation agreement or to require slot divestitures. Nor does

2
In the most relevant modification, DOT decreased the number
of JFK slots it ordered divested from six pairs to four.
 6
it challenge any part of the decision directing which carriers
would receive the slots at JFK. Interjet’s sole objection is to
DOT’s decision to exclude it from receiving MEX slots. That
decision, it contends, was inconsistent with the Federal Aviation
Act and was arbitrary and capricious. See Administrative
Procedure Act, 5 U.S.C. § 706(2)(A) (providing that “[t]he
reviewing court shall . . . hold unlawful . . . agency action . . .
found to be . . . arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law”).

A

We begin with Interjet’s contention that the Department’s
orders violated the Federal Aviation Act. In judging an
agency’s compliance with a statute that Congress has entrusted
it to administer, we apply the familiar framework of Chevron
USA Inc. v. Natural Resources Defense Council, Inc., 467 U.S.
837 (1984). See Competitive Enter. Inst. v. U.S. Dep’t of
Transp., 863 F.3d 911, 915 (D.C. Cir. 2017). Under that
framework, “when the statute ‘is silent or ambiguous,’” we must
“defer to a reasonable construction” set forth by the agency.
Barnhart v. Thomas, 540 U.S. 20, 26 (2003) (quoting Chevron,
467 U.S. at 843).

According to Interjet, DOT lacks authority “to allocate
divested slots at a foreign airport and to impose conditions on
the use of those slots.” Interjet Br. 45. Rather, the “Mexican
government has exclusive authority over slot allocation at
MEX.” Id. at 31. But Interjet’s argument has a faulty premise.
As the Department’s order explained, it “does not, and cannot,
allocate slots at MEX.” April 2017 Order 7 (J.A. 332). Instead,
DOT simply “conditioned its discretionary grant of [antitrust
immunity] on the Joint Applicants’ divestiture of certain assets,
as well as their transfer of those slots[,] . . . a condition that the
Joint Applicants voluntarily accepted.” Id. “If the Joint
 7
Applicants do not obtain approval of the slot transfers” from the
Mexican authorities, DOT continued, “then the Department’s
grant of [antitrust immunity] will simply not enter into force.”
Id.

Contrary to Interjet’s claims, therefore, the Department did
not attempt to assert authority over Mexico or any entity other
than the applicants that were seeking DOT’s approval of their
cooperation agreement. As Interjet concedes, DOT plainly has
the authority to “place some reasonable conditions” on a
cooperation agreement. Interjet Br. 44.3 Indeed, unsurprisingly,
Interjet does not object to DOT’s decision to exclude JetBlue but
include Interjet itself in the divestiture order for JFK. Because,
as discussed in Subpart II.B below, the conditions DOT imposed
were consistent with the pro-competition interests expressly set
forth in 49 U.S.C. § 40101, we conclude that DOT did not
overstep its authority in imposing conditions on the MEX slots.

To the extent that Interjet further suggests that DOT lacks
statutory authority merely because MEX is located in a foreign
country, we also reject that claim. The Federal Aviation Act
gives the Department broad authority to determine whether a
cooperation agreement is in the “public interest.” See 49 U.S.C.
§ 40101. And Interjet points to nothing in the Act’s text or
structure that would bar DOT from conditioning antitrust

3
Courts have long recognized that, even without an “express
statutory grant of power to impose conditions which will lessen the
adverse impact” of consolidation, “such power is implicit as one
necessary to the performance of [DOT’s] duty to condition approval
with due regard to terms which are just and reasonable in the interest
of the public.” Kent v. Civil Aeronautics Bd., 204 F.2d 263, 265 (2d
Cir. 1953); cf. Nw. Airlines v. U.S. Dep’t of Transp., 15 F.3d 1112,
1116, 1123 (D.C. Cir. 1994) (upholding DOT’s decision to approve
a route transfer “subject to certain conditions”).
 8
immunity on slot divestitures at MEX when needed to ensure
competition on air routes between the United States and Mexico.
Under the circumstances, it was reasonable for the Department
to construe the statute as permitting it to impose such
conditions.4

B

We next turn to Interjet’s contention that DOT’s orders
were arbitrary and capricious. “The scope of review under the
‘arbitrary and capricious’ standard is narrow and a court is not
to substitute its judgment for that of the agency.” Motor Vehicle
Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43
(1983). All that is required is that the agency “examine the
relevant data and articulate a satisfactory explanation for its
action including a ‘rational connection between the facts found
and the choice made.’” Id. (quoting Burlington Truck Lines,
Inc. v. United States, 371 U.S. 156, 168 (1962)).

Interjet’s principal argument is that DOT did not explain
why excluding it from slot eligibility served the pro-competition

4
Interjet’s briefs do not mention the presumption against
extraterritoriality. In any event, that presumption would not provide
Interjet any assistance. The presumption arises because courts assume
that Congress is “primarily concerned with domestic conditions” in
enacting laws. EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 248
(1991) (citation omitted). In this case, DOT’s decision to ensure
competition on routes between the United States and Mexico was
concerned with domestic conditions. Cf. Hartford Fire Ins. Co. v.
California, 509 U.S. 764, 796 (1993) (noting that the Sherman Act’s
antitrust provisions apply “to foreign conduct that was meant to
produce and did in fact produce some substantial effect in the United
States” (citing, ironically, United States v. Aluminum Co. of America,
148 F.2d 416, 444 (2d Cir. 1945) -- the same Learned Hand opinion
upon which Interjet relies for the argument we address in Part II.B)).
 9
goals that animated the Department’s orders. The Department,
Interjet insists, never articulated any explanation for why “there
would be greater transborder competition at MEX if Interjet
remained ineligible to seek divested slots than there would be if
Interjet were able to pursue and receive divested slots.” Interjet
Br. 14.

We disagree because the Department did in fact explain its
decision:

The MEX slot divestiture is designed to alleviate the
immediate increase in concentration of slots, to reduce
barriers to entry, and to support new entry by
low-cost/low-fare carriers with a limited presence, or
no presence at the airport. Based upon these
objectives, the Department has appropriately tailored
a remedy, and has exercised its discretion to limit
eligibility to low-cost/low-fare carriers that are, in
effect, new entrants or limited incumbents, and that
could not launch substantial new services but for the
remedy. Permitting Interjet to obtain the MEX remedy
slots is totally at odds with those objectives. Given
Interjet’s status as the second-largest operator of slots
at MEX by a wide margin, a different determination
would worsen concentration at the airport and likely
perpetuate the barriers to entry.

April 2017 Order 8 (J.A. 333) (internal quotation marks
omitted). Sometimes a court must delve deeply into an agency’s
decisionmaking rationale to understand its basis. Here,
however, the Department relied on basic, and common-sense,
competition theory.

Interjet further argues that the Department did not have any
data to support its assessment that Interjet already had sufficient
 10
slots that it could use to serve the U.S.-Mexico market if it
wished. That, too, is incorrect. In its order directing the
divestiture of slots to specified carriers, DOT cited two data
points in support of that assessment. First, the Department
explained that “Interjet operates more than 25% of the slots at
MEX.” April 2017 Order 9 (J.A. 334). Second, the Department
noted that “incumbents at MEX, including Interjet, do not use
37% of their slots on average.” Id.5 It was on this basis that the
Department concluded that Interjet “already has a sufficient
number of slots to serve the transborder market if it were
profitable to do so.” Id.

That reasoning supports DOT’s view that “Interjet does not
need assistance to achieve competitive access at MEX; it already
has it.” Id. at 6 (J.A. 331) (quoting December 2016 Order 23
(J.A. 256)). And it is consistent with Interjet’s own DOT filing,
which acknowledged that, “[i]n the coming months, Interjet is
planning to continue the expansion of its service from Mexico
City to new U.S. cities.” Application of Interjet for Slot
Allocation at John F. Kennedy International Airport 6 (Jan. 23,
2017) (J.A. 294). Accordingly, the Department articulated a
rational connection between Interjet’s existing slot holdings and
the decision to exclude Interjet from receiving additional slots.

Interjet’s ancillary arguments fare no better. It complains
that DOT’s decision was arbitrary because it excluded Interjet
from slot eligibility while making eligible its competitor airlines
Volaris and VivaAerobus. But this court is “generally unwilling
to review line-drawing” performed by an agency, unless a

5
This second finding applied to MEX slot-holders generally, not
to Interjet in particular. But Interjet had an opportunity to submit
evidence that its slot use differed from that of other incumbents, yet
failed to do so. April 2017 Order 9 (J.A. 334); Recording of Oral Arg.
11:10-11:30, 29:55-31:30, 33:55-34:35.
 11
“petitioner can demonstrate that lines drawn . . . are patently
unreasonable, having no relationship to the underlying
regulatory problem.” WorldCom, Inc. v. FCC, 238 F.3d 449,
462 (D.C. Cir. 2001) (quoting Cassell v. FCC, 154 F.3d 478,
485 (D.C. Cir. 1998)). DOT explained that Interjet was already
“the second-largest slot-holder at the airport . . . , with more than
two-and-a-half times as many slots as its next closest
competitor, Volaris.” April 2017 Order 6 (J.A. 331). As of
October 2016, Interjet had 313 slots and Volaris had 115. The
closest eligible competitor after that, VivaAerobus, had only 64
slots. Order to Show Cause 24 (J.A. 137). Given that gulf, we
can hardly describe the line the Department drew as patently
unreasonable.

Interjet also asserts that DOT’s orders erroneously stated
that they were “compatible” with the remedy that the Mexican
antitrust regulator, the Comisión Federal de Competencia
Económica (COFECE), imposed in granting its own approval of
the cooperation agreement. See December 2016 Order 28-29
(J.A. 261-62); Order to Show Cause 20 (J.A. 133). In fact,
however, they were compatible. COFECE required Delta and
Aeromexico to divest eight MEX slots, but it did not bar further
divestitures. Nor did it place any conditions on which airlines
could receive those slots. Thus, it was entirely possible for
Delta and Aeromexico to comply with both regulators’
remedies, and DOT did not err in viewing its remedy as
consistent with COFECE’s.

Finally, Interjet contends that the Department’s action was
arbitrary because it punished Interjet for its business success.
Quoting a well-known admonition of Judge Learned Hand,
Interjet declares that “[t]he successful competitor, having been
urged to compete, must not be turned upon when he wins.”
Interjet Br. 25 (quoting United States v. Aluminum Co. of Am.,
148 F.2d 416, 430 (2d Cir. 1945)). But Interjet misunderstands
 12
the statement it quotes. Judge Hand was analyzing a claim that
Alcoa had unlawfully monopolized the aluminum market in
violation of the Sherman Act, 15 U.S.C. § 2. A “strong
argument can be made,” he wrote, that “[a] single producer,”
who is “the survivor out of a group of active competitors, merely
by virtue of his superior skill, foresight and industry” does not
violate that Act. Aluminum Co. of Am., 148 F.2d at 430.

In this case, the Department was not interpreting the
Sherman Act, but rather applying the Federal Aviation Act. It
was not seeking to determine how Interjet obtained its market
position, whether by “superior skill” or by violating the antitrust
laws; it was “merely tak[ing] that market position . . . into
account in deciding that awarding Interjet additional slots would
not further the interests of competition.” April 2017 Order 9
(J.A. 334). Nor was the Department “punishing” Interjet.
Rather, it was deciding on what conditions to grant a benefit --
antitrust immunity -- to Delta and Aeromexico. And it was
doing so pursuant to a statute that instructs the Department, in
deciding whether to confer immunity, to take into account “the
availability of a variety of adequate, economic, efficient, and
low-priced services”; to “plac[e] maximum reliance on
competitive market forces and on actual and potential
competition”; and to “avoid[] unreasonable industry
concentration, excessive market domination, [and] monopoly
powers.” 49 U.S.C. § 40101(a)(4), (6), (10) (emphasis added).
In this context, Judge Hand’s admonition is simply inapt.

III

For the foregoing reasons, we hold that the Department of
Transportation’s orders were neither contrary to the Federal
 13
Aviation Act nor arbitrary and capricious. Accordingly,
Interjet’s petitions for review are

Denied.