When Is An Airport Owner Not An Owner? When The FAA Determines It To Be A “Nonproprietor.”

In a decision that may have repercussions in areas not considered by the Federal Aviation Administration, the FAA published a legal opinion on March 2, 2011, indicating that an entity that owns the “property” upon which an airport sits, is not a “proprietor” within the meaning of the “proprietor exception” nor, presumably, within the ambit of 14 C.F.R., Part 16.  Click here for the full text of the legal opinion concerning the City of Naples and the Naples Airport Authority (“Legal Opinion”).  Apart from being questionable from a legal point of view, it also seems to undermine “long-held” FAA policies.

Throughout the Legal Opinion, the FAA calls the City of Naples a “nonproprietor.” On page 2 of the Legal Opinion, the FAA states that “Collier Country and the City of Naples jointly operated [Naples Municipal Airport] until the County sold its interests to the City in 1958. . . . On December 3, 1969, the management and operation of the Airport was transferred from the City to the NAA under lease for 99 years.”  The operative fact being that the City of Naples leased the airport to NAA, and did not sell it. The City of Naples continues to own the land upon which the airport sits. Yet, throughout the Legal Opinion, the FAA insists on calling the City of Naples a “nonproprietor.”  Indeed, the legal argument constructed by the FAA would fall apart if the City of Naples were not a “nonproprietor.”   A couple of examples:  “Under federal law, the City, as a nonproprietor, has no legal authority to use its police powers . . . . only the airport proprietor may regulate the airport in this manner . . .” (Legal Opinion, p.9) and “However, National Helicopter [137 F.3d 81 (2nd. Cir. 1998)] has no relevance here since the entity attempting to regulate airport development is not the proprietor, NAA, but the nonproprietor City of Naples.” Legal Opinion, p.10.  The FAA, however, does not explain how a lessor of an airport can become a “nonproprietor” such that it has no fundamental property rights as landlord to an airport.  In essence, the FAA has drawn a distinction between an owner of the “land under an airport” and the owner of the airport itself. While this is at best a dubious distinction, it is certainly one that undermines the FAA’s authority in other areas.

One of the fundamental principles the FAA uses to control the operation and management of airports in the United States is through the use of Grant Agreements and federal funds.  Although airports may not be required by law to comply with FAA’s policies, procedures and guidance, they are required to comply by contract, i.e., through Grant Agreements.  When an airport accepts money from the FAA to complete a particular project, it must agree to comply with various grant assurances that are congressionally mandated and are made part of the Grant Agreements.  In the past, the FAA has claimed that airport “sponsors [i.e., the ones who signed the grant agreements], operators [i.e., the ones who run the airport] and proprietors [i.e., the ones who own the airport]” must comply with the grant assurances. Thus, by designating the City of Naples a “nonproprietor,” the FAA has cut off any authority it had over the actions the City of Naples could take vis-à-vis the airport.  In short, the FAA has ruled that the Grant Assurances do not apply to them.  What this means is that the City of Naples is free to whatever it wants with the land under the airport without worrying about the FAA and its Grant Assurances.  It could, for example, void the lease to the Naples Airport Authority, take back operation and management of the airport and then apply its ordinances to the Airport under the proprietor exemption.  Or, for that matter, it could close the airport without the FA having any recourse.  Granted, there probably would some contractual liabilities that the City would owe to the Naples Airport Authority, but it could do so without fear of repercussions from the FAA. Likewise, municipalities like the City of New York, the City of Naples, Wayne County, Michigan, San Mateo County, California, could sell off portions of the “land” for uses that are incompatible with the airport without the FAA being able enforce its orders, guidance and regulations.  For example, San Mateo County could sell what had previously been airport property for use as wells, New York could use property at LaGuardia or JFK for landfills or waste transfer stations. All without the FAA being able to enforce its prohibitions against such conduct, because the municipality is a “nonproprietor,” not the owner of the airport.  This is not to say that the municipalities would take such drastic measures, only that the FAA would not be able to stop them.

So what does this mean to municipalities other than the City of Naples? It means that cash-strapped municipalities who want to stem the flow of red ink by closing a cash-sucking airport may have a way to do so without having to jump through all of the FAA’s hoops. The new “nonproprietor” designation outlined in the Legal Opinion will allow owners, such as Lorain County, Ohio, and St. Clair, Missouri, to shrug off any obligations they may have to the FAA with a relatively simple legal maneuver.  Here’s how they would do it: the current owner sells the “land” under its airport to a private company or individual.  According to the FAA’s “nonproprietor” designation, none of the usual FAA strictures about the transfer of federally-obligated airports apply, since neither the “airport” nor “airport property” is being sold, only the “land.”  As a result, the transaction need not be reviewed by the FAA or contain any provision whereby the purchaser agrees to abide by the Grant Assurances or Grant Agreements. Under the FAA’s “nonproprietor” policy, those are tied to the airport, not the “land,” and the airport is not being sold.  Then, the new owner of the “land” would have the legal right to evict the airport without repercussions from the FAA, since the owner of the land is not liable under the Grant Agreement or Grant Assurances, and the FAA could not pursue the operator, since the operator had no control over the actions of the new owner. St. Clair, Missouri, for example, could just sell the land under the airport to a shopping mall developer, and then the shopping mall developer, a “nonproprietor” owner of the land, could throw the airport off the land without worrying about the FAA or repayment of the federal grants connected to the airport.

Finally, owner of “land under the airport” do not have to worry about those pesky airport revenue diversion rules and regulations.  Since the revenue diversion rules are tied to ownership of the airport, not ownership of the land, they would not apply in situations such as the City of Naples. See 64 Fed.Reg. 7696 (Feb. 16, 1999).  Thus, under the FAA’s concept of “nonproprietorship,” the owner of the “land under the airport” could sell the property for whatever use and not worry about about complying with the revenue diversion rules.

Needless to say, this is not the result the FAA intended.  In their haste to pre-empt the City of Naples’ right to limit the length of runways at the airport, the FAA proposed a legally suspect (the FAA offers no legal or factual support) disctinction between owners of the “land under the airport” and owners “of the airport.”  If owners of the “land under the airport” are not “airport proprietors” and subject to the grant assurances, then the FAA has just lost control of the management and operation of the United States’ airports.

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