Airlines, DOT Share Win Over LAX Rental Rates

(CN) - The D.C. Circuit upheld the Department of Transportation's finding that Los Angeles properly raised certain fees for airlines that rent space in the Los Angeles International Airport. The fee increases were part of a city plan to offset airport security and expansion costs.

The ruling wasn't a clear-cut victory for the government, however, as the three-judge panel also sided with airlines that Los Angeles used an inconsistent method for calculating its terminal rental rates.

Los Angeles charges airlines a "base rent" for their terminal space, plus a share of the airport's maintenance and operation costs. To arrive at the final fee, the city multiplies the airline's occupied space by a per-square-foot fee.

When the leases for airlines in Terminal 1 and Terminal 3 expired, the city sought to collect more money by raising the maintenance and operation costs and making the airlines pay for a share of the common areas, including corridors and stairwells. Los Angeles also based the new rental fees on fair market value, instead of the "historical cost" used under the expired contracts.

But the new rental rates didn't impact airlines in other terminals, because those airlines had long-term leases that hadn't expired.

Airlines in the affected terminals, referred to as T1/T3 airlines, complained to the DOT that the new rates were unreasonable and discriminatory. The DOT upheld the increased maintenance and operation fees, said the city discriminated against T1/T3 airlines in calculating rental rates, and ruled that the city may base the terminal rental rates on fair market value, but that the particular method it used was unreasonable as applied to T3 airlines.

The airlines and the city both appealed on various grounds.

In a multifaceted, 20-page ruling, the federal appellate panel in Washington, D.C., partially granted the petitions on each side.

Judge Ginsburg upheld the higher maintenance and operation fees, but said the DOT failed to explain why it approved the switch from historical costs to fair market value. Under the agency's reasoning, the court said, Los Angeles could use fair market value to set terminal rental rates, but not the rates of renting airfield space, including ramps, taxiways, aprons and runways.

The court remanded, telling the DOT "to justify or abandon its disparate treatment of airfield and non-airfield space."

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