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Proposed Rule

Review of Data Filed by Certificated or Commuter Air Carriers To Support Continuing Fitness Determinations Involving Citizenship Issues

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Office of the Secretary, DOT.


Advance notice of proposed rulemaking (ANPRM); request for comments.


In response to a report by the Inspector General of the U.S. Department of Transportation, the Department is asking for comments on two issues relating to air carrier continuing fitness determinations involving citizenship issues. First, the Inspector General identified a list of criteria the Department typically uses to determine actual control of an air carrier when evaluating the citizenship of an air carrier during a continuing fitness review. We seek comments on whether there are any other factors or criteria the Department routinely considers in its evaluations that should be added to this list. Second, the Department seeks comments on the need for a regulatory change to the requirements of 14 CFR part 204 applicable to certificated and commuter air carriers proposing to undergo a substantial change in operations, ownership, or management that may impact their U.S. citizenship status. The Inspector General found that the Department's informal process is not well-suited to complex, contentious, and controversial cases involving citizenship determinations and suggested that the Department allow greater transparency and public participation in such matters, including public notice when such a review is initiated and completed, as well as public access to information filed with the Department during such reviews.


Comments due on or before September 29, 2003. To the extent practicable, we will consider late-filed comments as we consider further action.


Submit comments to the Dockets Management System, U.S. Department of Transportation, Room PL 401, 400 Seventh Street, SW., Washington, DC 20590-0001. Comments should identify Docket Number OST-03-15759. If you wish to receive confirmation of receipt of your written comments, include a self-addressed, stamped postcard. You may also submit comments by e-mail by accessing the Dockets Management System Web site at and following the instructions for submitting a document electronically.

The Dockets Management System is located on the Plaza level of the Nassif Building at the Department of Transportation at the above address. You can review public dockets there between the hours of 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. You can also review comments on-line at the DOT Dockets Management System Web site at

Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit

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Patricia L. Thomas, Chief Air Carrier Fitness Division, Department of Transportation, 400 Seventh Street, SW., Washington, DC 20590, (202) 366-9721.

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I. Electronic Access

An electronic copy of this document may be downloaded from the Internet using the universal resource locator (URL): It is available 24 hours each day, 365 days each year. Please follow the instructions online for more information and help. Start Printed Page 44676

II. Background

Under 14 CFR 204.5, certificated and commuter air carriers that undergo or propose to undergo a substantial change in operations, ownership, or management must submit certain updated fitness information to the Department.[1] Section 204.5(c) specifies that, if such information is being filed in support of an application for new or amended certificate authority, it shall be filed in the docket seeking such authority as part of a public proceeding. For example, a certificated or commuter air carrier must apply for new or amended authority if its existing authority is not adequate for the performance of its planned service (e.g., if a carrier wishes to serve a new city pair route in foreign air transportation, if a carrier holding all-cargo authority wishes to conduct passenger service, or if a carrier currently operating only small aircraft wishes to operate large aircraft). If the substantial change being proposed does not affect the carrier's authority to perform its service under its existing authority, then the information is reported directly to the Department's staff and is reviewed as part of an informal continuing fitness investigation, without a public proceeding. Examples of substantial changes that may not require a carrier to apply for new or amended authority include changes in the carrier's stockholders or management. The purpose of these informal reviews is to decide whether a more formal, public proceeding is warranted, and, thus, whether the carrier's authority should be modified, suspended, or revoked or the carrier should be subject to enforcement action.

During a continuing fitness review, Department staff may examine the carrier's ownership structure and whether the air carrier continues to satisfy all statutory citizenship tests and continues to be under the actual control of U.S. citizens. Under the control standard, we examine all of the facts to determine whether a foreign interest will have a substantial ability to influence the carrier's activities. See Acquisition of Northwest Airlines by Wings Holdings, Inc., Order 89-9-51, issued September 29, 1989, at 5; Application of Discovery Airways, Inc., Order 89-12-41, issued December 22, 1989, at 10; In the matter of USAir and British Airways, Order 93-3-17, issued March 15, 1993, at 19; and Application of North American Airlines, Inc., Order 89-11-8, issued November 6, 1989, at 6.

On March 4, 2003, the Inspector General of the U.S. Department of Transportation issued a letter to the Chairman of the House Transportation and Infrastructure Committee on the subject of the Department's procedures for making air carrier citizenship determinations in continuing fitness reviews, as well as a docketed proceeding before the Department (In the matter of the citizenship of DHL Airways, Inc., Docket OST-2002-13089). By this notice, we seek comments only on the procedural issues raised in the letter, not on the matter of DHL Airways.[2] The letter, which contains all of the Inspector General's recommendations on such procedural matters, is available in this docket at

In the letter, the Inspector General recommended, first, that the Department should publicly address the factors used to determine whether an air carrier is under the “actual control” of U.S. citizens and, second, that the Department should consider whether to modify its procedures for reviewing an air carrier's citizenship status during a continuing fitness review.

With respect to the first recommendation, the Inspector General states, “There are seven factors that frequently recur in past orders of the Department addressing the issue of actual control. These factors, while known to Department and aviation attorneys, have not been delineated in any one public document. Good public policy would suggest that the Department address these and other factors in a document that is widely available.” The seven factors cited are: (1) Control via supermajority or disproportionate voting rights; (2) negative control/power to veto; (3) buy-out clauses; (4) equity ownership; (5) significant contracts; (6) credit agreements/debt; and (7) family relationships/business relationships.

We seek comments on whether there are other factors or criteria that the Department routinely considers in addition to those listed above. However, it is important to note that, in its decisions, the Department has repeatedly stated that citizenship determinations are necessarily made on a case-by-case basis due to the fact that every case has its own unique set of circumstances. Accordingly, the Department believes that its administrative precedent, published in Civil Aeronautics Board and Department of Transportation Orders, as noted above, shows that no single list of factors and criteria will be inclusive, due to the changing legal and market circumstances faced by carriers when organizing their corporate and financial structures.

With respect to the second recommendation, the Inspector General states that “[t]he informal process used for citizenship reviews can be beneficial when the issues are not complex or contentious by providing for open dialogue between the Department and carriers to resolve matters expeditiously.” However, the recommendation we seek comments on is as follows: “For the future, we believe the Department should give consideration to a more transparent and formal process in complex and contentious cases. To that end, the Department's procedures would have to be modified to provide public notice of the initiation and completion of citizenship reviews; create dockets for third-party comments; provide third-party access to confidential documents, similar to those used in the Alliance Carrier review;[3] and obtain sworn or certified statements.”

III. Comments

In response to the Inspector General's letter, the Department seeks comments on the list of factors frequently used to evaluate whether an air carrier is actually controlled by U.S. citizens and the need for a regulatory change to its procedures for determining the citizenship of U.S. air carriers after a substantial change in operations, ownership, or management. Accordingly, this ANPRM requests comments on the Inspector General's proposals and on alternatives to such proposals.

Specifically, we invite commenters to submit data and information on the recommendations of the Inspector General and on the following issues as Start Printed Page 44677well as any other related issues that commenters believe may warrant consideration:

  • The Inspector General letter identifies a list of criteria typically used to determine actual control of an air carrier (i.e., (1) control via supermajority or disproportionate voting rights; (2) negative control/power to veto; (3) buy-out clauses; (4) equity ownership; (5) significant contacts; (6) credit agreements/debt; and (7) family relationships/business relationships). Are there any other factors or criteria the Department routinely considers that should be added to this list?
  • Is the Department's current informal, undocketed process for reviewing the citizenship of certificated and commuter air carriers following a substantial change in operations, ownership, or management sufficient to meet the statutory goals and requirements of evaluating a carrier's continuing fitness prior to any decision to take public action?
  • Should air carriers proposing a substantial change in operations, ownership, or management that may affect their citizenship status be subject to a formal, public review of their citizenship, and if so, under what circumstances?
  • What are the benefits and burdens, including time, effort, or financial resources expended, to generate, maintain, or provide information that would be subject to such a docketed public review? How would an air carrier's ability to obtain timely financing be affected?
  • What are the advantages and disadvantages of retaining the current rule at 14 CFR 204.5 without revision?
  • Should the Department establish separate procedures for handing complex, contentious, and controversial citizenship questions that arise in the context of continuing fitness reviews? If so, what procedures would be appropriate, and what standards should be used to designate such cases?
  • Should the Department issue a public notice when it initiates and/or completes a citizenship determination in the context of a continuing fitness review? How would such notice impact an air carrier's business? What impact would such notice have on the willingness of an air carrier contemplating a future change in ownership, operations, and/or management to have candid discussions with the Department before formalizing any transaction?
  • How should competition issues and business confidentiality issues be addressed in any change to the current procedures?

To ensure that the Department identifies and considers a full range of issues related to any rulemaking action that may be proposed, comments and suggestions are invited from all interested parties, including certificated and commuter air carriers, industry groups, and the public.

Regulatory Analyses and Notices

All comments received before the close of business on the comment closing date indicated above will be considered and will be available for examination in the docket at the above address. Comments received after the comment closing date will be filed in the docket and will be considered to the extent practicable. In addition to late comments, the Department will also continue to file relevant information in the docket as it becomes available after the comment period closing date, and interested persons should continue to examine the docket for new material. A NPRM may be issued at any time after close of the comment period.

Executive Order 12866 (Regulatory Planning and Review) and DOT Regulatory Policies and Procedures

The Department has determined preliminarily that this document is a significant regulatory action under section 3(f) of Executive Order 12866 and, therefore, will be reviewed by the Office of Management and Budget. The Department has also determined preliminarily that this document is significant under the Department's regulatory policies and procedures given the degree of Congressional interest in this matter. It is not economically significant. At this time, the Department does not believe any proposed regulatory changes will interfere with any action taken or planned by another agency or to materially alter the budgetary impact of any entitlements, grants, user fees, or loan programs.

Changes to the way citizenship issues are addressed in continuing fitness reviews may cause increased burdens on the part of the air carriers, as well as the Department. Currently, there are approximately 175 carriers that hold certificates or commuter authorizations from the Department. All of these carriers are subject to the continuing fitness requirements, and all must report substantial changes in operations, ownership, or management to the Department for review. During calendar years 2001 and 2002, the Department instituted an average of 52 new continuing fitness cases each year, some of which involved citizenship issues. Based on the information received in response to this ANPRM, the Department intends to carefully consider the costs and benefits associated with this rulemaking.

Executive Order 13132 (Federalism Assessment)

The Department has analyzed this rulemaking action in accordance with the principles and criteria set forth in Executive Order 13132 and has determined that it does not have sufficient federalism implications to warrant consultation with State and local officials. The Department anticipates that any action taken will not preempt a State law or State regulation or affect the States' ability to discharge traditional State government functions. We encourage commenters to consider these issues, as well as matters concerning any costs or burdens that might be imposed on the States as a result of actions considered here.

Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601, et seq.) requires an agency to review regulations to assess their impact on small entities unless the agency determines that a rule is not expected to have a significant impact on a substantial number of small entities. The Department will analyze any action that might be proposed for the purpose of the Regulatory Flexibility Act.

Paperwork Reduction Act

Under the Paperwork Reduction Act, 44 U.S.C. 3501-3520, Federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct, sponsor, or require through regulations. Any action that might be contemplated in subsequent phases of this proceeding may involve a collection of information requirement for the purpose of the Paperwork Reduction Act of 1995. The Department, however, will evaluate any actions that might be considered in accordance with the terms of the Paperwork Reduction Act. We encourage commenters to consider these issues, as well as matters concerning any burdens that might be imposed as a result of actions considered here. Accordingly, the Department solicits comments on this issue.

Regulation Identifier (RIN)

A regulation identifier (RIN) is assigned to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. The RIN contained in the heading of this document can be used to cross-Start Printed Page 44678reference this action with the Unified Agenda.

Unfunded Mandates Reform Act

The Department will analyze any action that might be proposed for the purpose of the Unfunded Mandates Reform Act of 1995 to assess whether a rulemaking would impose unfunded mandates.

National Environmental Policy Act

The Department will analyze any action that might be proposed for the purpose of the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4347) to determine whether there would be any effect on the quality of the environment.

(Authority: 49 U.S.C. Chapters 401, 411, 417; 14 CFR Part 204.)

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Dated: July 24, 2003.

Michael W. Reynolds,

Acting Assistant Secretary for Aviation and International Affairs.

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1.  Section 204.2(l) defines substantial change in operations, ownership, or management as including but not limited to the following events: “(1) changes in operations from charter to scheduled service, cargo to passenger service, short-haul to long-haul service, or (for a certificated air carrier) small-aircraft to large-aircraft operations; (2) the filing of a petition for reorganization or a plan of reorganization under Chapter 11 of the federal bankruptcy laws; (3) the acquisition by a new shareholder or the accumulation by an existing shareholder of beneficial control of 10 percent or more of the outstanding voting stock in the corporation; and (4) a change in the president, chief executive officer or chief operating officer, and/or a change in at least half of the other key personnel within any 12-month period or since its latest fitness review, whichever is the more recent period.”

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2.  On March 5, 2003, in Docket OST-2002-13089, the Department issued a notice requesting comments on the Inspector General's report as it related to the matter of the citizenship of DHL Airways, Inc.

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3.  The “Alliance Carrier review” refers to the Delta/Northwest/Continental code-share and frequent-flyer program reciprocity proceeding.

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[FR Doc. 03-19455 Filed 7-25-03; 4:27 pm]