Delta Letter to Dallas

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www.pillsburylaw.com 405358250v1

Kenneth P. Quinntel 202.663.8898

[email protected]

Pillsbury Winthrop Shaw Pittman LLP1200 Seventeenth Street, NW | Washington, DC 20036 | tel 202.663.8000 | fax 202.663.8007

June 19, 2015

Via Email

Warren M.S. ErnstDallas City AttorneyDallas City Hall1500 Marilla StreetRoom 7DNDallas, Texas 75209-6622

Re: Dallas Love Field Accommodation Process – Exhaustion of Pre-Complaint Resolution Pursuant to 14 C.F.R. Part 16 (“Part 16”)

Dear Mr. Ernst:

On behalf of Delta Air Lines, Inc. (“Delta”), pursuant to 14 C.F.R. 16.21 and in light

of the decision of the City of Dallas (“City”) to file its Complaint for DeclaratoryJudgment (the “Complaint”),

1 we are confirming exhaustion of our good-faith efforts

to resolve Delta’s longstanding request for accommodation at Dallas Love Field(“DAL” or “Airport”) and notifying the City that we will be seeking legal recourse.Since the City has failed to follow its own procedures and commitments toaccommodate Delta at the Airport, and its grant assurances set forth by the U.S.Department of Transportation (the “Department” or “DOT”) in two letters from itsGeneral Counsel,

2 we now view the City in breach of its federal obligations, including

to prevent unjust discrimination and the grant of an exclusive right at the Airport.

The crisis and “chaos” the City described in the Complaint are of its own making.

The City in effect is now abdicating its airport sponsor responsibilities at this

1 City of Dallas v. Delta Air Lines, Inc., No. 15-02069 (June 17, 2015).2 Letter from K. Thomson, DOT, to W. Ernst, City of Dallas (Dec. 17, 2014) (Attachment A); Letter

from K. Thomson, DOT, to P. Haskel, City of Dallas (June 15, 2015) (Attachment B).


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Warren M.S. ErnstJune 19, 2015Page 2


federally-funded airport, which has the highest single-airline concentration in thecountry and a unique statutory cap on gates,3 despite making repeated commitmentsto accommodate new entrants. In filing its Complaint, the City is attempting toinvoke the limited resources of the federal court to make ab initio decisions that theairport sponsor, consistent with federal requirements and guidance, should have madelong ago. Having twice sought and obtained DOT application of that law to thesefacts, which is entitled to judicial deference,

4 the City has chosen to defy this

direction by not making a decision and attempting to pass the buck to the court.

Even as the City sat on Delta’s request for accommodation for almost a year, onJanuary 28, 2015, the City approved a sublease of two DAL gates, which were being

abandoned by United, without any effort to recapture the gates and convert them tocommon-use gates. The result of the City’s stewardship over the Airport’s gates isthat Southwest now controls 18 of the 20 gates at the Airport, and operates over 97%of all of its flights, with the City refusing to act on its federal obligations whileSouthwest threatens Delta with eviction. Yet, the City’s own consultants’ analysesand Delta’s unrebutted analyses demonstrate that ample gate space exists toaccommodate Delta’s requests, as of the time it made the requests. In doing so, theCity appears to be engaging directly in anticompetitive, collusive conduct to thedetriment of the traveling public and in direct violation of its statutory and grantassurances at this federally-funded airport.

Unless the City accommodates Delta by invoking its authority to forceaccommodation under section 4.06F of the Amended and Restated Lease of TerminalBuilding Premises (“Use Agreement”), and to prevent operational disruption andimpose changes necessary to preserve and enhance competition upon threat ofenforcement action5 under sections 14.01 and 14.02 of the Use Agreement, Delta willfile a Part 16 complaint against the City for violations of its federal obligations.

Prior to filing, however, allow us to clarify a few matters that the City omitted ormischaracterized in its Complaint. First, as explained in detail in our prior

3

Wright Amendment Reform Act of 2006, Pub. L. No. 109-352, 120 Stat. 2011, 2013, § 5 (Oct. 13,2006) (lowering DAL’s gates from 32 to 20).

4 Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984); Air Transport Ass’n of

America, Inc. v. Dep’t of Transp., 613 F.3d 206, 213-14 (D.C. Cir. 2010).5 The City has explicitly recognized that DOT has threatened enforcement action. Complaint at ¶ 11

n.5 (“For example, the Second DOT letter threatens the City’s eligibility for grants that areadministered by FAA.”).


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communications with the City, Delta first requested accommodation of its five dailyflights almost a year ago,6 not in September 2014 as suggested in the Complaint.Delta has continued its service to the airport through temporary measures since its prior sublease from American Airlines expired in October 2014.

7

Second, the City in its Complaint omitted any reference to squaring the demands ofSouthwest for extension of the United license on the two gates now subleased toSouthwest, with the City’s own policy on restricting subleases to direct costs plus15%. As the City is fully aware, Southwest has now demanded that Delta vacate the premises after July 6, 2015, unless Delta is willing to pay Southwest $30.0 million forthe privilege of continuing to use half a gate at DAL for Delta’s existing five daily

flights. Delta rejected Southwest’s demands because they are unreasonable andinconsistent with federal law.

The DOT made clear in its December 17, 2015 letter to the City (“DOT Letter”)8 that

Southwest cannot eject Delta from the airport by ramping up its schedule after the fact

6 See e.g. Email from M. Anastas, Delta Air Lines to M. Duebner, City of Dallas (Jun. 11, 2014);Email from M. Anastas, Delta Air Lines to C. Meza, City of Dallas (Jun. 12, 2014); Letter from M.Anastas, Delta Air Lines to J. Vlek, United Airlines (Jun. 13, 2014); Letter from M. Anastas, DeltaAir Lines to M. Duebner, City of Dallas (Jul. 16, 2014); Email from M. Anastas, Delta Air Lines toM. Duebner, City of Dallas (Jul. 16, 2014); Letter from H. Shannon, Delta Air Lines to M. Duebner,City of Dallas (Sep. 18, 2014); Letter from K. Quinn, Pillsbury to M. Duebner, City of Dallas (Oct.2, 2014); Email from H. Shannon, Delta Air Lines to B. Montgomery, Southwest Airlines (Oct. 22,2014); Letter from K. Quinn, Pillsbury to W. Ernst, City of Dallas (Nov. 17, 2014); Letter from K.Quinn, Pillsbury to W. Ernst, City of Dallas (Dec. 6, 2014); Letter from K. Quinn, Pillsbury to W.Ernst, City of Dallas (Dec. 11, 2014); Letter from K. Quinn, Pillsbury to R. Kneisley, SouthwestAirlines and T. Bolling, United Airlines (Dec. 18, 2014); Letter from K. Quinn, Pillsbury to R.Kneisley, Southwest Airlines and T. Bolling, United Airlines (Jan. 2, 2015); Letter from K. Quinn,Pillsbury to R. Kneisley, Southwest Airlines and T. Bolling, United Airlines (Jan. 5, 2015); Letterfrom K. Quinn, Pillsbury to R. Kneisley, Southwest Airlines (Feb. 23, 2015); Letter from K. Quinn,Pillsbury to R. Kneisley, Southwest Airlines, J. Varley, Virgin America Airlines, and T. Sieber,Seaport Airlines (Feb 23, 2015); Letter from K. Quinn, Pillsbury to W. Ernst, City of Dallas (Feb.23, 2015); Letter from K. Quinn, Pillsbury to M. Duebner, City of Dallas (Feb. 23, 2015).

7 See Gate Use License Agreement by and between United Airlines Inc. and Delta Air Lines, Inc.

made as of January 6, 2015; First Amendment to Facilities Use License Agreement by and betweenUnited Airlines, Inc. and Delta Air Lines, Inc. entered into January 6, 2015.

8 Although the Complaint now suggests that the DOT letter as well as the subsequent one sent by DOTon June 15, 2015 were not properly promulgated and alternatively are not final agency actions, Deltareminds the City that as a condition to its consent to the sublease between United and Delta, the Cityagreed to treat the DOT Letter “as promulgating final and binding directives.” The City cannothave it both ways.


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and then claiming there is no more room at the inn.9

Nor can it make exorbitantdemands as a condition of accommodation or sublease. The terms of accommodationand sublease must reflect reasonable rates, which DOT has clarified mean the “directleasing costs for the pro-rata share of subleased facilities, plus a reasonableallowance for administration.”10 The City itself has capped reasonable administrativefees at 15 percent.11

Third, the City’s Complaint omits any acknowledgment that Congress repeatedly hasemphasized that nothing in the legislation repealing the Wright Amendment wasintended to relieve the City of its obligations to provide access to Love Field onreasonable terms, and without unjust discrimination. The Wright Amendment

Reform Act of 2006 explicitly states that it should not be construed “to limit theauthority of the [FAA] . . . to enforce requirements of law and grant assurances . . .that impose obligations on Love Field to make its facilities available on a reasonableand non-discriminatory basis to air carriers seeking to use such facilities, or towithhold grants or deny applications to applicants violating such obligations withrespect to Love Field.”

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Fourth, the City’s Complaint does not apprise the Court about its repeatedrepresentations in its statutorily-mandated airport Competition Plan submissions, thatthe City: (i) is “committed to ensuring that any carrier seeking to provide service toLove Field receives reasonable access to needed facilities,”

13 (ii) “intends to

accommodate requests for access by applying the gate sharing provisions contained in[Section 4.06F of] the current lease;” 14 and (iii) “will accommodate Delta based on

9 DOT Letter at 2 (attached as Exhibit A).10 Id. at 3.11 See 2009 DAL Competition Plan Update, Letter from Daniel Weber to Rodney Clark, FAA, at 7

(June 3, 2009) (“The City’s current policy of limiting carriers to a 15 percent administrative fee is

still in force.”).12 Wright Amendment Reform Act of 2006, Pub. L. No. 109-352 § 5(e), 120 Stat. 2011, 2013 (Oct. 13,

2006).13 DAL 2005 Competition Plan Update, Letter from Kenneth H. Gwyn to Catherine Lang, FAA, 4

(Feb. 28, 2005).14 DAL 2009 Competition Plan Update, Letter from Daniel Weber to Rodney Clark, FAA, at 5 (June 3,

2009).


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the gate sharing provision of the preferential use lease.”15

Depending on the City’snext steps, it appears that these representations may prove to be false.

Fifth, the City neglected to add that in the middle of this self-made crises over gateavailability that it exercised its discretion to approve a sublease from United toSouthwest to further Southwest’s iron grip on DAL gates. Despite the DOT Letteremphasizing the importance of accommodating new entrants on reasonable terms, theCity consented to a sublease of two additional gates to Southwest in January 2015 to permit at least 20 additional Southwest daily flights, even as it sat on Delta’s requestto continue its existing five daily flights. The City’s Complaint fails to note that ithad no legal obligation to consent to this transfer without making its consent

conditional on a commitment to accommodate Delta in compliance with the DOTdirective. Nor does the Complaint note that Delta’s schedule could have easily beenaccommodated on these two gates alone, which the City’s own analysesdemonstrated.

It is now almost a year since Delta’s original request for accommodation, and just 15days prior to expiration of Delta’s temporary licenses with United on July 6, 2015— one of the busiest travel times of the year. Yet, Delta still is waiting for the promisedaccommodation. Thousands of passengers will be inconvenienced if Delta’s service atLove Field is disrupted on July 7.

Under these circumstances, we expect the City to stand by its prior assurances that itwill support Delta’s existing flights, absent a court decision to the contrary. Inaddition, we unfortunately agree with the City

16 that unless the City forces

accommodation immediately or issues another order similar in kind to the interimorder it issued on December 24, 2014 (continuing Delta’s sublease on the same termsuntil resolution), emergency injunctive relief will be needed to avoid chaos and passenger disruption, to preserve the status quo of Delta’s limited five daily flights,

15 Id. (emphasis added).16 City of Dallas v. Delta Air Lines, Inc., No. 15-02069 (June 17, 2015) at ¶ 104 (“The City is not likelyto need to take a position in that dispute other than to urge that a preliminary injunction will be

necessary to preserve the status quo and prevent chaos at Love Field in the public interest during the busy summer travel season.”). Id at ¶ 105 (“As July 6, 2015, approaches, if Southwest and Delta havestill not reached voluntary agreement, even if only a temporary further gate use extension, and theCourt has not issued a preliminary injunction, the City likely will seek a temporary restraining order to preserve the status quo in order to prevent chaos at Love Field when Delta’s current gate usearrangement with Southwest expires on that date.”).


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until such time as the rights and obligations of all affected parties are determined inthe proper legal forum.

Sincerely,

Kenneth P. QuinnPartner

cc: Peter Haskel, City of DallasThe Honorable Kathryn Thomson, General Counsel, USDOTTodd Homan, USDOTPaul Geier, USDOTCindy Baraban, USDOTPeter Kirsch, Kirsch KaplanRoy Goldberg, Steptoe JohnsonRichard B. Hirst, Delta Air Lines, Inc.

Thomas Newton Bolling, United Airlines, Inc.Timothy Sieber, SeaPort Airlines, Inc.John Varley, Virgin America AirlinesMark Shaw, Southwest Airlines Co.Howard Kass, American Airlines, Inc.


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U

S

epartment of

Transportation

Office of the Secretary

of Transportation

GENERAL COUNSEL

December , 2014

SENT VI ELECTRONIC M IL

Mr. Warren M.S. Ernst

Dallas City Hall

1500 Marilla Street

Room 7DN

Dallas, Texas 75201-6622

(214) 670-3519

[email protected]

Dear Mr. Ernst,

1200 ew Jersey A venue SE

Washington DC 20590

This letter references our telephone conversations on December 8 and , 2014,

regarding Delta Air Lines, Inc. s request for long-term accommodation of its five daily

departures at Dallas Love Field (DAL) and the policy

ofth

City of Dallas regarding

reasonable air carrier access.

We appreciate your understanding of the City s legal obligations under Federal

law to reasonably accommodate all air carriers seeking to provide service at the airport,

including the Competition Plan statute (49 U.S.C. § 47107(k)) and the obligations of the

grant assurances accepted in connection with Airport Improvement Program grants to

take all reasonable efforts to accommodate air carriers seeking to serve DAL. We are

pleased that you are taking an active role in assisting requesting carriers in obtaining gate

space at your airport such as by formalizing the process in your use and lease agreements

to monitor gate utilization and availability and by contacting the signatory carriers at the

airport to encourage voluntary accommodation.

In connection with the Secretary of Transportation s responsibility to ensure the

successful implementation of competition plans under 49 U.S.C. § 47107(k), you have

asked us for our views regarding competition plan requirements for addressing

accommodation requests at DAL, including the length of accommodation for

accommodated carriers and other related issues. We are providing this guidance in light

of the unique circumstance at DAL, including the constrained nature

of

the airport and

other restrictions of the Five Party Agreement and Wright Amendment Reform Act of


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2006 (Pub.

L

No. 109-352). We are also enclosing a compendium of airport

competition plan requirements and actions various airports have taken to facilitate entry

and enhance competitive access. The compendium table focuses on airports that have

developed pro-competitive tools to accommodate requesting carriers in conformity with

the competition plan requirements. Our 1999 task study entitled irport Business

Practices

nd

Their Impact on irline Competition may also be helpful to you and is

available online at http://ntl.bts.gov/lib

/1

7000

71 00 7129/PB2000 I0830l.pdf.

As we discussed, ensuring that Federally-assisted airports make reasonable

accommodations for requesting carriers, whether new entrants or other carriers seeking

expansion, and maximize the utilization of their existing resources, especially at gate

constrained airports like DAL, are important objectives for the Department of

Transportation (DOT). We recognize your efforts to develop a baseline chart for

determining gate availability, as well as your efforts to enforce Section 4.06(F) of the Use

and Lease Agreement requiring the signatory carriers to provide monthly gate utilization

reports. Knowing when and where gate space

is

available at any given time is critical to

the City s ability to provide timely and responsive assistance to requesting carriers.

1

Maintaining an accurate, up-to-date gate utilization report will be critical for the

City s

ongoing obligation to ensure reasonable access for accommodated and requesting

carriers. Our competition plan policy requires airport proprietors to assist requesting

carriers seeking access, and we expect that, if a requesting carrier

is

unable to arrange a

voluntary accommodation with a signatory carrier, the City will accommodate the

requesting carrier to the extent possible given the current gate usage, without impacting

current or already-announced, for-sale services by the signatory carriers.

With respect to the length of the accommodation, for the accommodation to be

meaningful at DAL, it is our position that, once accommodated, the accommodated

carrier is entitled to an ongoing similar pattern of service as long

as

the carrier continues

to operate the accommodated flights. Importantly, the accommodated carrier should not

be pushed out by incumbent carriers at a later date.

t

is the City s responsibility to

continue the accommodation and ensure that space is available

so

that the requesting

carrier is able to maintain its pattern of service on an ongoing basis, based on the

available space on the snapshot date of the original accommodation request, even after

the expiration or termination

of

any agreement between the accommodated carrier and

2

signatory camers.

1

We have also discussed that accommodation requests should be resolved on a first-come, first-served

basis.

In

the future,

if

the verified gate utilization report at DAL shows there is less space available than

has been requested, the City must of fer the space that

is

available to the requesting carrier. Moreover, due

to the gate constraints at DAL under Federal law and the Five Party Agreement,

if

future reports show that

no space is available at DAL, and the requesting carriers, signatory carriers, and the City have fully applied

all of the accommodation procedures provided

in

the Use and Lease Agreement, the City may deny the

request for accommodation . The City would then be required to submit a competitive access report under

49 U S.C.

§ 471

07(s) to explain the reasons for the denial

of

access.

2

If the accommodated carrier seeks to change

its

pattern

of

service, such as increasing service or requesting

times that are not within a reasonable window of the times at which it was originally accommodated , such

requested changes would constitute a new request for accommodation .


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The City must also ensure that the accommodation is at reasonable rates.

3

Our

competition plan policy provides that subleasing rates covering the signatory carrier's

direct leasing costs for the pro rata share of subleased facilities, plus a reasonable

allowance for administration, are reasonable. Many airport proprietors impose a ceiling

on such an allowance and our policy is that, in any event, the allowance may not exceed

25%. Our competition plan policy also requires that airports oversee these administrative

fees. Keeping these concepts in mind, it is within the City's discretion to assess the

reasonableness

of

voluntary accommodation requests.

We hope this is helpful to you. We will continue to monitor this process and ask

that you provide us periodic reports on the status of the accommodation of requesting

carriers at DAL.

f

you have any questions, please feel free to call me.

Sincerely yours,

· · ~ b.

~ . _ .

_ _

Kathryn B Thomson

3

See 49 U.S.C. §

471

07(a)(l ); FAA Grant Assurance 22,

available at

http ://www.faa.gov/airports/aip/grant_assurances/media airport-sponsor-assurances-aip.pdf.


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Delta Letter to Dallas

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