United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 14, 2001 Decided July 13, 2001

No. 00-1334

Air Transport Association of Canada,
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents

No. 00-1342

Societe Air France,
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents


---------


No. 00-1343

Deutsche Lufthansa A.G. (Lufthansa German Airlines),
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents

No. 00-1344

British Airways Plc,
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents

No. 00-1345

LTU Lufttransport-Unternehmen GmbH.,
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents


---------


No. 00-1346

Qantas Airways Limited,
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents

No. 00-1347

Air New Zealand,
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents

No. 00-1351

KLM Royal Dutch Airlines,
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents


No. 01-1170

Air Transport Association of Canada,
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents

No. 01-1171

Air New Zealand,
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents

No. 01-1172

British Airways Plc,
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents


No. 01-1173

Deutsche Lufthansa A.G. (Lufthansa German Airlines),
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents

No. 01-1174

KLM Royal Dutch Airlines,
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents

No. 01-1175

LTU Lufttransport-Unternehmen GmbH.,
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents


No. 01-1176

Qantas Airways Limited,
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents

No. 01-1177

Societe Air France,
Petitioner

v.

Federal Aviation Administration and Jane F. Garvey,
Administrator, Federal Aviation Administration,
Respondents

On Petitions for Review of an Interim Final Rule
of the Federal Aviation Administration

M. Roy Goldberg for Air Transport Association of Canada
argued the cause for the joint petitioners. Michael Goldman
for Societe Air France, Sheila C. Cheston for Deutsche Luf-
thansa A.G. (Lufthansa German Airlines), Don H. Hainbach
for British Airways Plc, Frederick S. Hird, Jr. for LTU
Lufttransport-Unternehmen GmbH., Moffett B. Roller for
Qantas Airways Limited, Frederick Robinson for Air New
Zealand and Paul V. Mifsud for KLM Royal Dutch Airlines


were on the joint brief for all the petitioners. Robert W.
Kneisley entered an appearance.

Robert D. Kamenshine, Attorney, United States Depart-
ment of Justice, argued the cause for the respondents. Rob-
ert S. Greenspan, Attorney, United States Department of
Justice was on brief.

Before: Henderson, Tatel and Garland, Circuit Judges.

Opinion for the court filed by Circuit Judge Henderson.

Karen LeCraft Henderson, Circuit Judge: The petition-
ers, Air Transport Association of Canada, Societe Air France,
Deutsche Lufthansa A.G. (Lufthansa German Airlines), Brit-
ish Airways Plc, LTU Lufttransport-Unternehmen GmbH.,
Qantas Airways Limited, Air New Zealand and KLM Royal
Dutch Airlines, challenge an interim final rule issued by the
Federal Aviation Administration (FAA) establishing fees for
certain flights that transit through United States-controlled
airspace but neither take off from, nor land in, the United
States (overflights). They argue, inter alia, that the rule
does not accord with the authorizing statute. Because the
FAA has failed to explain why the fees it established satisfy
the statutory requirements, we vacate the rule and remand to
the FAA for further proceedings.

I.

The Federal Aviation Reauthorization Act of 1996, Pub. L.
No. 104-264, s 273, 110 Stat. 3213, 3239-40, codified at 49
U.S.C. s 45301 (Act), directs the FAA to establish a fee
schedule and collection process to cover air traffic control and
related services provided to overflights.1 The Act requires
that the fees imposed on overflights be directly related to the
__________
1 The Act provides in relevant part:

(a) Schedule of fees.--The Administrator shall establish a
schedule of new fees, and a collection process for such fees, for
the following services provided by the Administration:


(1) Air traffic control and related services provided to
aircraft other than military and civilian aircraft of the United
FAA's costs of providing the service rendered to those flights.
The FAA has twice attempted to establish the fees authorized
by the Act.

In 1997 the FAA issued an interim final rule establishing
the first fee schedule for overflights (1997 Rule). See Fees
for Air Traffic Services for Certain Flights Through U.S.-
Controlled Airspace, 62 Fed. Reg. 13,496 (Mar. 20, 1997).
The 1997 Rule explained that the services provided to over-
flights required two types of expenditures: incremental (i.e.,
costs that increased with the quantity of services provided)
and fixed and common (i.e., costs that remained unchanged
regardless of the quantity of services provided--for example
__________
States government or of a foreign government that neither
take off from, nor land in, the United States.

(2) Services (other than air traffic control services) provided
to a foreign government or services provided to any entity
obtaining services outside the United States, except that the
Administrator shall not impose fees in any manner for
production-certification related service performed outside the
United States pertaining to aeronautical products manufac-
tured outside the United States; and

(b) Limitations.--

(1) Authorization and impact considerations.--In establish-
ing fees under subsection (a), the Administrator--

(A) is authorized to recover in fiscal year 1997
$100,000,000; and

(B) shall ensure that each of the fees required by subsec-
tion (a) is directly related to the Administration's costs of
providing the service rendered. Services for which costs may
be recovered include the costs of air traffic control, naviga-
tion, weather services, training and emergency services
which are available to facilitate safe transportation over the
United States, and other services provided by the Adminis-
trator or by programs financed by the Administrator to
flights that neither take off nor land in the United States.

(2) Publication; comment.--The Administrator shall publish
in the Federal Register an initial fee schedule and associated
the cost of radar installations and computer software--and
costs that could not be attributed to any particular flight or
class of flights). See Asiana Airlines v. FAA, 134 F.3d 393,
395-96, 401 (D.C. Cir. 1998) (describing 1997 Rule). The
FAA decided to recoup from overflights both types of expen-
ditures. To compute the appropriate amount of fixed and
common costs that should be allocated to overflights, the FAA
relied on a methodology called "Ramsey pricing," which dis-
tributed the costs among "classes of users based on the
elasticity of their demand for services in an effort to minimize
the effect of the regulation on the behavior of users." Id. at
396.

Airlines affected by the fee schedule challenged the 1997
Rule, contending that the FAA exceeded its statutory author-
ity by computing fees, at least in part, on the value of the
services to the recipient rather than on costs. We were
persuaded by the argument. See id. at 401. We explained
that "[s]tatutory language requiring that 'each' fee be 'direct-
ly related to ... costs of providing the service rendered,'
expresses a clear congressional intent that fees must be
established in such a way that each flight pays according to
the burden associated with servicing that flight," id. at 402,
and "insofar as the FAA allocated fixed and common costs
using the Ramsey pricing methodology, its fee structure
impermissibly included a component based on value to the
user." Id. at 401. Accordingly, we vacated the 1997 Rule
and remanded to the FAA for further proceedings.

In June 2000 the FAA published another interim final rule
establishing a new schedule of overflight fees (2000 Rule).
See Fees for FAA Services for Certain Flights, 65 Fed. Reg.
36002 (June 6, 2000). Effective August 1, 2000, an overflight
travelling in "enroute" airspace must pay $37.43 per 100
nautical miles (or portion thereof), while an overflight using
only "oceanic" airspace must pay $20.16 per 100 nautical miles
(or portion thereof).2 The 2000 Rule itself does not explain
__________
collection process as an interim final rule, pursuant to which
public comment will be sought and a final rule issued.

49 U.S.C.A. s 45301(a), (b) (footnote omitted).

2 The 2000 Rule defines "enroute" airspace as "airspace where
primarily radar-based air traffic services are provided." 65 Fed.

how the FAA arrived at the enroute and oceanic rates but
refers to two record documents that "detail how the fees in
this rule were determined and calculated." Id. The first
document is a report by the Arthur Anderson accounting firm
entitled "Cost Methodology Used to Develop Cost of Enroute
and Oceanic ATC Services" (Arthur Anderson Report). It
describes (1) how the FAA's cost accounting system tracks
the costs incurred by the FAA and (2) how the FAA assigned
those costs to enroute and oceanic air traffic control services.
The second document is a report entitled "Overflight Fee
Development Report" (Overflight Report). It was prepared
by the FAA itself and details the FAA's methodology used to
calculate the fees imposed by the 2000 Rule.

The Overflight Report explains that the fee development
process involved four steps: (1) determining the FAA's full
costs of providing both enroute and oceanic air traffic control
services to all flights--that is, overflights and non-
overflights;3 (2) determining which of the costs identified in
step one met the requirement of being "directly related" to
the services rendered by the FAA; (3) determining, based on
the costs computed in step two, unit costs for providing
enroute and oceanic air traffic control services to overflights;4
and (4) establishing overflight fees that cover air traffic
control service costs as well as billing and collection costs.
To compute the "unit costs" (step three), the FAA divided the
"directly related" costs identified in step two by the total
number of miles flown by all aircraft using the enroute
__________
Reg. at 36004. "Oceanic" airspace is in turn defined as "airspace
where primarily procedural air traffic services are provided." Id.

3 Non-overflights are flights that either take off from or land (or
both) in the United States.

4 The Arthur Anderson Report explains that costs incurred in
providing air traffic control services to aircraft arriving to and
departing from airport facilities (known as "terminal" services) are
not included in the enroute or oceanic cost pools. Also excluded
from the two cost pools are costs incurred for providing services--
like pilot briefings, search and rescue coordination, aviation weather
information (known as "flight services")--to non-overflights.


airspace and oceanic airspace, respectively. Explaining that
the unit costs computed in step three were an appropriate
measure of the cost of services provided to overflights, the
FAA stated:

Because the level of [air traffic control] services are [sic]
assumed identical for all aircraft operations within a
particular environment (i.e., enroute or oceanic), it is
reasonable to assume that the costs of providing [air
traffic control] services to overflights are proportional to
total ATC costs within each environment. Consequently,
the unit costs of providing [air traffic control] services to
overflights within each environment is [sic] identical to
the unit costs of providing [air traffic control] services to
all air traffic within each environment.

Revised Joint Appendix (JA) 19; see also JA 13 (same).
Based on this methodology, the FAA concluded that unit
costs for enroute overflights were $36.14 per 100 nautical
miles (or portion thereof) and unit costs for oceanic over-
flights were $19.47 per 100 nautical miles (or portion thereof).
The amounts were adjusted to include billing and collection
expenses, resulting in the $37.43 and $20.16 fees set forth in
the 2000 Rule.

Within 60 days of publication of the 2000 Rule, the petition-
ers sought review in this court. See 49 U.S.C. s 46110(a).5

__________
5 Earlier in this case, the FAA argued the petitioners' appeals
might be premature and therefore it was "a close question" whether
we had jurisdiction. The FAA has since conceded that no jurisdic-
tional problem prevents our deciding the case on the merits.
Respondents' Response to Joint Motion to Consolidate Petitions for
Review (filed April 23, 2001). We are satisfied that the petitioners'
notices of appeal were timely and that we have jurisdiction pursuant
to 49 U.S.C. s 46110(a). See id. ("[A] person disclosing a substan-
tial interest in an order issued by the Secretary of Transportation
(or the Administrator of the Federal Aviation Administration with
respect to aviation safety duties and powers designated to be
carried out by the Administrator) under this part may apply for
review of the order by filing a petition for review in the United
States Court of Appeals for the District of Columbia Circuit ....").


II.

The petitioners' first argument is that in promulgating the
2000 Rule the FAA was required (but failed) to comply with
the notice and comment requirements of the Administrative
Procedure Act (APA).6 Section 553 of the APA requires an
agency to publish a "[g]eneral notice of proposed rule mak-
ing" and to "give interested persons an opportunity to partici-
pate in the rule making." 5 U.S.C. s 553(b), (c); see Asiana,
134 F.3d at 396. The Congress may modify the requirements
but a "[s]ubsequent statute may not be held to supersede or
modify [the APA] ... except to the extent that it does so
expressly." 5 U.S.C. s 559; see Asiana, 134 F.3d at 396. In
Asiana, we held that section 45301(b)(2) exempted the 1997
Rule from the APA's notice and comment requirements. See
__________
6 Section 553(b) and (c) of the APA provides in relevant part:

(b) General notice of proposed rule making shall be publish-
ed in the Federal Register, unless persons subject thereto are
named and either personally served or otherwise have actual
notice thereof in accordance with law. The notice shall in-
clude--

(1) a statement of the time, place, and nature of public
rule making proceedings;

(2) reference to the legal authority under which the rule is
proposed; and

(3) either the terms or substance of the proposed rule or a
description of the subjects and issues involved.

...

(c) After notice required by this section, the agency shall
give interested persons an opportunity to participate in the rule
making through submission of written data, views, or argu-
ments with or without opportunity for oral presentation. After
consideration of the relevant matter presented, the agency
shall incorporate in the rules adopted a concise general state-
ment of their basis and purpose.

5 U.S.C. s 553(b), (c).

id. at 399 ("To summarize, we hold that, to the extent that
s 45301 specified otherwise, the FAA was not required to
conform to APA s 553 procedures. Because the FAA com-
plied with s 45301, the process by which it implemented fees
for overflights withstands the petitioners' challenge."). The
question now before us is whether section 45301(b)(2) autho-
rizes the adoption of the 2000 Rule without notice and com-
ment as well. We conclude that it does.

The Act authorizes the FAA to "publish in the Federal
Register an initial fee schedule and associated collection
process as an interim final rule, pursuant to which public
comment will be sought and a final rule issued." 49 U.S.C.
s 45301(b)(2). The petitioners reason that, because the 1997
Rule already established the "initial" fee schedule authorized
by the statute, the fee schedule established by the 2000 Rule
was not the "initial" fee schedule and, accordingly, in promul-
gating it the FAA should have complied with the APA's notice
and comment provisions. We disagree.

Our decision in Asiana vacated the 1997 fee schedule in its
entirety. As we have explained before, "[t]o 'vacate' ...
means 'to annul; to cancel or rescind; to declare, to make, or
to render, void; to defeat; to deprive of force; to make of no
authority or validity; to set aside.' " Action on Smoking &
Health v. Civil Aeronautics Bd., 713 F.2d 795, 797 (D.C. Cir.
1983) (per curiam) (citations omitted). Thus, the Asiana
holding had the effect of restoring the status quo ante,
namely that no fee schedule was in effect. See id. ("[B]y
vacating or rescinding the recissions [sic] proposed by ER-
1245, the judgment of this court had the effect of reinstating
the rules previously in force...."). In light of the status quo
ante, the 2000 Rule plainly establishes only "an initial [rather
than a subsequent] fee schedule and associated collection
process." Accordingly, the FAA was entitled to establish the
overflight fees using an interim rulemaking without notice
and comment.7

__________
7 Because of our decision to vacate and remand once again, see
infra pages 15-16, on remand the FAA is again entitled to promul-
gate overflight fees using an interim rulemaking without notice and
comment.


III.

We review the FAA's adoption of the 2000 Rule to deter-
mine whether it is "arbitrary, capricious, an abuse of discre-
tion, or not in accordance with law." 5 U.S.C. s 706(2)(A).
As the Supreme Court explained in Motor Vehicle Manufac-
turers Ass'n v. State Farm Mutual Automobile Insurance
Co., 463 U.S. 29 (1983):

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. Nevertheless, the
agency must examine the relevant data and articulate a
satisfactory explanation for its action including a "ration-
al connection between the facts found and the choice
made." Burlington Truck Lines, Inc. v. United States,
371 U.S. 156, 168 (1962). In reviewing that explanation,
we must "consider whether the decision was based on a
consideration of the relevant factors and whether there
has been a clear error of judgment." Bowman Transp.,
Inc. v. Arkansas-Best Freight System, Inc., 419 U.S.
281, 285 (1974); Citizens to Preserve Overton Park v.
Volpe, 401 U.S. 402, 416 (1971). Normally, an agency
rule would be arbitrary and capricious if the agency has
relied on factors which Congress has not intended it to
consider, entirely failed to consider an important aspect
of the problem, offered an explanation for its decision
that runs counter to the evidence before the agency, or is
so implausible that it could not be ascribed to a differ-
ence in view or the product of agency expertise. The
reviewing court should not attempt itself to make up for
such deficiencies; we may not supply a reasoned basis
for the agency's action that the agency itself has not
given. SEC v. Chenery Corp., 332 U.S. 194, 196 (1947).
We will, however, "uphold a decision of less than ideal
clarity if the agency's path may reasonably be dis-
cerned." Bowman Transp. Inc., 419 U.S. at 286. See
also Camp v. Pitts, 411 U.S. 138, 142-143 (per curiam).

Id. at 43. To survive arbitrary and capricious review, the
2000 Rule must contain a "satisfactory explanation" for the


FAA's conclusion that the overflight fees imposed are "direct-
ly related" to the FAA's cost of providing service to over-
flights. See 49 U.S.C. s 45301(b)(1)(B); Asiana, 134 F.3d at
402. In view of the methodology followed by the FAA in
establishing the fees, see supra pages 10-11, there must be at
least record support for the proposition that the FAA incurs
the same costs in providing service to overflights and non-
overflights using either the enroute airspace or the oceanic
airspace. If that proposition is not true, the overflight fees
established by the 2000 Rule would not be "directly related"
to the FAA's costs of providing service to overflights as the
Act requires.

The petitioners contend that the FAA erroneously conclud-
ed that costs for providing services to non-overflights are the
same as the costs of providing services to overflights. Over-
flights are different from other flights, the petitioners argue;
they fly in high altitudes and do not require air traffic control
assistance to ascend or descend either to airports or to lower
altitudes surrounding airports. "Because [the] FAA must
expend a substantially greater level of effort (in manpower
and other resources) to provide air traffic control services to
low altitude and transitional flights than it does for over-
flights, the FAA's costs of providing these services to an
overflight must be lower, on average, than the FAA's cost of
providing these services to all aircraft within a particular
environment." Revised Opening Brief of Petitioners at 27-
28.

The FAA defends its decision and argues the overflight
fees conform to the Act's requirements. That may be so but
we are unable on this record to evaluate the merits of the
FAA's arguments. The FAA failed to provide any record
justification for the proposition that costs for servicing over-
flights are the same as costs for servicing non-overflights. It
simply assumed it was so. See JA 19 ("Because the level of
[air traffic control] services are [sic] assumed identical for all
aircraft operations within a particular environment (i.e., en-
route or oceanic), it is reasonable to assume that the costs of
providing [air traffic control] services to overflights are pro-
portional to total ATC costs within each environment." (em-


phasis added)). Even under the more deferential standard of
review applicable to an interim rule, see Competitive Tele-
comms. Ass'n v. FCC, 87 F.3d 522, 531 (D.C. Cir. 1996) ("The
proper judicial response to an interim rule is ... to review it
with the understanding that the agency may reasonably limit
its commitment of resources to refining a rule with a short
life expectancy."), this is not enough. And, while we agree
with the FAA that " 'we do not sit as a panel of referees on a
professional economics journal, but as a panel of generalist
judges obliged to defer to a reasonable judgment by an
agency acting pursuant to congressionally delegated authori-
ty,' " Revised Brief for Respondent at 38 (quoting City of Los
Angeles v. Department of Transp., 165 F.3d 972, 977 (D.C.
Cir. 1999)), "[w]ith its delicate balance of thorough record
scrutiny and deference to agency expertise, judicial review
can occur only when agencies explain their decisions with
precision, for '[i]t will not do for a court to be compelled to
guess at the theory underlying the agency's action....' "
American Lung Ass'n v. EPA, 134 F.3d 388, 392 (D.C. Cir.
1998) (quoting SEC v. Chenery Corp., 332 U.S. 194, 196-97
(1947)).

Because the FAA has failed to articulate the basis for its
conclusion that "the unit costs of providing [air traffic control]
services to overflights within each environment is [sic] identi-
cal to the unit costs of providing [air traffic control] services
to all air traffic within each environment," we vacate the 2000
Rule and remand to the FAA for further proceedings consis-
tent with this opinion.

So ordered.