It is unlikely that capital needs can be met in this manner, however, if the industry does not achieve $6 billion in earnings by the end of 1985. As indicated, this level of earnings implies an average annual return on equity three times as large as that earned over the last five years. It also assumes no unexpected negative developments, such as another recession or substantial new increases in fuel or other costs. These or other events would materially reduce the ability of the industry to earn a 9 percent return on equity.*
* It must be noted that the above estimates of financial needs and sources are predicated on industry-wide estimates. Carriers that are in relatively inferior financial position will have greater difficulty in obtaining needed funds than will other carrriers.
Under one scenario for meeting the new noise abatement regulation schedule, the "regular" 707s and DC-8s are retired and replaced with a new technology airplane and the stretched DC-8s and the remainder of the noncomplying fleet are retrofitted. This would increase the trunk carriers' capital requirements to 1985 by between $5.5 and $7.6 billion, an increase of 20 to 27 percent more than the amount required as discussed above. An incremental capital requirement of this magnitude would appear to be clearly beyond the industry's ability to finance, given the other financing burdens they will face in the early 1980s.
We believe passage of regulatory reform bill (the proposed Aviation Act of 1977) to be reintroduced by the Administration in early 1977 will help the airlines with their overall financing problem. If the carriers had been operating under the regulatory environment envisioned in the proposed legislation they would not face major difficulty in adjusting prices to anticipate needed capital investment requirements and in obtaining the needed financing for the rule. Under the cost-based guidelines now used by the Civil Aeronautics Board in evaluating requests for fare increases, the capital outlay for new equipment, about a third of which is made before the aircraft is delivered, cannot be recovered through fare increases until the aircraft is delivered and in operation. Thus if today's economic regulatory environment continues, it may be impossible for the industry to commit to the manufacturers the substantial amount of cash necessary to get a new technology aircraft into production and delivered soon enough to replace the DC-8/707 fleet by the end of 1984.* Complicating the problem is the fact that a number of carriers are significantly weaker than others and it is these carriers who are the owners of large numbers of noisy aircraft and thus face some of the largest financing requirements.
* A large number of firm orders from U.S. air carriers are required by manufacturers before they can start production of a new aircraft. The cost of developing the new aircraft alone is put at $500 million to $1 billion.
It is clear that over the period in which the noisy aircraft must be modified or replaced, timely passage of the Aviation Act of 1977 should make a large difference in the carriers' ability to finance new aircraft purchases. However, this very desirable change in regulatory policy would not go into effect for at least a year, and if, as expected, its provisions are phased to allow amply time for adjustment to the new operating environment, its full effect will not be felt for several years.
2. The Aerospace Industry
Lasting noise reduction benefits will be achieved with newer, quieter technology, but a major new aircraft has not been developed in the United States for almost 10 years. In that time, important design and technological advances have been made -- many specifically intended to meet the new economic, operating, and environmental constraints dictated by rising labor costs, energy shortages, environmental requirements, and changing market demands.
In past programs to develop a new aircraft, American manufacturers have had enough preproduction sales to U.S. airlines to provide a solid base for financing front-end costs and to insure a near break-even position without foreign sales. This is not the case today, largely because of the financial condition of several of the largest U.S. airlines, which traditionally have led the way with new purchases. Although the carriers gradually are replacing their older inefficient jets, they are doing so with existing model aircraft, and these only in small numbers. The aircraft available now to replace four-engine jets are improperly sized for some markets (e.g., 727s, 747s L-1011s, or DC-10s). Most U.S. airlines would prefer to wait for a family of new, higher technology aircraft, if it were probable that these airplanes would be available within a few years.
Moreover, the public interest is served by the substantial and long term noise benefits available from new technology aircraft. The new technologies that will be utilized in meeting the stricter FAA noise regulations for new aircraft types to be promulgated by next March will bring about an average reduction of 12 to 16 EPNDB from the noise levels of the 707. The accelerated introduction of these quieter replacement planes offers obvious advantages.
Although we are concerned primarily in this policy statement with reducing the impact of aircraft noise, it would be myopic, if not negligent, for us to overlook opportunities for achieving other important national objectives as well. Consequently, we have considered, in addition to the noise benefits accruing from replacement of four-engine aircraft, the energy conservation benefits of improved fuel efficiency, the increasing importance of aeronautical exports to our aviation industry, the declining role of aerospace research and development as a percentage of national defense and NASA outlays, the stimulation of employment in the aerospace and related industries, and the advantages to the consumer of more advanced design and lower operating costs.
How the carriers choose to comply with our noise rules will have long range effects on the development of U.S. technology, employment, the viability and competitiveness of national aerospace industry, and the long term noise benefits that are to be realized. The sum of total benefits, however, mandates careful assessment of the relative merits of retrofit or replacement by new technologies.
A. Legal Responsibilities of the Federal Government
The principal aviation responsibilities assigned to the Federal Aviation Administrator, and since 1966 to the Secretary of Transportation, under the Federal Aviation Act of 1958, as amended, concern safety and the promotion of air commerce. The basic national policies intended to guide our actions under the Federal Aviation Act are set forth in section 103, 49 U.S.C. 1303, which provides public interest standards, including:
(a) The regulation of air commerce in such manner as to best promote its development and safety and fulfill the requirements of national defense;
(b) The promotion, encouragement, and development of civil aeronautics;
(c) The control of the use of the navigable airspace of the United States and the regulation of both civil and military operations in such airspace in the interest of the safety and efficiency of both; and
(e) The development and operation of a common system of air traffic control and navigation for both military and civil aircraft.
To achieve these statutory purposes, sections 307(a) and (c) of the Federal Aviation Act, 49 U.S.C. 1348(a), (c), provide extensive and plenary authority to the FAA concerning use and management of the navigable airspace and air traffic control. The FAA has exercised this authority by promulgating wide-ranging and comprehensive federal regulations on the use of navigable airspace and air traffic control.* Similarly the FAA has exercised its aviation safety authority, including the certification of airmen, aircraft, air carriers, air agencies, and airports under Title VI of the Federal Aviation Act, section 601 et seq., 49 U.S.C. 1402 et seq, by extensive federal regulatory action.** In legal terms the federal government, through this exercise of its constitutional and statutory powers, has preempted the areas of airspace use and management, air traffic control and aviation safety. The legal doctrine of preemption, which flows from the Supremacy Clause of the Constitution, is essentially that state and local authorities do not have legal power to act in an area which already is subject to comprehensive federal regulation.
* See 14 C.F.R. Parts 71, 73, 75, 91, 93, 95 and 97.
** See 14 C.F.R. Parts 21 through 43, 61 through 67, 91, 121 through 149.
Because of the increasing public concern about aircraft noise that accompanied the introduction of turbojet powered aircraft into commercial service in the 1960s and the constraints such concern posed for the continuing development of civil aeronautics and the air transportation system of the United States, the federal government in 1968 sought -- and Congress granted -- broad authority to regulate aircraft for the purposes of noise abatement. Section 611 of the Federal Aviation Act, 49 U.S.C. 1431, constitutes the basic authority for federal regulation of aircraft noise. In 1972, displaying some dissatisfaction with the FAA's methodical regulatory practice under section 611, the Congress amended that statute in two important respects. To the original statement of purpose -- "to afford present and future relief from aircraft noise and sonic boom" -- it added consideration of "protection to the public health and welfare." It also added the Environmental Protection Agency (EPA) to the rulemaking process. Section 611 now requires the FAA to publish EPA proposed regulations as a notice of proposed rulemaking. Within a reasonable time of that publication, if the FAA does not adopt an EPA proposal as a final rule after notice and comment, it is obliged to publish an explanation for not doing so in the Federal Register.
Whether considering a rule it proposes on its own initiative or in response to the EPA, the FAA is required by section 611(d) to consider whether a proposed aircraft noise rule is consistent with the highest degree of safety in air commerce and air transportation, economically reasonable, technologically practicable and appropriate for the particular type of aircraft.
The FAA acted promptly in implementing section 611. On November 18, 1969, it promulgated the first aircraft noise regulations, Federal Aviation Regulations, Part 36, 14 C.F.R. 36, which set a limit on noise emissions of large aircraft of new design. It reflected the technological development of the high-bypass ratio type engine, and was initially applied to the Lockheed 1011, the Boeing 747, and the McDonnell-Douglas DC-10. The Part 36 preamble announced a basic policy on source noise reduction and a logically phased strategy of bringing it about. The Part 36 standard would serve as the basic standard for aircraft engine noise and was initially applicable to new types of aircraft. As soon as the technology had been demonstrated, the standard was to be extended to all newly manufactured aircraft of already certificated types. Ultimately, the preamble indicated, when technology was available the standard would be extended to aircraft already manufactured and operating. The last step would require modification or replacement of all aircraft in the fleet which did not meet the Part 36 noise levels. The first two steps have already been accomplished. This third step is being taken now.
Part 36 is commonly misunderstood. Many believe that it established a federal standard of acceptable noise emissions. It did not. Part 36 basically established the quietest uniform standard then possible, taking into account safety, economic reasonableness and technological feasibility. Many think it is a standard that all American aircraft must meet. It is not. Part 36 to date has been applicable only to newly manufactured aircraft and is not applicable to aircraft manufactured before 1973. Nearly eighty percent of the present fleet is not obliged to and does not meet the Part 36 standard. Many think that it is an operating rule -- that is, that planes that do not meet it in daily operations may not fly. It is not. Part 36 applies to aircraft at the time of their manufacture, and does not apply at all to foreign-manufactured aircraft operated by foreign carriers.*
*Annex 16 to the Chicago Convention provides an international noise certification standard.
In addition to its regulatory authority over aircraft safety and noise, the FAA has long administered a program of federal grants-in-aid for airport construction and development. Through its decisions on whether to fund particular projects, the FAA has been able, to_ a degree, to insure that new airports or runways will be selected with noise impacts in mind. That indirect authority was measurably strengthened when in 1970 the Airport and Airway Development Act expanded and revised the FAA's grant-in-aid program for airport development and added environmental considerations to project approval criteria. 1976 Amendments to the 1970 Act have increased funding levels and provided new authority to share in the costs of certain noise abatement activities, but the ability of the FAA to provide financial assistance remains limited in terms of both percentage of project costs and the types of projects eligible for federal aid.
B. Legal Responsibilities of State and Local Governments
While the federal government's exclusive statutory responsibility for noise abatement through regulation of flight operations and aircraft design is broad, the noise abatement responsibilities of state and local governments through exercise of their basic police powers are circumscribed. The scope of their authority has been most clearly described in negative terms, arising from litigation over their rights to act.
The chief restrictions on state and local police powers arise from the exclusive federal control over the management of airspace. Local authorities long have been preempted by the federal assumption of authority in the area from prohibiting or regulating overflight for any purposes. That principle was found in 1973 to include any exercise of police power relating to aircraft operations in City of Burbank v. Lockheed Air Terminal, 411 U.S. 624 (1973). In the Burbank case, the Supreme Court struck down a curfew imposed by the City in the exercise of its police power. The Court's reliance on the legislative history of section 611 and the 1972 amendments to it indicate that other types of police power regulation, such as. restrictions on the type of aircraft using a particular airport, are equally proscribed. The Court, however, specifically excluded consideration of the rights of an airport operator from its decision.
There remains a critical role for local authorities in protecting their citizens from unwanted aircraft noise, principally through their powers of land use control. Control of land use around airports to insure that only compatible development may occur in noise-impacted areas is a key tool in limiting the number of citizens exposed to noise impacts, and it remains exclusively in the control of state and local governments. Occasionally, it is a power enjoyed by individual airport operators; some operators are municipal governments that can impose appropriate land use controls through zoning and other authority. But even where municipal governments themselves are operators, the noise impacts of their airports often occur in areas outside their jurisdiction. Other police power measures, such as requirements that noise impacts be revealed in real estate transactions, are also available to them. Finally, local governments have legal authority to take noise impacts into account in their own activities, such as their choice of location and design for new schools, hospitals, or other public facilities, as well as sewers, highways and other basic infrastructure services that influence land development.
C. Legal Responsibilities of Airport Proprietors
The responsibilities of state and local governments as airport proprietors are far less restricted. Under the Supreme Court decision in Griggs v. Allegheny County, 369 U.S. 84 (1962), proprietors are liable for aircraft noise damages resulting from operations from their airport. The proprietor, the court reasoned, planned the location of the airport, the direction and length of the runways, and has the ability to acquire more land around the airport. From this control flows the liability, based on the constitutional requirement of just compensation for property taken for a public purpose. The Court concluded: "Respondent in designing the Greater Pittsburgh Airport had to acquire some private property. Our conclusion is that by constitutional standards it did not acquire enough," The role of the proprietor described by the Court remains the same today.
But the proprietor's responsibilities do not end there. A three judge district court observed in Air Transport Association v. Crotti, 389 F. Supp. 58 (N.D. Cal., 1975):
The Crotti case upheld in part a California airport noise statute imposing noise abatement duties on airport proprietors and established the principle that a state statute could reach proprietors that are governmental agencies and hence arms of the state. The Burbank preemption rule thus has not extended to proprietors, except with respect to regulations that actually affect the flight of aircraft. The portion of the California statute struck down by the court provided for criminal sanctions against the operator of an aircraft that exceed a single-event noise standard on takeoff or landing, a clear interference with the FAA's control over flight operations in the navigable airspace.
The Crotti principle has recently been upheld in National Aviation v. City of Hayward, No. C-75-2279 RFP (N.D. Cal., July 13, 1976), a case in which an air freight company sought to enjoin a curfew on noisier aircraft imposed at the municipally owned Hayward Air Terminal in California. The court addressed squarely the legal issue of the rights of a proprietor and found that the curfew had not been preempted:
[T]his court cannot, in light of the clear Congressional statement that the amendments to the Federal Aviation Act were not designed to and would not prevent airport proprietors from excluding any aircraft on the basis of noise considerations, make the same findings [as the Burbank Court] with respect to regulations adopted by municipal airport proprietors..." Slip opinion, 14, citing S. Rep. No. 1353, 90th Cong., 2d Sess., 6-7.
The court went on to indicate that the FAA had the authority to preempt such proprietor regulation, although it had not yet exercised it. The court also found that the ordinance, which required some of the plaintiff's aircraft to use another airport between 11 p.m. and 7 a.m., had an effect on interstate commerce, but that the effect was:
The power thus left to the proprietor -- to control what types of aircraft use its airports, to impose curfews or other use restrictions, and, subject to FAA approval, to regulate runway use and flight paths -- is not unlimited. Though not preempted, the proprietor is subject to two important Constitutional restrictions. He first may not take any action that imposes an undue burden on interstate or foreign commerce and, second may not unjustly discriminate between different categories of airport users.
These limitations on the proprietor's control over the use of the airport have not been addressed by the Supreme Court, and it remains unclear the extent to which Constitutional limitations would prevent some of the restrictions that have been imposed or proposed by proprietors in recent years.
Our concept of the legal framework underlying this policy statement is that proprietors retain the flexibility to impose such restrictions if they do not violate any Constitutional proscription. We have been urged to undertake -- and have considered carefully and rejected -- full and complete federal preemption of the field of aviation noise abatement. In our judgment the control and reduction of airport noise must remain a shared responsibility among airport proprietors, users, and governments.
The legal framework with respect to noise may be summarized as follows:
1.The federal government has preempted the areas of airspace use and management, air traffic control, safety and the regulation of aircraft noise at its source. The federal government also has substantial power to influence airport development through its administration of the Airport and Airway Development Program.
2.Other powers and authorities to control airport noise rest with the airport proprietor - including the power to select an airport site, acquire land, assure compatible land use, and control airport design, scheduling and operations -- subject only to Constitutional prohibitions against creation of an undue burden on interstate and foreign commerce, unjust discrimination, and interference with exclusive federal regulatory responsibilities over safety and airspace management.
3. State and local governments may protect their citizens through land use controls and other police power measures not affecting aircraft operations. In addition, to the extent they are airport proprietors, they have the powers described in paragraph 2.
Consistent with the legal principles set forth above, this section explains in greater detail the program we intend to implement and our reasons for adopting it.* The cornerstone of the federal program is the requirement that airplanes comply with Part 36 noise standards within six to eight years. This policy clarifies the relative responsibilities of all participants in achieving reduced aircraft noise exposure. The way in which the air carriers meet this requirement for particular types of aircraft will have substantial implications not only for noise reduction but also for other national objectives -- energy conservation, employment, and export promotion -- as well. Moreover, the effectiveness of any resource commitment which may be required to meet this standard is contingent upon complementary action by airport proprietors and local government, actions that will be encouraged with federal financial assistance, other incentives, grant conditions and technical assistance. Complementary federal action includes noise abatement procedures, research and development and stricter noise standards for new technologies. The complete comprehensive strategy to bring about substantially reduced noise impact on residential populations is set forth in the following federal action program.
A. Quieting the Air Carrier Fleet
1. Federal Regulation of Existing Aircraft
Federal action is required to ensure that commercial aircraft meet Part 36 noise levels within the next decade. The normal incentives of the private marketplace do not operate to achieve optimal noise reduction. Noise is an "external cost" of providing certain goods and services. In the case of aircraft noise, the recipient of the noise -- such as the resident under the flight path -- is most often not a party to the market transactions (e.g., the purchase and sale of aircraft and of aircraft passenger tickets) that result in the noise that affects him. The purchasers of aircraft service -- the aviation passengers -are not necessarily the recipients of the aircraft noise, and therefore the provider of that service (the airline) does not have a normal market incentive to reduce noise. Because the market place does not compensate airport neighbors for noise damages, they may seek redress from the courts. However, law suits are an expensive, time consuming and uneven way of dealing with the problem, and damage payments may drain away scarce resources that could be applied to reducing noise impact.
Because there are important differences among the airplanes that do not meet Part 36, it is useful to consider them separately.
* The projections set forth in this document are based on the best available data. We realize it is subject to continuing refinement and improvement.
A significant problem is posed by the older, four-engine models (707s, 720s, DC-8s) in the current fleet. These aircraft are, for the most part, powered by JT-3D turbofan engines and impose the most severe noise insult on airport neighbors because they cause the noisiest single events (10 to 12 EPNDB over Part 36). They are perceived to be at least twice as loud as the new wide-body aircraft. They are particularly significant contributors to the overall noise level at major airports having serious noise problems.
Replacement or acoustic modification (retrofit) of these older four-engine jets must be given high priority. Acoustic modification or retrofit consists of the addition of quiet nacelles using sound absorbing material (SAM) that reduces significantly the noise levels of these four-engine aircraft to at least the Part 36 noise levels. This approach, however, is subject to the availability of retrofit kits and, has been shown to be somewhat fuel inefficient. Because of the environmental benefits of replacement, discussed below, retirement of most of these older aircraft is clearly preferable.
The older two- and three-engine aircraft (727s, 737s, DC-9s, BAC 1-lls, mainly powered by JT8D turbofan engines) are not as noisy on single events. But, because they are medium and short-range models, they take off and land more than four times as often per day as the long-range four-engine models. Since they are also more pervasive in our domestic system, they account for most of the air carrier operations (80 percent) nationwide.*