[Federal Register Volume 64, Number 128 (Tuesday, July 6, 1999)]
[Notices]
[Pages 36400-36403]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-16943]
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DEPARTMENT OF JUSTICE
Antitrust Division
U.S. v. Signature Flight Support Corporation, et al.; Public
Comments and Plaintiff's Response
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that the Public Comment and
Plaintiff's Response have been filed with the United States District
Court of the District of Columbia in United States v. Signature Flight
Support Corporation, Civ. Action No. 9900537 (RCL).
On March 1, 1999, the United States filed a civil antitrust
Complaint alleging that Signature Flight Support Corporation's
(``Signature'') proposed acquisition of AMR Combs, Inc., (``Combs'')
would violate section 7 of the Clayton Act, 15 U.S.C. 18. The Complaint
alleged that Signature and Combs are fixed based operators (FBOs)
located at various airports throughout the United States. Signature's
acquisition of Combs would have eliminated its only FBO competitor at
Bradley International Airport and at Palm Springs Regional Airport. The
acquisition would have also significantly reduced the likelihood of
entry of a third, independent FBO competitor at Denver Centennial
Airport. As a result, the proposed acquisition would substantially
lessen competition for FBO services at those airports in violation of
section 7 of the Clayton Act.
Public comment was invited within the statutory 60-day comment
period. The one comment received, and the response thereto, is hereby
published in the Federal Register and filed with the Court. Copies of
these materials may be obtained on request and payment of a copying
fee.
Constance K. Robinson,
Director of Operations and Merger Enforcement, Antitrust Division.
Plaintiff's Response to Public Comment
Pursuant to the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16(b)-(h) (``Tunney Act''), the United
States hereby responds to the single public comment received regarding
the proposed Final Judgment in this case.
I. Background
On March 1, 1999, the United States Department of Justice (``the
Department'') filed the Complaint in this matter. The Complaint alleges
that Signature Flight Support Corporation's (``Signature'') proposed
acquisition of AMR Combs, Inc. (``Combs''), a wholly owned, indirect
subsidiary of AMR Corporation, would violate section 7 of the Clayton
Act, 15 U.S.C. Sec. 18. The Complaint alleges that Signature and Combs
are fixed base operators (FBOs) located primarily at various airports
throughout the United States. FBOs provide flight support services to
general aviation customers. By acquiring the Combs FBO facilities,
Signature would eliminate its sole FBO competitor at Bradley
International Airport (``BDL'') and at Palm Springs Regional Airport
(``PSP''). In addition, Signature's proposed acquisition would
significantly reduce the likelihood of entry by a third, independent
FBO competitor at Denver Centennial Airport (``APA''). As a result, the
Complaint alleges, the proposed acquisition would substantially lessen
competition for FBO services at APA, BDL and PSP in violation of
section 7 of the Clayton Act. 15 U.S.C. Sec. 18.
Simultaneously with the filing of the Complaint, the Department
filed the proposed Final Judgment and Stipulation signed by all the
parties that allows for entry of the proposed Final Judgment following
compliance with the Tunney Act. The Department also filed a Competitive
Impact Statement (``CIS'') on March 15, 1999, that was subsequently
published in the Federal Register on March 26, 1999. The CIS explains
in detail the provisions of the proposed Final Judgment, the nature and
purposes of these proceedings, and the transaction giving rise to the
alleged violation.
As the Complaint and the CIS explain, the merger as originally
proposed was likely to reduce or eliminate competition in three
specific markets for flight support services--the APA, BDL and PSP
markets. The proposed Final Judgment is intended to prevent the
expected lessening of competition the merger would cause in those
markets.
As a remedy to competitive harm in the BDL and PSP markets for
flight support services, the Department and Signature, Combs, and AMR
agreed to divestiture of one of the FBO businesses at each airport. In
addition, the parties agreed to remedy the competitive harm in the APA
market for flight support services by transferring Signature's
[[Page 36401]]
interest in a new FBO facility at APA to another FBO or by divesting
the existing Combs FBO business to an independent and financially
viable competitior. These remedies are intended to protect consumers by
ensuring continued vigorous competition in each market.
The 60-day comment period for public comments expired on May 25,
1999. The Department had received only one comment, from Robert A.
Wilson, President of Wilson Air Center, an FBO located at the Memphis
International Airport in Memphis, Tennessee.\1\
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\1\ The comment is attached. The Department plans to public
promptly the comment and this response in the Federal Register. The
Department will provide the Court with a certificate of compliance
with the requirements of the Tunney Act and file a motion for entry
of final judgment once publication takes place.
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II. Response to the Public Comment
Wilson opposes the Department's decision to permit Signature's
acquisition of Combs subject to the divestiture of FBO facilities or
interests in FBO facilities at APA, BDL and PSP. Wilson claims that the
Department should have challenged the acquisition in another market
that consists of the Memphis International Airport. The Wilson comment
indicates that the Memphis International Airport market has only two
FBO competitors: Combs and Wilson Air Center. According to Wilson,
shortly before the announcement of the transaction between Signature
and Combs, Combs had negotiated various agreements with the Memphis and
Shelby County Airport Authority that he believes place Wilson Air
Center at a competitive disadvantage. In Wilson's view, Signature's
purchase of Combs is objectionable because it perpetuates what he
considers to be anticompetitive agreements at the Memphis International
Airport.
The Clayton and Sherman Acts, judicial precedent, and the
Horizontal Merger Guidelines \2\ govern the Department's review of
mergers. The first step in the review is defining relevant product and
geographic markets where the merging firms are actual or potential
competitors. Once the relevant markets are identified, the analysis
turns to the competitive implications of the proposed transaction's
elimination of one of the firms. Signature and Combs did not compete
with one another at the Memphis International Airport, and there was no
indication that Signature planned to become an independent competitor
at the airport. Since there was no actual or potential competition and
thus, no substantial lessening of competition, that market would not
be--and, in fact, was not--one that merited review. Instead, the
Department identified three geographic markets were Signature and Combs
were actual or potential competitors, and determined that, as a result
of the acquisition, competition in those markets would be substantially
lessened. Accordingly, the Department brought its case on the basis of
those three markets, and obtained as relief divestitures designed to
ensure continued competition in each market. In sum, the Wilson comment
does not raise competition issues caused by the proposed acquisition.
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\2\ Federal Trade Commission and United States Department of
Justice, Horizontal Merger Guidelines (1992, rev. 1997).
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III. The Legal Standard Governing the Court's Public Interest
Determination
Once the Department moves for entry of the proposed Final Judgment,
the Tunney Act directs the Court to determine whether entry of the
proposed Final Judgment ``is in the public interest.'' 15 U.S.C.
Sec. 16(e). In making that determination, the ``court's function is not
to determine whether the resulting array of rights and liabilities `is
one that will best serve society,' but only to confirm that the
resulting `settlement is within the reaches of the public interest.' ''
United States v. Western Elec. Co., 993 F.2d 1572, 1576 (D.C. Cir.
1993) (citation omitted). \3\ The Court should evaluate the relief set
forth in the proposed Final Judgment and should enter the proposed
Final Judgment if it falls within the government's ``rather broad
discretion to settle with defendant within the reaches of the public
interest.'' United States v. Microsoft Corp., 56 F.3d 1448, 1461 (D.C.
Cir. 1995); accord United States v. Associated Milk Producers, 534 F.2d
113, 117-18 (8th Cir. 1976).
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\3\ The Western Electric decision concerned a consensual
modification of an existing antitrust decree. The Court of Appeals
assumed that the Tunney Act was applicable.
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Because Wilson argues for a different case than the one that the
Department brought, and does not address the relief ordered by the
proposed Final Judgment, the comment raises no issues relevant to this
Tunney Act proceeding. The Tunney Act does not contemplate a judicial
reevaluation of the government's determination of which violations to
allege in the Complaint. The government's decision not to bring a
particular case based on the facts and law before it at a particular
time, like any other decision not to prosecute, ``involves a
complicated balancing of a number of factors which are peculiarly
within [the government's] expertise.'' Heckler v. Chaney, 470 U.S. 821,
831 (1985). Thus, the Court may not look beyond the Complaint ``to
evaluate claims that the government did not make and to inquire as to
why they were not made.'' Microsoft, 56 F.3d at 1459; see also
Associated Mild Producers, 534 F.2d at 117-18.
Similarly, the government has wide discretion within the reaches of
the public interest to resolve potential litigation. See, e.g., Western
Elect., 993 F.2d at 1577; United States v. American Tel. & Tel. Co.,
552 F. Supp. 131, 151-52 (D.D.C. 1982). The Supreme Court has
recognized that a government antitrust consent decree is a contract
between the parties to settle their disputes and differences, United
States v. ITT Continental Baking Co., 420 U.S. 223, 235-38 (1975);
United States v. Armour & Co., 402 U.S. 673, 681-82 (1971), and
``normally embodies a compromise; in exchange for the saving of cost
and elimination of risk, the parties each give up something they might
have won had they proceeded with the litigation.'' Armour, 402 U.S. at
681. This proposed Final Judgment has the virtue of bringing the public
certain benefits and protection without the uncertainty and expense of
protracted litigation. Id.; Microsoft, 56 F.3d at 1459.
Finally, the entry of a governmental antitrust decree forecloses no
private party from seeking and obtaining appropriate antitrust
remedies. Thus, defendants will remain liable for any illegal acts, and
any private party may challenge such conduct if and when appropriate.
If the commenting party has a basis for suing the defendants, it may do
so. The legal precedent discussed above holds that the scope of a
Tunney Act proceeding is limited to whether entry of this particular
proposed Final Judgment, agreed to by the parties as settlement of this
case, is in the public interest.
IV. Conclusion
After careful consideration of the comment, the Department
concludes that entry of the proposed Final Judgment will provide an
effective and appropriate remedy for the antitrust violation alleged in
the Complaint and is in the public interest. The Department will move
the Court to enter the proposed Final Judgment after the public comment
and this Response have been published in the Federal Register, as 15
U.S.C. Sec. 16(d) requires.
Dated this 21st day of June, 1999.
[[Page 36402]]
Respectfully submitted.
Nina B. Hale,
Salvatore Mass,
U.S. Department of Justice, Antitrust Division, 325 7th Street, NW,
Suite 500, Washington, D.C. 20530, (202) 307-6351.
Certificate of Service
I, Marian Honus, hereby certify that, on June 21, 1999, I caused
the foregoing document to be served on defendants Signature Flight
Support Corporation, AMR Combs, Inc., and AMR Corporation by having a
copy mailed, first-class, postage prepaid, to:
William Norfolk, Esq.,
Sullivan & Cromwell, 125 Broad Street, New York, NY 1004.
Eugene A. Burrus, Esq.,
AMR Corporation, P.O. Box 619616, MD 5675, Dallas Fort Worth Airport,
TX 75261.
Marian Honus
May 21, 1999.
Mr. Roger W. Fones,
Chief, Transportation, Energy and Agriculture Section, Department of
Justice, Antitrust Division, 325 Seventh St., NW, Suite 500,
Washington, DC 20530
RE: Comments of Wilson Air Center, LLC in Response to Federal
Register Notice Regarding Proposed Final Judgment and Competitive
Impact Statement: United States of America v. Signature Flight
Support Corporation, et al., Federal Register 58 (March 26, 1999)
Dear Mr. Fones: Wilson Air Center, LLC (``Wilson Air'') is an
independently owned Fixed Base Operation (``FBO'') and is the only
FBO other than AMR Combs, Inc. (``AMR'') located at the Memphis
International Airport, Memphis, Tennessee (the ``Memphis Airport'').
Wilson Air comments on the proposed acquisition insofar as it will
impact FBO competition at the Memphis Airport as follows:
Wilson Air is opposed to the acquisition of AMR by Signature
Flight Support Corporation (``Signature'') because it will
perpetuate agreements between AMR and the Memphis and Shelby County
Airport Authority (the ``Authority'') which will give Signature an
illegal competitive advantage for FBO customers at the Memphis
Airport. The timing and substance of the recently executed anti-
competitive agreements suggests that they were negotiated in
anticipation of the instant sale to improperly increase the value of
AMR's Memphis operation. If the proposed sale is implemented at the
Memphis Airport such that Signature assumes the anti-competitive
agreements that are in place, FBO competition at the Memphis Airport
will be stifled and Wilson Air will be irreparably harmed.
The Anti-Competitive Agreements
The new lease between the Airport Authority and AMR was executed
in late July or early August of 1998 but was made effective as of
June 1, 1998 (the ``Lease''). A copy of the AMR Lease is at EXHIBIT
A. In the Lease, AMR procured terms which make it impossible for
Wilson Air to fairly compete for customers. The Lease also directly
violates the Federal Grant Assurances \1\ which, as a contractual
obligation for the receipt of Federal funding, mandate fair and
equitable treatment of FBOs so that competition can be preserved at
airports supported with Federal funds.
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\1\ The Grant Assurances set out fully at Section 47107 of 49
United State Code under the heading Economic Nondiscrimination
provide that ``(e)ach fixed-base operator shall be subject to the
same rates, fees, rentals, and other charges as are uniformly
applicable to all other fixed-base operators making the same or
similar use of such airport * * '' Id. At Para. 22(c). Paragraph 23
of the Grant Assurances, entitled Exclusive Rights, goes on to state
that an airport authority sponsor''* * * will permit no exclusive
right for the use of the airport by any person providing * * *
aeronautical services to the public.'' The Memphis Airport between
1994 and 2008 has and is scheduled to receive $119,380,000 in
federal grant funds from the Federal Aviation Administration. As
such, Memphis Airport is a federally assisted airport operation and
must comply with the Federal Grant Assurances which are incorporated
into the Authority's grant funding contracts with the FAA
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Disparate Lease Rates
The terms of the Lease which violate the Federal Grant
Assurances create the anti-competitive environment which the Grant
Assurances sought to prevent. The Lease includes disparate pricing
terms.\2\ At Paragraph 4 and in its Exhibit C, the Lease in 1998
granted to AMR property at rates far below the then existing market
and far below rates which had been set for Wilson Air more than four
(4) years earlier. More precisely, effective June 30, 1998, the
Lease requires AMR to pay between $.0759 per square foot for
``unimproved land'' and $.0949 per square foot for ``improved
land.'' In the lease, AMR's base lease rental schedule increases
incrementally through 2010. Even so, rates for ``unimproved land''
remain well below the rates paid by Wilson Air until after June 30,
1005. The rates charged to AMR are shown on Exhibit C to the Lease
(EXHIBIT A). Moreover, it appears that AMR is paying nothing for the
13,500 square feet occupied by the General Aviation Building. In
stark contrast Wilson Air, in a lease of more unimproved land
negotiated in 1994 which extends through 2005, must pay $.12 per
square foot. Wilson Air at that higher rate was required to build
its entire facility from the ground up. A copy of Wilson Air's lease
is at EXHIBIT B.
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\2\ The Authority has asserted that the Lease is merely an
extension of AMR's 1979 Lease and an accommodation for giving up
other land. The many substantial discrepancies between the Lease and
AMR's 1979 lease show that it is indeed a new document and not an
extension of the old lease. Other documents exchanged between AMR
and the Authority further rebut this claim.
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The disparate rates included in the Lease make it impossible for
Wilson Air profitably to offer its current and prospective FBO
tenants lease rates which are competitive with the lease rates
offered by AMR. AMR has already used the disparate lease rates to
procure for itself customers. As shown in Paragraph 8a of the
sublease at EXHIBIT C, AMR as of July 17, 1998, subleased to
Richard's Aviation, Inc. at the rate of $.0759 per square foot--four
and one-half cents less than the Authority had leased unimproved
land to Wilson Air. The inability of Wilson Air to enter match such
a rate is obvious. And, as Paragraph IIB of the Notice states
``(t)he largest source of revenues for an FBO is its fuel sales''
and (g)eneral aviation customers generally buy fuel from the same
FBO from which they obtain those other services (hangar rental,
office space rental, etc.)''. Thus, the reduced lease rates given to
AMR preclude Wilson Air from competing for hangar tenants and for
fuel customers. This Lease term restrains trade and commerce at the
Memphis Airport as it relates to the two FBOs and appears to violate
both Section 7 of the Clayton Act and Section 1 of the Sherman Act.
Disparity in Land Under Lease
Wilson Air currently has approximately 16 acres of land under
lease. Through the Lease, AMR has increased the acreage held by it
and has obtained an option for even more land.\3\ At this same time,
Wilson Air has repeatedly requested from the Authority and has been
denied additional land on which to expand its operations. AMR's
Lease grants AMR an option on three separate parcels totaling 13.53
acres (identified in the Lease as N, O and P). In the new Lease, as
amended, the Authority grants AMR an option to these parcels for
$.02 to $.03 per square foot. In addition, 15.45 more acres of new
land were added to the new AMR lease.
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\3\ AMR had approximately 20 acres under its 1979 lease of the
south complex. A copy of that lease is at EXHIBIT D.
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These terms of the Lease are anti-competitive in that they give
AMR approximately 3 times Wilson Air's acreage with which it can
entice customers away from Wilson Air at rates well below what
Wilson Air must pay the Airport Authority without worrying about
running out of space to grow. Since AMR has more land than it can
use, it can grant a sublease like the one at EXHIBIT C ``at cost''
knowing that it will get the customer's business for fuel.\4\
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\4\ Paragraph 37 of the sublease at EXHIBIT C tied that sublease
to a ``fuel agreement.'' Wilson Air, despite request, has never seen
that ``fuel agreement.'' After voicing its concerns, Wilson Air was
advised that Paragraph 37 of the Lease was amended to prohibit
exclusive fueling agreement being entered into by AMR and its
subtenants and customers.
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Additionally, the location of the land covered by the Lease also
precludes Wilson Air access to valuable military fueling contracts.
Due to space limitation, Wilson Air cannot bid on and receive
military fueling contracts because Wilson Air does not have the
available land to handle the type and size of military aircraft for
fueling purposes. As with the rental rates, these lease terms appear
to violate Section 7 of the Clayton Act and Section 1 of the Sherman
Act.
From the documents produced to Wilson Act, it appears that AMR
has been responsible for the maintenance and repair of the General
Aviation Building (``GAB'') for more than 15 years, but has
evidently failed
[[Page 36403]]
to meet those obligations. Rather than force AMR to comply with its
maintenance and repair obligations, however, the Lease grants AMR
rent incentives and abatements on the GAB property. Those Lease
terms are far more favorable to AMR than the rent terms offered to
Wilson Air for another building on the Memphis Airport even though
the two buildings will be subject to the same type of FBO usage.
Wilson Air has asked the Authority to lease to it a building known
as the Northwest AirLink building (the ``NWA''). The Authority
ordered a 1995 appraisal which compared the NWA to more expensive
off-airport commercial buildings and indicated an adjusted appraisal
rental rate of $5.50 per square foot.
Instead of offering any incentives like those given to AMR, the
Authority has demanded a $6.50 per square foot rental rate from
Wilson Air. The NWA previously has not been used for general
aviation tenants, but if Wilson Air rented the building, it would be
used for general aviation tenants and general aviation related
services. Again by contrast, the Authority in the Lease has abated
rent through 2010 on the GAB to AMR while simultaneously demanding
that Wilson Air pay $6.50 per square foot for use of the NWA
property.\5\ Both buildings require the expenditure of substantial
funds for improvements and will experience the same or similar uses.
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\5\ A 1997 airport appraisal of the GAB indicated a minimum $.75
per square foot rental on the building prior to renovation.
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This unequal treatment as to office square precludes Wilson Air
from effectively competing for tenants which would require use of
such facilities.
In addition to the Lease, AMR and the Authority negotiated two
separate ``letter agreements'' which granted AMR month-to-month
leases on 3.21 acres and 6.09 acres of improved (closed) runway and
taxilane property respectively. The December 16, 1997 letter
agreement and the July 27, 1998, letter agreement are at EXHIBITS E
and F. The Authority has now acknowledged that while Wilson Air was
being told that no additional land was available to Wilson Air, the
Authority was giving AMR the free use of this valuable acreage.
Thus, the Authority allowed AMR to use land at no cost, while
denying land to Wilson Air and requiring it to pay full rent for all
land used.\6\
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\6\ Apparently, AMR is still using the old AMR north complex, an
additional approximate 12 acre site at a different location on the
airport, to service tenants, even though Wilson Air Center has been
advised that this site has been designated for use for FedEx
Corporation expansion.
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A portion of this land now lies within one of the option parcels
granted to AMR and as recently as May 11, 1999, AMR (already
operating at the Memphis Airport under the ``Signature'' name) has
used the land without paving rental fees. This is another indicia of
the manner in which Wilson Air has been hurt by the anti-competitive
agreements between the Authority and AMR. These anti-competitive
agreements will persist unless Signature is precluded from assuring
these agreements at the Memphis Airport.
Wilson Air submits that permitting Signature to move forward
with the acquisition of AMR's rights at the Memphis Airport will
violate the Competitive Impact Statement and the spirit of the
Proposed Final Judgment in the subject suit. Wilson Air further
asserts that the Authority's pending assignment of the AMR lease
terms to Signature as required by the AMR Lease will perpetuate the
anti-competitive environment between FBO's at the Memphis Airport.
Accordingly, Wilson Air requests that the Department of Justice
consider the above in determining whether to support the entry of
the Final Judgment in the above-cited suit. Alternatively, Wilson
Air requests that Department of Justice expand its investigation
into the anti-competitive aspects of the sale of AMR to Signature
Flight Support Corporation to include consideration of the AMR Lease
at the Memphis Airport.
Very truly yours,
Wilson Air Center, LLC
Robert A. Wilson,
President.
RAW/kaw
Enclosures
Exhibits A, B, C, D, & E can be obtained from the Document
Office, U.S. Department of Justice, 325 7th Street, N.W., Room 215,
Washington, D.C. 20530, or (202) 514-2481.
[FR Doc. 99-16943 Filed 7-2-99; 8:45 am]
BILLING CODE 4410-11-M