## Facts

- The Memphis–Shelby County Airport Authority sought FAA approval to impose a $3.00 Passenger Facility Charge (PFC) on each enplaning passenger at Memphis International Airport to fund airport capacity and infrastructure improvements.
- The application identified four primary projects; the airport authority consulted air carriers, including Northwest Airlines, regarding those primary projects and the proposed PFC.
- The airport authority also listed an alternative noise-compatibility (noise-mitigation) project to be funded if one primary project did not receive necessary clearances, but it did not consult carriers about this alternative project before filing the application.
- Northwest, a major hub carrier at Memphis, objected that: (1) the FAA had to consider the PFC’s carrier-specific competitive harm; (2) the statutory carrier-consultation requirement was violated as to the alternative project; and (3) the PFC could not be collected from passengers traveling on frequent-flyer award tickets.
- The FAA approved the PFC application, including the alternative project, and authorized collection of the $3.00 charge.
- Northwest petitioned for review in the D.C. Circuit; the court applied APA arbitrary-and-capricious review and the governing PFC and review statutes.

## Issues

1. Whether the FAA acted arbitrarily and capriciously by approving the PFC without evaluating Northwest’s asserted carrier-specific competitive harm.
2. Whether the FAA violated statutory requirements that PFC applications be tied to “specific projects” and that carriers be consulted on each project by approving an unconsulted alternative noise-compatibility project.
3. Whether Northwest could challenge PFC collection from frequent-flyer award passengers despite failing to raise the issue adequately before the FAA.

## Decision

- The court rejected Northwest’s challenge to the FAA’s failure to consider carrier-specific competitive effects, holding the agency was not required by statute to treat those effects as a mandatory approval factor.
- The court granted the petition in part, holding that approving the alternative noise-compatibility project without prior carrier consultation violated the PFC statute’s consultation requirement.
- The court declined to reach the frequent-flyer award-ticket argument because Northwest failed to exhaust administrative remedies.
- The petition for review was denied in large part and granted only as to the consultation defect regarding the alternative project.

## Legal Principles

- Under APA arbitrary-and-capricious review, an agency need not consider factors Congress did not make relevant; courts defer to a reasonable agency construction of the statute it administers when the statute does not clearly require a proposed factor to be considered.
- The PFC statute requires that PFC approval be tied to “specific projects” and that the public agency consult with air carriers using the airport regarding those projects before submitting a PFC application.
- Statutory exhaustion limits judicial review of issues not properly presented to the agency in the administrative process.

## Conclusion

The D.C. Circuit largely upheld the FAA’s approval of a $3.00 PFC at Memphis, deferring to the FAA’s view that carrier-specific competitive harm was not a required consideration, but it set aside approval to the extent it included an alternative project that had not been the subject of the statutorily required carrier consultation, and it refused to consider the frequent-flyer ticket challenge due to nonexhaustion.


Nw. Airlines, Inc. v. FAA, 14 F.3d 64 (D.C. Cir. 1994)