Federal Appeals Court Rules TSA Overcharged Airlines

(AP) A federal appeals court panel said regulators overcharged airlines for some security costs after the 2001 terror attacks but rejected other parts of the airlines' broad attack on the fee system.

A three-judge panel of the U.S. Court of Appeals in Washington said Tuesday the Transportation Security Administration wrongly included the cost of screening non-passengers in the airline fees. The judges sent the case back to the TSA to recalculate the fees.

The airlines had argued in court filings that they should get back the more than \$100 million a year in disputed fees they have been paying since 2005, or about one-fourth of their payments to TSA.

Before the 2001 terror attacks, airlines paid for the cost of screening passengers and bags themselves. That duty was taken over by TSA, which levies fees on passengers and airlines to cover its costs. But a group of 22 carriers sued the TSA, saying the airline fee was arbitrary and flawed. The airlines have paid the fees under protest since July 2007.

The carriers argued that they spent $123 million screening non-passengers in 2000, the last full year before the terror attacks, or more than the roughly $100 million the TSA said the airlines owe each year in disputed fees.

The judges ruled that TSA wrongly interpreted an overall limit that Congress placed on the airline fees and was wrong to reject a solo appeal by Spirit Airlines. Otherwise, the judges ruled that the TSA mostly followed

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the law, and specifically rejected separate appeals by American Airlines and Northwest Airlines.

A spokesman for Dallas-based Southwest Airlines Co., the lead carrier in the case, said the company is "very pleased" that the court sent the case back to TSA.

"Southwest Airlines looks forward to a significant reduction if not a total elimination of the approximately $24 million annually that Southwest has paid in these disputed fees since January 2005," said the spokesman, Paul Flaningan.

Southwest pays about $50 million a year in security fees but did not dispute the other $26 million.

Northwest was reviewing the ruling, a spokeswoman said, and American declined to comment.

David Castelveter, a spokesman for the Air Transport Association, a trade group for the nation's carriers, said that although the judges rejected some of the airlines' arguments, "We are pleased that it recognized that the Transportation Security Administration overcharged the airlines and that those fees must be reduced."

TSA spokeswoman Sterling Payne said the agency considers the court ruling as "another positive step in resolving this ongoing dispute." Payne said TSA would work on figuring the cost of screening non-passengers and how that would affect fee limits.

Congress approved the airline fees to make up any gap between TSA's costs and the money it raises on a per-ticket tax on passengers. But Congress limited the airline fees to the amount that the airlines themselves spent on security in 2000.

That limit gave airlines a motive to lowball their actual security costs in 2000, and the Government Accountability Office estimated the underreporting at $129 million. The TSA went after airlines that spent less than the industry average on screening per passenger in 2000 unless the carrier could produce an audited explanation.

The airlines argued that TSA had no right to compare their individual 2000 security spending to an industry average, but the judges rejected that claim. However, the judges said TSA should not have included the amounts airlines paid in 2000 to screen non-passengers—before the terror attacks, people without a boarding pass could go through security checkpoints. The airlines argued that more than one-fourth of the people screened in 2000 were not passengers.

The judges also rejected a claim by AMR Corp.'s American Airlines that TSA owed it about $14 million for installing a baggage-security system, calling it a contract matter that American should pursue with the government.

And the judges turned down an appeal from Northwest, which said it was wrongly charged for security duties that the TSA didn't take over. Northwest, now part of Delta Air Lines Inc., was more than $3 million in arrears on payments in 2005, the judges said.

Scott Drake Talks with Aviation attorney Roy Goldberg from Sheppard, Mullin, Richter and Hampton in Washington DC.