United States 8th Circuit Court of Appeals Reports

(8th Cir. 1991) CITY OF ST. LOUIS, PETITIONER, v.
INC., INTERVENORS. Nos. 91-1244, 91-1916. United States
Court of Appeals, Eighth Circuit. Submitted May 31, 1991.
Decided June 28, 1991. Rehearing and Rehearing En Banc
Denied August 27, 1991. Page 1529


Edward J. Hanlon, St. Louis, Mo., and Susan B. Jollie,
Washington, D.C. (argued), Gary Green, Russell Bailey,
Jerry Anker, Anita M. Mosner, Allison Beck, Mark Schneider,
Washington, D.C. and Julian L. Bush, St. Louis, Mo., on
brief, for petitioners.

Paul M. Geier, Washington, D.C., and Joe Sims, Washington,
D.C. (argued), James F. Rill, Robert B. Nicholson, David
Seidman, Mary B. Reed, Thomas L. Ray, Alexander J. Millard,
Washington, D.C., on brief, for appellee.

Richard A. Rothman (argued), Ira M. Millstein and Gloria
C. Phares, New York City, and Peter D. Isakoff and
Annemargaret Connolly, Washington, D.C., Weil, Gotshal &
Manges, on brief, for American Airlines.

Petition for review of order from Department of

Before ARNOLD, JOHN R. GIBSON and BEAM, Circuit Judges.

ARNOLD, Circuit Judge.

[1] In this case we have before us for review two orders of
the Department of Transportation approving the sale of
foreign airline routes by Trans World Airlines, Inc. (TWA),
to American Airlines, Inc. (American). In No. 91-1244, the
order being challenged, Department of Transportation (DOT)
Order 91-1-72, was issued in docket number 46752 on January
30, 1991. It approves the transfer from TWA to American of
TWA’s Chicago-London route authority. In No. 91-1916, the
order being challenged is Department of Transportation
Order 91-4-47, issued in docket number 47320 on April 24,
1991. This order approves the transfer of three London
routes, those originating in New York, Boston, and Los
Angeles. The order with respect to the Chicago route became
effective on January 31, 1991. The order with respect to
the other three routes is scheduled Page 1531 to become
effective on July 1, 1991. The City of St. Louis is the
sole petitioner challenging the Chicago order. The other
order is attacked by the City of St. Louis and three labor
organizations representing employees of TWA.

[2] This matter first came to our attention when the City of
St. Louis and the other petitioners in No. 91-1916 applied
to us for an emergency stay. The transaction transferring
the New York, Boston, and Los Angeles-to-London routes,
they said, was about to be closed, and a stay was necessary
to preserve the status quo during our review of the order.
On May 7, 1991, we denied the stay. The transaction had
already been closed as between TWA and American. At the
same time, however, we expedited the petition for review
and set the case for oral argument in St. Louis on May 31,
1991, in order to be in a position to make a decision on
the merits of the petition before July 1, when the route
transfer was to become effective under the terms of the
action taken by DOT. Later, we consolidated the Chicago
petition with the New York-Boston-Los Angeles petition, and
interested airlines were allowed to intervene.

[3] Having now heard the oral argument and studied the
briefs and records, we conclude that we have no authority
to set aside either order. DOT’s findings of fact are
supported by substantial evidence. Its holding that both
transfers are in the “public interest,” § 401(h) of
the Federal Aviation Act of 1958, as amended, 49 U.S.C.App.
§ 1371(h), rests upon reasonable (and therefore
permissible) interpretations of the various statutes
involved. And its weighing of the various statutory
ingredients of the “public interest” is not so far out of
balance as to be arbitrary, capricious, or an abuse of
discretion. Accordingly, the two orders under review are


[4] We briefly summarize the facts, leaving certain
relevant details to those portions of the opinion that deal
with particular arguments. TWA has held certificates,
issued either by DOT or its predecessor agency, the Civil
Aeronautics Board, authorizing it to serve London from
Chicago, St. Louis, New York, Boston, Philadelphia,
Baltimore, and Los Angeles. American has been serving
London, under the authority of similar certificates, from
Dallas-Fort Worth and Miami. The hub of TWA’s domestic
system is St. Louis. American has hubs at Chicago,
Nashville, and other cities. The United States-United
Kingdom market is also served by British carriers,
including British Airways and Virgin Atlantic. British
Airways serves London from five of the seven United States
cities served by TWA. Historically, Pan American World
Airways and TWA were the only two United States-flag
passenger carriers allowed to use Heathrow Airport, the
closest and therefore most desirable airport serving
London. Pan American’s certificates have recently been
transferred to United Airlines.

[5] In December of 1989, TWA agreed to sell its
Chicago-London route authority to American for about 110
million dollars. TWA and American filed an application with
DOT for approval of the transfer under § 401(h).
Under this statute, “[n]o certificate may be transferred
unless such transfer is approved by the Board [now the
Department of Transportation] as being consistent with the
public interest.” § 401(h)(1), 49 U.S.C.App. §
1371(h)(1). Then, in December of 1990, while the Chicago
transfer application was still pending, TWA agreed to sell
to American its six other London routes and certain other
property for about 500 million dollars. DOT did not hold an
oral evidentiary hearing. Instead, after reviewing the
pleadings, it issued a show-cause order in the Chicago
case. This order (91-1-12), issued on January 8, 1991,
indicated a tentative disposition to approve the transfer
and invited interested parties to comment. The City of St.
Louis, among others, filed comments opposing the transfer.
(The City had not previously participated in the Chicago
proceeding.) In addition, the City asked that the two
proceedings be consolidated. On January 30, 1991, the
Department rejected the objections to the Chicago transfer,
and it became effective the next day, January 31, 1991.
Page 1532

[6] In the meantime, the other case, involving TWA’s
remaining six London routes, was proceeding separately. As
in the Chicago case, DOT proceeded by way of a show-cause
order. The order (No. 91-3-28), entered on March 14, 1991,
indicated a tentative decision to approve the application
in part only. The New York, Boston, and Los Angeles route
transfers would be approved, but TWA would keep its St.
Louis-London authority, and the Philadelphia and Baltimore
routes would be transferred to another carrier. The City of
St. Louis and three unions representing TWA employees,
Airline Pilots Association, International, the
International Federation of Flight Attendants, and the
International Association of Machinists and Aerospace
Workers, filed comments opposing the tentative decision
indicated in the show-cause order. DOT considered these
comments, again without an oral evidentiary hearing, and,
in an order entered on April 24, 1991, rejected them. This
order diverged somewhat from the tentative decision
contained in the show-cause order. It approved the transfer
to American of the New York, Boston, and Los Angeles
routes, but provided that TWA would keep not only its St.
Louis authority, but also the Baltimore and
Philadelphia-to-London routes.

[7] These two decisions are now before us for review.


[8] The Department of Transportation’s first line of defense
is that the petitioners have no standing, in the Article
III sense, to challenge these orders. Therefore, DOT says,
the petitions should be dismissed for want of jurisdiction.
The Department correctly points out that the mere fact that
petitioners were parties in the agency proceeding is not
dispositive of the issue of standing for purposes of
invoking the jurisdiction of a federal court. Agencies are
not Article III creatures, and Congress may allow anyone it
wishes, including members of the public at large, to become
parties in agency proceedings. When the case gets to court,
though, the courts must independently satisfy themselves
that the Article III requirement that a case or controversy
be presented is satisfied. DOT also correctly states the
standard which we must apply: parties seeking review must
show an injury resulting from the challenged agency
decision, and that the lawsuit is likely to redress the
injury. Valley Forge Christian College v. Americans United
for Separation of Church and State, 454 U.S. 464, 475, 102
S.Ct. 752, 760, 70 L.Ed.2d 700 (1982).

[9] The word “show” in this formulation must be understood
in a special way, however. If it means that full proof, on
the merits, must demonstrate injury to a complaining party,
failing which the proceeding must be dismissed for lack of
jurisdiction, the question whether threshold jurisdictional
requirements have been met will not be decided, in many
instances, until the court has investigated and determined
the merits of the case exactly as it would if it had
jurisdiction. Jurisdictional requirements, as a rule, are
better determined at the outset, so that, if they are not
met, the court can dispose of the case and turn its
attention to matters it has power to deal with. Thus, in
the context of standing, it is the nonfrivolous claims of a
party that are determinative, not whether the party can
sustain those claims by proof on the merits. As the Supreme
Court said in Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct.
2197, 2206, 45 L.Ed.2d 343 (1975), “both the trial and
reviewing courts must accept as true all material
allegations of the complaint, and must construe the
complaint in favor of the complaining party.” If the
complaint (or, as here, the petition for review) makes a
nonfrivolous or colorable claim of injury, that the injury
is due in significant part to the agency action being
questioned, and that the courts, if they rule for the
complaining party, can redress the injury, no more is
required to satisfy Article III. “[A] probabilistic benefit
from winning a suit is enough `injury in fact’ . . . to
confer standing in the undemanding Article III sense.”
North Shore Gas Co. v. Environmental Protection Agency, 930
F.2d 1239, 1242 (7th Cir. 1991) (citations omitted). Page

[10] Here, the City of St. Louis alleges interests that
would be vitally affected if, as it claims, TWA’s financial
viability will be seriously jeopardized by the agency
action in question. The City owns the Lambert-St. Louis
International Airport, which is a major TWA hub. TWA
provides about 80 per cent. of the air service to the City.
Union petitioners, likewise, have a vital interest: the
livelihood of thousands of their members depends on the
survival of TWA. Certainly it is debatable whether the
transactions in question will prove fatal to TWA. The
agency found that they will not. But that debate is part of
the case on the merits. One of the key questions on the
merits is whether the agency finding that the route
transfers will improve TWA’s viability is supported by
substantial evidence. Our decision in Brotherhood of
Railway Carmen v. Interstate Commerce Commission, 917 F.2d
1136 (8th Cir. 1990) (per curiam), is directly in point.
There, a federal agency had approved a business
combination. A union representing the employees of one of
the affected railroads brought a petition for review. The
agency claimed a lack of standing. It argued that the
union’s assertions that the railroad would not be viable in
the future if the agency action stood were too speculative.
We rejected the standing defense. We took the position,
which we take also in the present case, that a nonfrivolous
claim of injury caused by the agency action was sufficient
to confer standing, and that the questions of injury in
fact, the causal link with the agency action, and so forth
were better addressed on the merits.

[11] We hold that the petitioners have standing to contest
the orders in question, and that we have jurisdiction of
these petitions.


[12] A vital aspect of a correct analysis of these cases is
to determine the proper scope and standard of review. How
much should we defer to the Department of Transportation?
What legal formulas describe our function? Are there
special aspects of the case that require us, in applying
these standards, to adjust the judicial antennae so as to
be more or less sensitive?

[13] There is little explicit disagreement among the parties
as to what the standard of review should be, though
naturally they state the standard with different emphasis.
To the extent that the decisions in question rest on
findings of fact, we are obliged to uphold them if they are
supported by substantial evidence. The agency’s
interpretation of its governing statutes presents, of
course, a question of law, and courts normally review
questions of law de novo, but that rule does not apply in
the present context. Congress has specially assigned to the
Department of Transportation the responsibility of
interpreting and administering the statutes in question,
including the Airline Deregulation Act of 1978, Pub.L. No.
95-504, 92 Stat. 1705. The Supreme Court has many times
made clear that this sort of question of law is for the
agency to decide, so long as its interpretation of the
statute is reasonable. E.g., Chevron U.S.A., Inc. v.
Natural Resources Defense Council, 467 U.S. 837, 864-66,
104 S.Ct. 2778, 2792-93, 81 L.Ed.2d 694 (1984). And, when
we come to review the agency’s ultimate judgment, the
decision of what is in the “public interest” in view of the
various factors involved, we may not disturb this weighing
unless it is arbitrary, capricious, or an abuse of
discretion. To say that an agency (or a lower court) has
“discretion,” or that a certain question is
“discretionary,” is not to say that the agency may do
whatever it wishes. This formulation simply recognizes that
many legal questions are imprecise. They involve a number
of factors that cannot be quantified, no one of which is
dispositive in every case. So long as the agency considers
all of the relevant factors, is not significantly
influenced by any irrelevant factor, and comes up with a
conclusion after mixing all the proper factors together
that is not clearly wrong, there is no abuse of discretion,
and we must affirm. Compare Kern v. TXO Production Corp.,
738 F.2d 968, 970 (8th Cir. 1984) (similar definition of
abuse of discretion employed in reviewing a trial court’s
decision to allow a nonsuit without imposition of financial
conditions). Page 1534

[14] A few aspects of the present case deserve special
notice in this context. In the first place, the ultimate
question is whether the route transfers are “consistent
with the public interest.” § 401(h) of the Federal
Aviation Act, 49 U.S.C.App. § 1371(h). This is a
general standard, to say the least, and there is
necessarily a lot of room for argument in applying it.
Congress wants the standard defined, in the first instance
and in the main, by the Department of Transportation, which
has much more specialized experience, if not expertise,
than generalist judges do. As the Supreme Court stated in
Federal Communications Commission v. WNCN Listeners Guild,
450 U.S. 582, 596, 101 S.Ct. 1266, 1275, 67 L.Ed.2d 521

[T]he Commission’s judgment regarding how the public
interest is best served is entitled to substantial
judicial deference. . . . The Commission’s implementation
of the public-interest standard, when based on a rational
weighing of competing policies, is not to be set aside by
the Court of Appeals, for “the weighing of policies under
the `public interest’ standard is a task that Congress
has delegated to the Commission in the first instance.”

[15] (Quoting Federal Communications Commission v. National
Citizens Committee for Broadcasting, 436 U.S. 775, 810, 98
S.Ct. 2096, 2119, 56 L.Ed.2d 697 (1978), emphasis ours.)
The more general the statutory language, the more judges
must of necessity defer to the agency, because Congress
expects the agency’s special knowledge and experience to
flesh out the general language it adopted. If Congress
could have agreed upon a formulation more precise, and
therefore easier to interpret, it presumably would have
enacted it. Having failed to do so, it in effect delegated
a large portion of policy-determining power to a chosen
vessel, here DOT. (No one claims, incidentally, that the
delegation here was so broad as to violate Article I.)

[16] It is also significant that the major judgments that
the agency must make under the statute (for example, the
effects of the transaction on the viability of each of the
carriers involved, on competition in the domestic airline
industry, and on the trade position of the United States in
the international air-transportation market) are
predictive. They involve forecasts of the future. This is
the sort of question on which judicial deference is
especially important. It involves not so much determining
what happened in the past, the sort of question of fact
more familiar to courts, as determining what will happen in
the future. Such forecasts must be accepted “if they are
rational, based on a consideration of all the relevant
factors, and adequately explained.” Republic Airlines v.
Civil Aeronautics Board, 756 F.2d 1304, 1318 (8th Cir.
1985) (citation and quotation omitted). On the other hand,
as petitioners remind us, the Department’s forecasts are
based in part on what it thinks happened in the past, and
on what it thinks competitive conditions are today. These
sorts of issues are traditional questions of fact,
reviewable here under the familiar substantial-evidence

[17] Furthermore, petitioners rightly emphasize that DOT did
not proceed, as it could have, by way of a traditional
oral evidentiary hearing. It did not even allow for
discovery in the form of requests for production of
documents or depositions on written interrogatories.
Instead, it made a tentative decision on the basis of
pleadings, entered a show-cause order embodying that
decision, and then made its final decision on the basis of
comments directed to the show-cause order. A great deal of
documentary evidence on both sides was received, but
proceeding in this way necessarily produces factual
conclusions that are in general somewhat shakier than the
product of a trial-type hearing. For this reason, we agree
with petitioners that our level of deference should be
somewhat lower than it would have been if an evidentiary
hearing had been held. See United States v. Civil
Aeronautics Board, 511 F.2d 1315, 1325 (D.C. Cir.
1975).[fn1] Page 1535


[18] In order to put the petitioners’ contentions in
context, we start with a brief account of the history of
federal regulation of air transportation. Traditionally,
airline service, foreign and domestic, was closely
regulated. In 1978 Congress changed this policy
fundamentally. The Airline Deregulation Act, Pub.L. No.
95-504, 92 Stat. 1705 (1978), followed closely by the
International Air Transportation Competition Act, Pub.L.
No. 96-192, 94 Stat. 35 (1980), abolished the Civil
Aeronautics Board, the former regulatory agency, as of
1984, and opened up domestic airline service to any
certificated air carrier. Certificates for domestic service
became valid for all routes. Foreign service, of course,
could not be deregulated quite so thoroughly, because
foreign countries can and usually do limit the number of
American-flag airlines allowed to serve routes between the
United States and themselves. Entry into such routes is
limited. If agreement with a foreign nation or the
cessation of service by a certified carrier creates a
vacancy, so to speak, the Department of Transportation,
which administers what is left of the CAB’s regulatory
power, typically opens the route up to competitive
applications, and selects the carrier it thinks best able
to handle the business. In addition, however, a carrier
authorized to operate over a certain route may, with the
permission of the Department, transfer the route to another
carrier. Up until 1990, the statute governing such
transfers, § 401(h)(1) of the Federal Aviation Act
of 1958, as amended, 42 U.S.C.App. § 1371(h)(1),
read as follows:

(1) No certificate may be transferred unless such
transfer is approved by [the Department of Transportation]
as being consistent with the public interest.

[19] Section 9127 of the Omnibus Budget Reconciliation Act
of 1990, Pub.L. No. 101-508, 104 Stat. 1388-371, which
became law on November 5, 1990, added two new paragraphs to
subsection (h). The new provisions, on which petitioners
lay great stress, read as follows:

(2) CERTIFICATION. — The Secretary of
Transportation shall, upon any transfer of a certificate,
certify to the Committee on Commerce, Science, and
Transportation of the Senate and the Committee on Public
Works and Transportation of the House of Representatives
that the transfer is consistent with the public interest.

(3) ACCOMPANYING REPORT. — A certification under
this subsection shall be accompanied by a report analyzing
the effects of the transfer on —

(A) the viability of each of the carriers involved in the

(B) competition in the domestic airline industry, and

(C) the trade position of the United States in the
international air transportation market.

[20] It is apparent that the key criterion for
administrative action is “the public interest.” The phrase,
as noted, is extremely broad, but the statute has not left
the agency completely at large in its interpretation.
Another provision, 49 U.S.C.App. Page 1536 §
1302(a), particularizes the concept of “the public interest”
by listing a number of factors that the Department should
consider. Section 1302(a) contains 12 paragraphs, among
which the following are relevant in the present case:

(3) The availability of a variety of adequate, economic,
efficient, and low-price services by air carriers and
foreign air carriers . . . .

(4) The placement of maximum reliance on competitive
market forces and on actual and potential competition (A)
to provide the needed air transportation system, and (B)
to encourage efficient and well-managed carriers to earn
adequate profits and to attract capital, taking account,
nevertheless, of material differences, if any, which may
exist between interstate and overseas air transportation,
on the one hand, and foreign air transportation, on the

* * * * * *

(9) The encouragement, development, and maintenance of an
air transportation system relying on actual and potential
competition to provide efficiency, innovation, and low
prices, and to determine the variety, quality, and price
of air transportation services.

* * * * * *

(11) The promotion, encouragement, and development of
civil aeronautics and a viable, privately owned United
States air transport industry.

(12) The strengthening of the competitive position of
United States air carriers to at least assure equality
with foreign air carriers, including the attainment of
opportunities for United States air carriers to maintain
and increase their profitability, in foreign air

[21] We read the 1990 amendment to add three more factors to
the list (and these are the factors, as it happens, that
the parties argue most about in this case). The amendment,
which we have set out above, does not say in so many words
that the statutory list of factors relevant to the public
interest is being changed or expanded, but there is no
other sensible way to read it. The statute requires the
Secretary of Transportation to certify to the relevant
committees of the Congress that the transfer is consistent
with the public interest, a requirement that does no more
than ensure that the members of Congress with the most
direct substantive interest are made aware that a route
transfer has been approved. Paragraph (3), however, is more
pointed. It requires the Secretary, in connection with the
certification of the public-interest finding, to analyze
three listed factors. Obviously, Congress thought these
factors, none of which is listed in quite the same terms in
§ 1302(a), had something to do with the public
interest. New factor (C), having to do with the trade
position of this country in the international market for
air transportation, could be read as a shorter restatement
of § 1302(a)(12), referring to “[t]he strengthening
of the competitive position of United States air carriers”
vis-a-vis “foreign air carriers.” And new factor (B),
referring to “competition in the domestic airline
industry,” is a variation on the theme already contained in
§ 1302(a)(9) — “[t]he . . . development . . .
of an air transportation system relying on . . .
competition . . . .” But new factor (A), “the viability of
each of the carriers involved in the transfer,” is more
particularized and specific than any of the paragraphs of
§ 1302(a). This subparagraph (A), though it
certainly relates to the state of competition, both foreign
and domestic, also focuses on the particular carriers
involved, and requires that their financial viability be
specifically analyzed. At least as to this subparagraph
(A), therefore, we conclude that the 1990 amendment is more
than a mere procedural or reporting requirement. It does
require a report, to be sure, and Congress may react, or
not, as it chooses, to this report. But it also makes clear
something that was at most implicit in the unamended law:
the viability of the carriers involved in the transfer is a
factor relevant to the Department’s judgment on the overall
question of the public interest.

[22] Against this statutory background, then, we consider
the petitioners’ contentions. We mention a couple of
general arguments first. Petitioners say that the Page
1537 Department has abdicated its responsibility, that it
has become nothing more than a rubber stamp for private
business decisions. They quote language from the
Department’s order which indicates a large degree of
deference to private decision-making, and claim that this
language amounts to “an irrebuttable presumption” in favor
of approving whatever two carriers have agreed to.
Petitioners make disparaging references to the Department’s
“laissez faire policy” and its undue reliance on “the
invisible hand.” We think the arguments are overstated.
What the Department is doing here amounts not at all to an
irrebuttable presumption. It is, instead, a sort of
rebuttable presumption: the fact that American and TWA want
the transfer, that American is willing to pay over half a
billion dollars for the routes, and that TWA believes that
it needs the cash more than it needs the routes, makes the
transaction, on its face, a presumptively good one for the
carriers and for air transportation in general. We find no
fault with this general orientation. Congress, after all,
decided to deregulate the industry in large part, and this
necessarily means that more decision-making power is going
to be exercised by private individuals than under the old

[23] Furthermore, § 1302(a)(4) refers expressly to
“[t]he placement of maximum reliance on competitive market
forces. . . .” It is true, as petitioners point out, that
the same paragraph (4) cautions that differences, if any,
between domestic and foreign air transportation must be
taken into account, but we do not believe this language
detracts from the validity of the Department’s general
disposition in favor of private economic choice. Entry into
the foreign air-transportation market is limited, to be
sure, and the number of carriers and routes cannot be
increased without the permission of the foreign country
involved — in this case, the United Kingdom. What is
directly at stake here, however, is not the market for air
transportation as such, but rather the market for foreign
routes, for the governmental permissions that a carrier
must obtain to carry people between this country and
another. All other things being equal, we think it rational
to assume that free trade, so to speak, among air carriers
in these routes will, over the long run, allocate them in
the most efficient way. That assumption, at any rate, seems
to be the Department’s guiding light, and we see nothing in
the statute to outlaw it.

[24] Petitioners emphasize that the Department must
carefully consider the effect of the transfer on the
viability of TWA. They seem almost to argue that the
statute forbids the transaction unless it would improve
TWA’s financial condition. This argument is based mainly
upon the 1990 amendment. We are unable to agree, for two
reasons. In the first place, the amendment simply doesn’t
say this. The viability of TWA is certainly a factor, and
the amendment makes this clear, if it was not clear before,
but the amendment does not even begin to establish that
this factor is an indispensable one. Second, the
legislative history of the amendment and predecessor
proposals makes the point unmistakable. Section 708 of S
3094, 101st Cong., 2d Sess., the original version of the
legislation that ultimately found its way into the Omnibus
Budget Reconciliation Act, would have provided that a route
transfer “is consistent with the public interest if that
transfer does not adversely affect . . . the viability of
each of the carriers involved in the transfer.” 136
Cong.Rec. S 13624 (daily ed., Sept. 24, 1990). This
language was in the Omnibus Budget Reconciliation bill as
it passed the Senate, 136 Cong.Rec. S 15879 (daily ed.,
Oct. 18, 1990), but in conference it was rejected in favor
of the provision as ultimately enacted. What would have
been a rule of law (transfers that hurt viability are
forbidden) became instead a sort of signal, a nudge from
Congress to the Department (don’t approve a transfer until
you have thought carefully about viability).

[25] Petitioners also make a number of more detailed
arguments, focusing closely on the three factors listed in
the 1990 amendment. We turn now to a consideration of these
points, discussing first the earlier and simpler of the two
cases, No. 91-1244, involving only the one
Chicago-to-London route, Page 1538 and then the
multi-route case that follows it.


[26] The City of St. Louis, the sole petitioner in the
Chicago case, argues first that it was error for the
Department of Transportation to deny its motion to
consolidate the Chicago proceeding with the multi-route
proceeding. Procedural issues like consolidation lie
largely within the discretion of the agency, and we see no
abuse of that discretion here. The Chicago proceeding was
already well along when the multi-route case was filed, and
the delay that would have been occasioned in the Chicago
case by consolidating it with the newer and more
complicated multi-route case was a legitimate consideration
pointing against consolidation. Moreover, as events have
unfolded in the two proceedings, little would have been
gained by consolidation, even accepting petitioners’ theory
that it was important for the records in the two cases to
be considered together. When it came time for the
Department to decide the multi-route case, it of course
knew that the Chicago transfer had already been approved,
and it therefore necessarily considered the multi-route
case in that context. At the time the multi-route case was
decided, therefore, there had been a sort of de facto
consolidation of the two proceedings. Furthermore, we have
consolidated both petitions for review in this Court, and we
can therefore consider the two records together. In these
circumstances, whatever difference an earlier consolidation
of the two cases at the agency level would have made is
not significant enough to override the agency’s basic right
to control its own docket.

[27] Petitioner also challenges the Chicago order as a
substantive matter, but it does not directly argue that any
specific finding is unsupported by substantial evidence, or
that the Department has failed to supply a reasoned
explanation for its approval of the Chicago transfer. The
argument, rather, is that the Department failed to consider
properly the effects of the transfer on TWA’s viability and
on the domestic airline industry. (These two
considerations, as will be made clear in more detail later,
are intimately related: to the extent that TWA’s viability
is hurt, competition in the domestic airline industry is
also necessarily adversely affected.) We reject this
argument. In the first place, we cannot agree, for reasons
already given, that the Department erred in adopting a
rebuttable presumption in favor of private agreements by
actors in the marketplace. We do not believe that transfer
of this single route would even arguably jeopardize TWA’s
financial position. DOT has found that domestic competition
will be enhanced, because American, the second largest
carrier at O’Hare International Airport, will be better
able to compete with the largest carrier, United. TWA
relinquishes only a single daily round trip. It operates
fewer than 20 departures from Chicago daily, while American
and United together operate many hundreds. DOT’s order,
understandably much briefer than the later order in the
multi-route case, is by no means perfunctory. It discusses
in sufficient detail the public-interest factors, and we
see no basis in law to set aside DOT’s decision with
respect to the Chicago-London route. Accordingly, in No.
91-1244 the order of the Department of Transportation will
be affirmed.


[28] Most of the parties’ energy in these two cases is
directed to the multi-route proceeding, and we now turn to
that case. We have already held that the three
public-interest factors singled out for express mention in
the recent amendment to § 401(h) are important
considerations, and that they must be thoroughly analyzed
by DOT. Petitioners’ claims relate directly to these
factors. They attack DOT’s finding that American will be a
stronger competitor than TWA in the London market as not
supported by substantial evidence. They question on similar
grounds DOT’s finding with respect to the impact of the
route sale on TWA’s viability. And, echoing the argument
just discussed in connection with the Chicago case, they
argue that DOT Page 1539 failed to consider seriously the
implications of the three-route transfer on domestic air
transportation service. Each of these contentions raises
serious policy and factual questions, and we shall discuss
them in turn.


DOT found

that American’s operations to London from New York, Los
Angeles, and Boston will significantly enhance the U.S.
trade position in the international market by providing
more effective competition with the clearly dominant
carrier in those markets, British Airways.

[29] Order 91-4-47, slip op. 33 (Docket 47320, filed Apr.
24, 1991). This key finding — that American will be
a stronger international competitor than TWA on the three
routes transferred — is attacked as not being
supported by substantial evidence.

[30] Petitioners argue that TWA can carry more passengers on
the routes in question than American. The number of flights
is limited by international agreement, and TWA’s airplanes
(e.g., 747’s carrying between 431 and 437 passengers) are
bigger than American’s (e.g., 747SP’s carrying 245
passengers). It is said that some passengers now riding TWA
will be lost to British Airways. American’s own
exhibits[fn2] show its projected numbers of passengers in
1993 from the three cities in question are lower than the
corresponding numbers actually carried by TWA in 1989.
Petitioners argue that TWA’s position of strength at the
JFK Airport makes it better able to serve New
York-to-London travelers. TWA has 41 connecting domestic
flights coming into JFK, while American has only 32. If
American takes over the JFK-to-London route, therefore,
fewer passengers will enjoy the convenience of an online
connection: being able to change planes without changing
airlines. In order to obtain the convenience of an online
connection, some passengers will have to switch to another
American gateway (like Dallas-Ft. Worth), which may be less
convenient than JFK. And, finally, it is said that DOT is
behaving inconsistently by allowing TWA to keep its St.
Louis-to-London route. St. Louis is a TWA hub, but so is
JFK, so why should the two cities be treated differently?

[31] These points are not all without force. Had DOT, on
balance, elected to accept them, there would be substantial
support in the record for its conclusion. The evidence
countering petitioners’ arguments, however, is also
substantial, and this evidence, taken together with DOT’s
superior institutional knowledge of competition in the
airline industry, persuades us that petitioners’ position
must be rejected. In the first place, petitioners do not
deny that American has superior financial strength and
reputation for quality service. A consumer survey referred
to in the record gives American higher marks for service
than TWA. (We are not saying, and DOT did not say, that
TWA’s service is in fact inferior. TWA has many courteous
and helpful employees. But in commerce as in politics,
perception is often important for its own sake, and the
results of a consumer survey have independent competitive
significance.) In the past, TWA has been competing against
Pan Am, but Pan Am has now been replaced by a stronger
carrier, United, so the numbers of passengers carried by
TWA in the past are not necessarily a reliable indication
of the numbers it would be able to carry in the future.
Flights into Heathrow, the most convenient London airport,
are limited, as petitioners urge, but the limitation
expires after three years, and American can put on
additional flights to Gatwick Airport, now used by large
numbers of American travelers. Further, if traffic
warrants, American can buy larger airplanes, and it will
surely do so if demand is strong enough. TWA’s planes are
larger, Page 1540 but they have hardly been flying full,
and they are getting old. TWA itself has been planning to
replace its 747’s with smaller Airbus aircraft. Pet.App.

[32] There are obviously conflicting factors here. Some
point one way, some another. On balance, we hold that the
historical facts found by DOT are supported by substantial
evidence, and its resolution of the weight to be given the
various conflicting factors is not arbitrary, capricious,
or an abuse of discretion.

[33] We find no fatal inconsistency in the different
treatment accorded to TWA’s St. Louis gateway. TWA has been
strong at JFK; it has a domestic hub there. But its
position at St. Louis is more than mere strength; it
amounts to dominance. TWA provides 83 per cent. of all
service at St. Louis, as opposed to a much smaller
proportion of the total service at JFK. As DOT observed,
“[n]o carrier other than TWA can proffer an equal or
superior competitive influence on the U.S.-U.K. market from
St. Louis . . . . ” Order 91-4-47, supra, slip op. 18.
American’s existing competitive strength at JFK is much
closer to that of TWA than is American’s existing
competitive strength at St. Louis. Replacing TWA with
American at St. Louis, therefore, would make much less
sense than similar action at JFK. With 32 connecting
flights, JFK is already something of an American hub. St.
Louis is not. The distinction between the two gateways is
rational and well supported in this record.

[34] Accordingly, we hold that DOT did not err in finding
that the United States’ position in the international air
transportation market would be improved by these route


[35] The next factor, the effect of the transfers on TWA’s
viability, is the one with respect to which petitioners
make their most persuasive arguments. They concede that
TWA’s present financial position is precarious. Without the
transfers, it may be forced into bankruptcy, either
voluntarily or on the petition of one of its creditors.
Such an eventuality, however, is not necessarily all bad,
we are told. Pan Am, Continental, and Midway are now
operating under Chapter 11 of the Bankruptcy Code, and
bankruptcy does offer an orderly and rational way of
reorganizing a going business, flushing out the
shareholders and junior creditors, and replacing them with
senior creditors, who, as a practical matter, have the
greatest real financial stake. TWA’s foreign business has
been the core of its operations, and the three London
routes now proposed for transfer made an operating profit,
for the year ended August 31, 1990, of more than 130
million dollars. To sell these routes, virtually the only
profitable assets TWA has, will only doom it, petitioners
argue. Furthermore, DOT did not even bother to inquire what
TWA proposed to do with the more than half a billion
dollars in cash to be paid to it by American in exchange
for the four routes involved in these two cases.
Petitioners asked DOT to put this question to TWA, but it
refused, believing that by doing so it would intrude
without warrant into private business decisionmaking.

[36] We are troubled by these arguments. If this were a case
in court, being tried before us as finders of fact, we are
not sure which way we would come out. The evidence, and
much of it is not really hard “evidence” at all, but rather
more or less informed opinion as to what may happen in the
future, is in equipoise, or very nearly so. This is just
the kind of situation, though, we think, in which courts
should be especially alert to resist the temptation to
substitute their judgment for that of the agency deputized
by Congress to make the decision in the first instance. We
shall try to explain why.

[37] DOT found “that the American route transfer is more
likely to benefit than harm TWA’s viability.” Order
91-4-47, supra, slip op. 28. TWA is deeply in debt. It has
defaulted on some notes. Its own management believes, and
has repeatedly represented both to DOT and to us, that it
needs the cash more than it needs the routes. Absent
approval of the route transfer, TWA told DOT, it would have
to file for protection under Chapter 11 of the Bankruptcy
Page 1541 Code, and, while bankruptcy is a solution for
some businesses, the experience of Eastern Airlines shows
that it won’t necessarily work. The three routes in
question in the multi-route case did have an operating
profit at one time, but the airline as a whole has
consistently had both operating and net losses in recent
years, and these losses increased in the fourth quarter of
1990. Factors beyond TWA’s control account for much of this
bad news, factors like the increase in fuel prices and
reduced travel because of the public’s apprehension about
war in the Persian Gulf. Other carriers have felt the
impact of these factors as well, but TWA’s already weak
financial condition makes it much more vulnerable than,
say, American or Delta. It may be, as petitioners argue,
that TWA’s financial troubles stem from its
recapitalization in 1988. At that time, according to
petitioners, TWA’s principal owner, Carl Icahn, took the
company private, essentially withdrawing in cash all of his
own investment, and leaving the company so highly leveraged
as to be in jeopardy of failure. In petitioners’ view, Mr.
Icahn is the villain of this piece, but that
characterization, right or wrong, is beside the point. DOT
had to deal with the situation as it found it, and in that
situation TWA was already precariously weak. It needed to
reduce its debt, and the only practical way to get enough
money to put a substantial dent in the debt was to sell
some or all of its London routes. These routes were
profitable, at least at one time, but if they had not been
they would not have been candidates for a lucrative
transfer. It is the very profitability, or potential
profitability, of the routes that makes attempting to sell
them sensible. No one suggests that TWA has anything else
to sell that would realize anywhere near as much money. Nor
does anyone suggest any other way for TWA to pull itself
out of the hole of debt it has dug for itself.

[38] Maybe TWA ultimately will go under, or at least go
into reorganization. Even if this is so, the viability
factor does not necessarily weigh in petitioners’ favor.
The issue is not whether the transfers will make TWA
viable, but whether it will more likely than not be more
viable with the transfers than without them. Herein lies
the chief consideration in favor of what DOT did: these
very routes, though profitable in the past, were beginning
to lose money, when costs are allocated on a fully
distributed basis, see Goldman, Sachs letter, Resp.App.
165-66, and doing nothing might well get for TWA the worst
of both worlds: it would have no new infusion of cash, and
the London routes, now highly saleable, would decline in
value, thus producing neither an operating profit nor an
advantageous sale.[fn3] Remember that TWA, if it keeps
these routes, will have to compete against United, as well
as against British Airways, and there is reason to believe
that this competition will be substantially stiffer than
that formerly provided by Pan American.

[39] The most troubling aspect of this point remains to be
discussed. It is TWA’s failure to indicate to DOT what it
planned to do with the money. TWA’s management said it
needed the money, that the money would enhance its
competitive position, that the money was more important to
it than the routes, but it never said, nor did DOT even
ask, what it was going to do with the money. We are tempted
to remand the case to the agency with directions to
determine TWA’s intended use of the funds, and then to
re-evaluate the issue of viability on the basis of that
use. Some conceivable uses of the money, surely, would
contribute more to financial viability than others. If, for
example, TWA were immediately to distribute the entire sum
received in both route-sale proceedings as a special
dividend to its common shareholders, TWA would Page 1542
end up with neither the routes nor the money, and it could
hardly be said that the route sale would enhance its
viability as an operating airline. (Enter again the spectre
of Mr. Icahn: 90 per cent. of the common stock is owned by
him or by entities controlled by or affiliated with him.)
DOT answers that it has no authority to require TWA to use
the money in any particular way, but this answer does not
satisfy us. Of course TWA can spend its money however it
likes. DOT does have power, however, to approve or
disapprove the sale of the routes. The intended use of the
money, good or bad, could logically influence that decision.
DOT could well disapprove a transfer if it found the
proceeds would not be used in such a way as to benefit the
carrier as an ongoing business. Benefit to the carrier’s
owners or security holders is not the same thing as benefit
to the carrier. Benefit to the former is a private benefit.
Benefit to the latter is a public benefit, and DOT is
admonished to disapprove any transfer not in “the public

[40] Despite these reservations, however, we believe that
DOT’s order should be upheld. We reach this conclusion
essentially for two reasons.

[41] First. We now know what TWA plans to do with the money.
On May 16, 1991, TWA offered to purchase for cash five
classes of its debt securities: equipment trust
certificates, to be bought for 73 cents on the dollar;[fn4]
15 per cent. senior secured notes, to be bought for 65
cents on the dollar; 16 per cent. senior notes due 1992 and
17-and-1/4 per cent. senior notes due 1993, for 35 cents on
the dollar; and 12 per cent. junior subordinated debentures
for 17-and-1/2 cents on the dollar. If the offers are
successful, 1.37 billion dollars of current debt will be
retired at an estimated cost of 482 million dollars. TWA
will be considerably less in debt, and will therefore be
healthier, or at least so it represents. The offering
document informs the public that, whether or not the offer
is successful, TWA plans to stop any further payment,
principal or interest, on any of its debt for the
foreseeable future. The offering document warns that unless
major financial problems (for example, pending suits) are
solved, “TWA likely will file for protection from its
creditors under Chapter 11 of the Bankruptcy Code,” and “an
involuntary bankruptcy petition could be filed at any time
against TWA.” Thus, even with the proceeds of the route
sales, TWA’s financial picture is hardly bright. The
important point for present purposes, though, is that the
picture would probably be darker still if TWA did not have
the cash with which to make the pending offer.[fn5]

[42] Before DOT, no one denied that TWA needed to do
something about its debt. Tracinda, in fact, took the
affirmative position that TWA would have to buy back a
large portion of its debt. See Resp.App. 122-23. Debt
retirement, though not specifically committed to, was
definitely in the picture, then, when DOT decided the case.
If DOT had asked TWA what it planned to do with the money,
the reply would no doubt have been something very much
along the lines of the present debt-retirement program,
differing perhaps in detail but not in important substance.
There is no reason to suppose that such an answer would
have altered in any way DOT’s disposition to believe that
the route sales were in TWA’s financial interest.
Accordingly, we can see no practical purpose to be served
at this point by remanding the case to DOT with
instructions to require TWA Page 1543 to specify its
intended use of the money. We know the intended use, and we
also know, or believe to a moral certainty, that this
intended use, if it had been considered by DOT at the time,
would not have altered the Department’s decision. Further,
a remand at this point would have the serious disadvantage
of injecting tremendous business uncertainty into this
already shaky picture. Such a remand, presumably, would
prevent TWA from using the proceeds of the route sales at
least until proceedings on remand could be completed, a
process that could take some time. In the meantime, TWA
would be operating routes it does not want and would be
without the use of the cash it does want. This seems to us
a recipe for disaster, not merely threatening to put TWA
under, but virtually guaranteed to do so.

[43] Second. The other point, and it is legally dispositive,
is that DOT would have approved these transfers even
without the viability finding that it made. The Department
said: “Although we find that the transfer should strengthen
TWA’s viability, we would approve it even if we were not
making that finding, since it will provide significant
public benefits.” Order 91-4-47, supra, slip op. 29 n. 40.
In other words, if we were to hold DOT’s viability finding
invalid, and remand to the Department for further
proceedings, the same result would be reached: the route
sales would still be approved. If such a holding is legally
within the Department’s authority, a remand on the issue of
viability would be a complete futility, legally meaningless.
We hold that the Department, under the governing statute,
does have that authority. Congress has determined that
viability is an important public-interest factor. That much
is clear from the 1990 amendment. The legislative history
of that amendment makes it equally clear that viability is
not a sine qua non of approval. If the public benefits in
the form of increased competition with foreign carriers on
the part of American are substantial enough, the failure of
the transaction to improve TWA’s viability, though a factor
cutting against approval, would not be significant enough
to cause disapproval by DOT: it would be outweighed by
those public benefits. This sort of weighing of one
public-interest factor against another is preeminently a
function for an expert agency, not a court. The agency is
trusted by Congress to make this sort of judgment; we are
not. We have power to set such a decision aside for abuse
of discretion, but it is up to the agency to determine, in
the first instance, how to weigh the various factors, and a
decision by the agency to weigh increased American ability
to compete against foreign carriers much more heavily than
a decrease in viability of an already financially weak
carrier is not an abuse of discretion. It is simply a
policy judgment, not forbidden by anything in the statute,
not contrary to any widely accepted public policy found
elsewhere, and not susceptible of revision with the tools
commonly used by judges — interpretation of language,
reasoning by analogy, and application of policies adopted
by the popularly elected branches of government. If we were
Secretary of Transportation, we might disagree, but that is
no basis for overturning the agency’s judgment on such a
question of policy.

[44] Accordingly, we hold that petitioners’ attack on DOT’s
finding that the sale of these routes will improve TWA’s
financial viability is unavailing.


[45] One factor remains — the effect of the
transaction on competition in the market for domestic
air-transportation services. This point needs no extended
discussion. If, as DOT has permissibly found, TWA’s
viability will be improved, competition in the market for
domestic air-transportation services will not be adversely
affected. And if the public benefits in the form of
increased ability to compete in foreign markets are as great
as DOT has permissibly found, they are great enough to
outweigh both the viability and the domestic-market
factors, to the extent that the latter factor is affected
by the former.[fn6] Page 1544


[46] To summarize: the statute is worded in general terms.
It gives to DOT the job of deciding what is in “the public
interest.” This job involves difficult policy judgments,
including predictions of what may happen in the airline
industry in the future. Our function is closely
circumscribed. The points urged by petitioners in the
multi-route case are weighty and substantial, but in the
end we conclude they are insufficient to carry the day.
DOT’s decision is not so far out of bounds that judges may
upset it.

[47] The orders under review are affirmed.

[fn1] We disagree, however, with the related contention that
DOT abused its discretion in not holding an oral
evidentiary hearing here, and that the cases should be
remanded for this reason alone. Petitioners do not argue
that either any statute or the Constitution required an
evidentiary hearing. Their reliance, instead, is on a
regulation of the Department, 14 C.F.R. §
302.1770(b) (1991). This regulation provides that an oral
evidentiary hearing will be held if DOT decides that
“[m]aterial issues of decisional fact cannot adequately be
resolved without oral evidentiary hearing procedures. . .
.” (Emphasis ours.) The key word in this provision is
“adequately.” Certainly there are important material issues
of decisional fact, the kind of issues that would require a
jury trial if this were a civil action in a federal court.
But it is not a civil action. It is an administrative
proceeding as to which Congress has not explicitly required
any given type of procedure. Whether DOT’s show-cause
practice is “adequate” to resolve the questions of fact
presented here is for the Department itself to decide,
within very broad limits, limits that were not exceeded
here. This is not the first case in which show-cause
procedures have been used to decide route-transfer
questions, and the agency could permissibly conclude that
it was important enough to decide these cases quickly to
dispense with trial-type hearings. Interpretation of the
agency’s regulation is, in most cases, best left to the
agency itself, and the deference we give an agency’s
interpretation of its own rules is even greater than the
deference due its interpretation of it governing statutes.
We hold that the agency did not abuse its discretion by
using the show-cause procedure.

[fn2] Confidential Appendix of Petitioners 17C, H, and J.
The reference “Confidential Appendix” is used because the
petitioners so designated it when it was filed. On motion
of petitioners, which we granted in open court at the time
of the oral argument on May 31, 1991, all material
originally filed as confidential has been made public. We
refer to “confidential” materials when citing the record,
only because some materials were originally so designated,
and in order to avoid confusion about what is being cited.

[fn3] When the case was before the agency, a third party,
Tracinda Corporation, backed by a Los Angeles investor,
Kirk Kerkorian, presented a plan to buy TWA. Petitioners
favored this plan. DOT found that it was not feasible.
Petitioners raise no question in this Court about this
finding. “Petitioners are not seeking review here of the
Agency’s findings with respect to the [Tracinda] proposal.”
Brief for Petitioners p. 10 n. 9. With the disappearance of
the Tracinda alternative as an issue, no alternative to
approval of the route sales remains other than the status
quo, in which TWA appears to be continuing its decline.

[fn4] On May 29, 1991, TWA amended this offer to 77-and-1/2
cents on the dollar. The trustee for the holders of
equipment trust certificates, in return, agreed to a stay
of various lawsuits pending against TWA.

[fn5] The offering circular we refer to was not in the
record before DOT — necessarily so, because it was
not issued until May 16, 1991. We nevertheless feel free to
refer to it, because all parties acknowledge that the offer
is in fact being made. There is no dispute of fact, in
other words, as to the existence or terms of the offer.
Petitioners argue, Reply Brief pp. 8-9 n. 4, that Mr. Icahn
and his “entities” are getting favored treatment under the
offer. We have no idea whether this is true or not, and we
are content to leave this issue to the parties directly
affected. If other TWA security holders feel aggrieved,
potential remedies exist. We are informed that some of
these security holders have commenced an action in the
Southern District of New York.

[fn6] We are aware that DOT has reported to the relevant
committees of the Congress, as required by §
401(h)(3), and that its report has been rejected by the
Senate Committee on Commerce, Science, and Transportation.
In response to a request we made at oral argument, the
Department has furnished us with a copy of a letter dated
May 9, 1991, written to the Secretary of Transportation by
the Chairmen and Ranking Members of the Senate Committee
and its Subcommittee on Aviation. The letter takes the
position that the discussion of the relevant
public-interest factors in DOT’s order “is perfunctory, at
best. Neither order contains the thorough analyses
contemplated by the Congress in setting this requirement.”
The letter continues: “We reject the certification pending
full compliance with the law . . . .” The question of the
legal effect of this letter is not before us, and we have
serious doubts that it could be. Congress has imposed a
reporting requirement. Congress is itself the judge of
whether that requirement has been met, and, if it has not
been, of what to do about it. Such reporting requirements
are one way Congress has of keeping a handle on the
Executive Branch. DOT has complied with the requirement on
its face. If Congress believes that the compliance is
substantively deficient, it can take legislative action,
subject of course to constitutional limits. By the same
token, DOT, for its part, may adhere to its chosen course,
deciding to accept whatever detriment may come in its
future relationship with the Senate Committee. Cf. American
Hospital Association v. National Labor Relations Board, ___
U.S. ___, 111 S.Ct. 1539, 1545-46, 113 L.Ed.2d 675 (1991)
(admonition to NLRB in a committee report does not itself
create justiciable rights; “the remedy for noncompliance
with the admonition is in the hands of the body that issued

[48] BEAM, Circuit Judge, dissenting in part.

[49] I respectfully dissent. The ultimate decision to
transfer, in the public interest, the three certificates
involved in the multi-route proceeding, No. 91-1916, is not
supported by substantial evidence. I am especially
concerned with the transfer of TWA’s New York-to-London
route. There is not just a dearth of evidence with regard
to the propriety of this move, the proof actually points
the other way.

[50] I agree with the analysis of governing statutes made by
the majority. I am in specific agreement that the 1990
amendments to 49 U.S.C.App. § 1371(h) require the
DOT to pay particular attention to the effect of its
actions upon “competition in the domestic airline
industry.” 49 U.S.C.App. § 1371(h)(3)(B). See also
id. at § 1302(a)(4) (public interest considerations
include placing maximum reliance on actual and potential

[51] Domestic competition is, of course, not the only factor
to be considered. It is, however, a very important one.

[52] Much is made by the DOT, the parties and the majority
about the continuing viability of TWA. In my view, this
issue is only a sub-set of a larger question — how
will the DOT action affect domestic air travelers? In other
words, TWA’s inevitable demise under the scenario approved
by the DOT is not important except that it is certain to
have a damaging impact upon “competition in the domestic
airline industry.”

[53] The record reflects the condition of the industry.
Three major airlines, Pan American, Continental and Midway,
are under the protection of bankruptcy courts in Chapter 11
proceedings. Braniff and Eastern are gone. Several other
regional carriers are in financial disarray. To sentence
TWA to death when a DOT goal should be maintenance of
domestic competition is unfortunate, if not an abuse of
discretion. In any event, it is into this state of the
industry that we must make our analysis of the evidence
underlying the DOT’s conclusions.

[54] The DOT has determined that TWA will be viable after
transferring the New York-to-London route, and, at least
inferentially, that the transfer will not unduly harm
domestic competition. The DOT did not independently verify,
based on a fully developed Page 1545 record, that
transferring TWA’s New York-to-London route is in the
public interest. Instead, the DOT deferred to TWA’s opinion
that transferring the route is necessary to TWA’s
viability. Application of American Airlines, Inc. and Trans
World Airlines, Inc., No. 91-4-47, at 28 (DOT April 24,
1991) (hereinafter cited as Order) (“the record [gives] us
no basis to second-guess the judgment of TWA’s management
that the transaction [is] necessary for the carrier’s
continuing viability”). However, as indicated, the DOT’s
decision that TWA will be a viable carrier after selling
the New York-to-London route is not supported by
substantial evidence. The proof, as also indicated, supports
a contrary conclusion.[fn1]

[55] The evidence of record indicates the destructive
consequences to TWA of transferring this route.
Transferring the New York-to-London route will reduce
profits from TWA’s international flights and further reduce
TWA’s domestic revenues. TWA’s New York-to-London route is
the most valuable route TWA owns; it produces profits which
greatly exceed any of its other routes, international or
domestic. Confidential App. of Petitioners at 28. Revenue
from this route, and other profitable international routes,
are used to offset losses from TWA’s domestic flights. See
Order at 28; App. of Petitioners at 59. The record
establishes that TWA, without the profit from its New
York-to-London business, will not be capable of generating
sufficient revenue from its remaining routes, domestic and
international, to continue future operations, especially
when you consider that TWA will no longer have profits from
the three additional London routes to be transferred. See,
e.g., Confidential App. of Petitioners at 9 (former TWA
vice president stating that “selling TWA’s London routes
would leave the remaining airline doomed to lose money”);
see also id. at 42-45.

[56] In addition to reducing international profits, the
record indicates that transferring TWA’s New York-to-London
route will also negatively impact TWA’s domestic revenues.
TWA is the largest carrier at New York’s JFK airport and
TWA has more online connecting flights at JFK than any
other carrier. App. of Petitioners at 25-26. TWA’s online
system “feeds” traffic from its domestic flights to its
international flights, and thereby increases revenues on
TWA’s domestic runs. With the transfer of TWA’s New
York-to-London route, TWA will lose domestic revenue
because of declining traffic on TWA’s domestic flights to
connecting international flights at JFK. Confidential App.
of Petitioners at 38. Moreover, TWA will lose additional
domestic revenue from the disruption of its JFK online
system as a result of declining travel by frequent flier
program members. Id. at 35, 37.

[57] Although the sale of these routes may produce an influx
of capital for TWA, 445 million dollars, the sale is, at
bottom, the exchange of valuable routes necessary to TWA’s
future for essentially worthless debt. The New York, Boston
and Los Angeles-to-London routes produced an operating
profit in 1990 of 136 million dollars; the New
York-to-London route alone produced 82 million dollars.
Confidential App. of Petitioners at 28. TWA’s net losses
for the same year, while running the three London routes,
totalled 237 million. Order at 28. Even if transferring the
three London routes will reduce TWA’s debt by 1.37 billion,
as contemplated by TWA’s plan referenced by the majority,
TWA will lose an income stream of at least 136 million
dollars per year. Without the 136 million dollars, TWA’s
losses in 1990 would have been at least 373 million
dollars, the net Page 1546 losses of 237 million added to
the lost profits from the three London routes of 136
million dollars. Even without the 1.37 billion debt load,
large losses will no doubt be incurred in future years.
Under current circumstances, it does not appear that TWA
will be able to return to an operating profit without at
least the profits from the New York-to-London route. It is
difficult to see how selling TWA’s most valuable routes
will produce a healthier TWA in light of the losses
experienced while operating the routes.[fn2]

[58] The DOT’s conclusion to transfer the New York-to-London
route is also inconsistent with its decision not to
transfer TWA’s St. Louis-to-London route and thus
arbitrary. The DOT’s reasons for finding that a transfer of
the St. Louis-to-London route is counter to public interest
apply equally to TWA’s New York-to-London holding. The DOT
determined that the public interest will be best served by
TWA’s retention of the St. Louis-to-London route because
“St. Louis is an established TWA hub, at which TWA provides
83 percent of the total flights [and] [n]o carrier other
than TWA can proffer an equal or superior competitive
influence on the U.S.-U.K. market from St. Louis.” Order at
18. However, New York’s JFK airport is also an established
TWA hub. TWA is the largest carrier at JFK, and has more
online flights from JFK than other carriers, including
American. App. of Petitioners at 25-26 (TWA has 41 online
flights from JFK, whereas American has only 32). Thus, TWA
provides the strongest competitive influence from New
York’s JFK to London. Indeed, TWA’s own documents indicate
that TWA can be more competitive than American in New
York-to-London flights. Compare Confidential App. of
Petitioners at 28 with id. at 31.[fn3]

[59] Finally, there is no evidence of record establishing
TWA’s intended use of the proceeds from transferring the
London routes at issue. Although TWA’s use of the proceeds
may ultimately determine its viability, the DOT did not
require TWA to submit a business plan setting forth TWA’s
intended use of the proceeds before the DOT determined that
the proceeds were necessary to TWA’s viability. The record
does not establish whether the proceeds will be used for
TWA flight operations or will be used to pay existing
investors. A business plan submitted by TWA would have
provided a basis for the DOT to evaluate TWA’s plans and
future viability. Without knowing how the proceeds will be
used, the DOT totally lacked an evidentiary basis to find
that TWA will be viable after the transfer.[fn4] Page 1547

[60] Because there is not substantial evidence in the
record supporting the DOT’s conclusion respecting TWA’s
viability after the transfer of the New York-to-London
route, the record is, likewise, deficient respecting the
harm to the public interest. In the present state of the
industry, you cannot immobilize an airline the size of TWA
without a disastrous impact upon domestic competition.
Thus, the DOT is required, under the law, to make this
“competition” analysis upon substantial evidence. Then, and
only then, will the DOT be able to balance all required
factors, make a reasoned predictive analysis and reach a
conclusion on where the public interest lies.

[61] I would remand this case to the DOT for further
proceedings on the issue of impact on domestic competition
resulting from the proposed transfers. Only then can there
be a prediction, based upon substantial evidence, on the
harm to the public interest that may result. In the
process, I would require TWA to submit a business plan
respecting its proposed use of all proceeds. If the
additional evidence determines that TWA may succumb in any
event, I would also direct the DOT to reconsider whether
allowing TWA to retain three London routes is in the public

[fn1] Aside from being contrary to the proof, I think the
DOT’s decision to accord deference to TWA’s business
decision is improper for an additional reason. The
interests of the DOT and TWA, even under deregulation, are
not the same. The DOT is vested with the responsibility of
independently verifying that a proposed international
transfer is in “the public interest.” TWA, on the other
hand, is not required to consider the public interest, but
considers the economic interests of TWA. Indeed, even if a
business decision by TWA could be deemed consistent with
the public interest on a particular issue, the DOT’s
reliance on TWA’s decision is especially troublesome in this
case because the record does not clearly establish that the
management of TWA is necessarily acting in the best
economic interest of TWA as a continuing, operational

[fn2] The DOT stated that “[a]lthough we find that the
transfer should strengthen TWA’s viability, we would
approve it even if we were not making that finding, since
it will provide significant public benefits.” Order at 29
n. 40. This alternative conclusion is difficult to
comprehend given the lack of analysis of impact upon
domestic airline competition should TWA now go out of
business. It also appears to fly directly into the face of
the requirement that the DOT consider domestic competition
in making its “public interest” decision.

[fn3] The majority indicates that transferring TWA’s New
York-to-London route to American while declining to transfer
the St. Louis-to-London route makes sense in light of
American’s strong presence at JFK. However, despite
American’s presence at JFK, TWA remains the strongest
competitor at JFK for the same reasons the DOT found it was
the strongest competitor at St. Louis — its size and
the nature of its service.

[fn4] The majority refers to TWA’s offer to purchase for
482 million dollars certain debt securities in the amount
of 1.37 billion dollars as a business plan. I am troubled
by the reference to TWA’s offer because the offer is not
part of the record before us and was not considered by the
DOT. However, aside from the record issue, the proposal is
deficient in several respects. First, based on the
information set forth in the prospectus, it is difficult to
discern without expert analysis the specific terms of the
offer and the offer’s consequences on the viability of TWA.
Because the offer was issued after completion of the DOT
proceedings, an expert evaluation of the offer was not
presented. Second, Carl Icahn and his affiliates own 90
percent of TWA’s stock, and a substantial share of the
funds proposed to be paid under the offer will purchase
bonds also owned by Mr. Icahn and his affiliates. In light
of the 90 percent ownership interest, it is not discernible
from the offer whether TWA will benefit as much as its
investors. Third, the offer is conditioned upon an
agreement to subordinate bonds senior to the bonds owned by
Mr. Icahn and his affiliates by eliminating bond provisions
which prohibit purchase of bonds owned by Mr. Icahn and his
affiliates if there has been a default on any senior
indebtedness. It is not clear from the offer whether the
subordination is necessary to implement the offer or
whether the condition is for the benefit of Mr. Icahn and
his affiliates. In any event, an action by senior bond
holders has now resulted in an injunction issued by the
District Court for the Southern District of New York
prohibiting this move and, thus, placing the entire plan in
jeopardy. Fleet Nat’l Bank v. Trans World Airlines, Inc.,
767 F. Supp. 510 (S.D.N.Y. 1991). Fourth, TWA’s offer to
purchase the securities does not specify where the proceeds
to be received by Mr. Icahn and affiliates will be applied.
Even if the sale proceeds can produce a healthier TWA if
fully applied to an operational airline, under the
proposal, the proceeds, at least in part, can apparently be
moved away from TWA by current investors, possibly
exacerbating TWA’s demise.

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