The Federal Aviation Administration could cut off federal funding to airports run by the Port Authority of New York and New Jersey if it follows through on a threat to block flights using slots auctioned by the FAA, the U.S. Department of Transportation announced yesterday.

The Port Authority responded by filing a motion joining in a federal lawsuit filed by the Air Transport Association of America Inc., a trade organization. The suit claims the auction process would be illegal.

The FAA began an administrative investigation yesterday to determine whether the Port Authority's proposed blocking of flights would constitute an illegal discriminatory practice. The FAA plans to auction a daily round trip flight slot at Newark Liberty International Airport on Sept. 3.

If the FAA found that the authority was discouraging open access to its airports, then it could become ineligible for FAA grants that totaled $27 million in fiscal 2008, the DOT said in a press release. The FAA could also issue a cease and desist order to the authority. The authority has 30 days to respond to the investigation.

"We appreciate that the Port Authority has a policy dispute with the FAA, but they shouldn't take their frustrations out by discriminating against honest fare-paying travelers who are otherwise entitled to service in the New York-area," DOT spokesman Brian Turmail said. He said it has been demonstrated that the addition of carriers to airports drives down costs and that it was a disappointment that the authority was joining in the ATA's lawsuit.

"The Port Authority is more interested in supporting its main source of revenue, the airlines, than in helping reduce flight delays, improve service, and keep fares lower," he said.

The FAA capped the number of flights coming into the John F. Kennedy International Airport, Newark, and LaGuardia Airport last year in response to congestion. The flight slot the FAA seeks to auction opened up when carrier EOS Airlines went bankrupt earlier this year.

The ATA lawsuit, which was filed in federal appeals court on Aug. 11 in the District of Columbia, claims that the flight slots the FAA seeks to auction are not its property. The FAA says they are. Turmail said that the issue has never been settled in court because FAA ownership of the slots has never been challenged before.

While the Department of Transportation argues competition from other airlines will drive costs down at New York area airports, the Port Authority claims that it will increase costs by 12% and that those costs will be passed along to the passengers.

The authority claimed in court documents yesterday that the FAA auctions would constitute an unauthorized regulatory action and a failure to comply with due process.

"The implementation of slot auctions, and the resulting lease by the FAA of operating authority, would directly affect and potentially disrupt the existing business models and lease arrangements at these airports, which are memorialized in existing agreements for the landside airport facilities," the Port Authority said in court documents filed yesterday. "Such disruption cannot help but result from the action since the FAA has decided to move forward with its slot proposal without any authority for doing so, and in advance of its completion of the regulatory process it has begun to create the much needed detail and rules for the auction process and the proposed slot lease."

According to court documents, the ATA and the Port Authority are required to file further documents by Sept. 15 and Sept. 29. The ATA's Web site said a court ruling could be months away but that it is studying options for injunctive relief.

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