James S. Dillman, Atty., F.A.A., Washington, D.C., was on the brief for respondent FAA.

Donald T. Bliss, Washington, D.C., with whom Carl R. Schenker, Jr., Washington, D.C., and Robert S. Harkey, Atlanta, Ga., were on the brief for intervenors Delta Air Lines, Inc. and American Airlines, Inc.

Jeffrey A. Manley, Washington, D.C., was on the brief for intervenor Transamerica Airlines, Inc.

Joel Stephen Burton, Alfred J. Eichenlaub, Robert L. Deitz, Ira T. Kasdan, Washington, D.C., and Lawrence M. Nagin, Los Angeles, Cal., were on the brief for intervenor The Flying Tiger Line, Inc. in Nos. 84-1654 and 84-1657.

Richard J. Kendall and Eileen M. Gleimer, Washington, D.C., were on the brief for intervenors Nat. Airlines, Inc., et al., in No. 84-1654.

Charles E. Doyle, Washington, D.C., was on the brief for U.S. Senator Nancy Landon Kassebaum, amicus curiae, supporting respondents.

Gary Keane, Dallas Fort Worth Airport, Tex., was on the brief for Dallas-Fort Worth Intern. Airport Bd., amicus curiae, supporting respondents.

Roy Nerenberg, George T. Volsky, Lawrence D. Wasko and Gary B. Garofalo, Washington, D.C., were on the brief for Airlift Intern., Inc., et al., amicus curiae, supporting respondents.

Before ROBINSON, Chief Judge, and TAMM and WALD, Circuit Judges.

Opinion for the court filed by Circuit Judge TAMM.

These expedited cases raise a series of related questions concerning the appropriate administration of Federal Aviation Administration (FAA) authority to grant exemptions from 14 C.F.R. Sec. 91.303 (1984), a regulation that imposes noise standards on four-engine jet aircraft in commercial operations. Petitioners Carefree, Worldwide, and Tradewinds challenge as arbitrary and capricious the FAA denials of their petitions for exemptions from these standards. Petitioner Airmark challenges its partial exemption as being overly restrictive. Intervenors Delta Air Lines, American Airlines, Transamerica Airlines, and Flying Tiger Line argue that the FAA has no authority to grant exemptions and that, even if it has the authority, it has exercised that authority arbitrarily by granting a partial exemption to Airmark. We find that the FAA does have authority to grant exemptions. The agency's complete failure to apply consistent criteria in granting or denying exemptions, however, compels us to vacate its actions and remand for proceedings consistent with this opinion.

In 1968 Congress enacted section 611 of the Federal Aviation Act, 49 U.S.C. Sec. 1431 (1982), granting the FAA broad authority to regulate aircraft noise. In response, the FAA promulgated a series of regulations addressing noise controls, in 1969, on future aircraft design,1 in 1973, on future production of existing aircraft types,2 and, in 1976, on aircraft currently in use.3 The final regulations set a January 1, 1985 deadline for domestic operators to bring all four-engine aircraft into compliance with the noise controls.

Congress addressed the aircraft noise problem again in the 1979 Aviation Safety and Noise Abatement Act ("ASNA"), Pub.L. No. 96-193, 94 Stat. 50 (1979). ASNA provided that the January 1, 1985 compliance date set by the FAA for domestic aircraft would also apply to foreign aircraft operating in the United States unless the International Civil Aviation Organization ("ICAO") adopted noise standards substantially compatible with the FAA regulations. 49 U.S.C. Sec. 2122 (1982). In the report accompanying ASNA, the Conference Committee encouraged the FAA to consider granting exemptions from the noise control compliance deadline in certain "hardship" situations:

[T]he FAA is urged to give consideration to hardship situations involving smaller carriers where the carrier is making a good faith compliance effort but needed technology is either delayed or unavailable and rigid adherence to compliance deadlines could work financial havoc and deprive the public of valuable airline service.4

In November 1980, after determining that the ICAO had not adopted standards similar to those in effect for domestic airlines, the FAA amended the noise regulations to apply the January 1, 1985 compliance date to aircraft in foreign commerce. 45 Fed.Reg. 79302, 79304 (Nov. 28, 1980). The FAA found that the language in the Committee Report provided the criteria that should be applied to exemptions from the 1985 compliance deadline. See id. at 79312. The FAA divides these criteria into five constituent factors: 1) the carrier's small size; 2) unavailability of technology for noise abatement; 3) the carrier's demonstrated good faith compliance effort; 4) financial havoc to the carrier if the regulation is strictly enforced; and 5) loss of valuable air service in the absence of an exemption.

Air carriers have had three ways in which to comply with the noise rules: (1) replacing noncompliant aircraft with compliant aircraft; (2) reengining noncompliant aircraft with newer, quieter engines; or (3) retrofitting engine nacelles and fan ducts with sound absorbing materials, or "hush kits." Most larger carriers chose to replace their noncompliant aircraft. The smaller air carriers now seeking exemptions chose instead to fit their aircraft with hush kits. Although Boeing Corporation developed the technology for hush kits in the early 1970s, it dropped the program in 1978 due to lack of carrier demand. The impending noise deadlines reawakened the hush kit industry in 1984; delivery on FAA certified kits, however, is not expected until later this year. Unable to comply with the noise regulations before the deadline, small carriers, including petitioners in this case, sought exemptions from the FAA. As of February 1985, the FAA had received 145 petitions seeking exemptions for 300 aircraft. The FAA has granted 15 exemptions under its general rulemaking authority,5 all but two6 on or after December 28, 1984.

A. Carefree Vacations, Inc. and Worldwide Airlines, Inc., No. 84-1654

Carefree has served as a charter tour operator based in Chicago for over ten years. From April through June 1984 Carefree acquired three noncompliant Boeing 707-331B aircraft. Worldwide Airlines, Inc., a subsidiary formed primarily to operate flights for Carefree, leases these aircraft from its parent. On December 31, 1984, one day before the January 1 deadline, Carefree entered into a contract to purchase a hush kit for one of its aircraft. Carefree also took an option for delivery of two other kits. Installation of the hush kits is expected in late 1985.

On March 30, 1984, Carefree and Worldwide (hereinafter "Carefree") petitioned the FAA for an exemption from the January 1985 deadline. In a June 5, 1984 order, the FAA denied the exemption, finding that it would be unfair to compliant airlines to grant Carefree an exemption since Carefree had acquired its aircraft knowing that it could not comply with the noise rules by January 1985. The FAA found that delay in the availability of hush kits did not justify granting an exemption because hush kit technology had been available for more than ten years. The FAA also saw no way to distinguish Carefree's financial burden in securing compliant aircraft from that of other operators who had expended the sums necessary to comply with the regulation.7 On December 18, 1984, the FAA denied Carefree's petition for reconsideration.

Tradewinds Airways, a United Kingdom carrier, has provided all-cargo charter service, primarily to Chicago, since 1971 and has offered scheduled service since 1983. Tradewinds began operating its three noncompliant Boeing B-707 aircraft in 1978.8 Tradewinds executed binding contracts for the purchase of two hush kits on September 7, 1984, and expects that the kits will be installed in April 1985.

On April 3, 1984, Tradewinds petitioned the FAA for an exemption. On August 9, 1984, the FAA denied the exemption in an order that in large part mirrored the Carefree denial. The FAA noted that Tradewinds' increased domestic schedule began in 1983, long after the noise restrictions were made applicable to foreign carriers. Since the technology for hush kits had been available for ten years, the FAA was unmoved by Tradewinds' inability to have hush kits installed until April 1985.9 On December 27, 1984, the FAA denied Tradewinds' petition for reconsideration.

Airmark is a United States charter carrier, operating a Boeing B-707 specially configured for use by corporate executives, foreign officials, and entertainers. Airmark purchased its aircraft in 1983 and began operations in August 1984. On July 6, 1984, Airmark contracted for installation of a hush kit, with a delivery date of May 31, 1985.

Airmark petitioned for exemption on April 2, 1984. The FAA's denial, dated June 5, 1984, parallels the Carefree and Tradewinds orders. Like Carefree, Airmark purchased its aircraft knowing that it would not comply with the FAA's noise rules; the FAA again noted that the unavailability of hush kits was no basis for exemption.10 The FAA denied Airmark's petition for reconsideration on December 18. On December 28, however, the FAA sua sponte granted a partial exemption, stating that "the situation has changed."11 The FAA found that Airmark's purchase of a hush kit contract was indeed evidence of good faith. Moreover, since Airmark would be forced to cease operations without the exemption, it had shown the necessary "financial havoc." The exemption contains significant restrictions: the exemption applies only until the expected installation date of the hush kits, a curfew is imposed, and Airmark may only operate at the airports it served in 1984. Airmark claims that these restrictions upon its unique charter service render the partial grant equivalent to an outright denial.

The many issues raised in these cases fall into two broad categories. In Part A we address petitioners' and intervenors' contentions concerning the FAA's general authority to grant exemptions from the noise regulations. In Part B we address the claims that the FAA has arbitrarily applied different decisional criteria to similarly situated carriers.

The FAA has the power to grant exemptions from its regulations if "such action would be in the public interest." 49 U.S.C. Sec. 1421(c) (1982). Petitioners contend that the Federal Aviation Act compels the FAA to adopt a more lenient exemption policy. Intervenors argue that legislation enacted after the noise rules were promulgated limits the FAA's authority to grant exemptions to the most exceptional circumstances. We find both of these arguments without merit.

Petitioners contend that the FAA's noise policy, as reflected in its regulations and exemption criteria, must be relaxed to conform to presently available technology. This argument rests on language in section 611 of the Federal Aviation Act, which states that in prescribing and amending noise regulations, the FAA shall "consider whether any proposed standard or regulation is economically reasonable, technologically practicable, and appropriate for the particular type of aircraft ... to which it will apply." 49 U.S.C. Sec. 1431(d)(4) (1984). See Brief for Carefree at 16-8; Brief for Tradewinds at 16 n. 6; Brief for Airmark at 12. Petitioners contend that continued adherence to the January 1, 1985 deadline is technologically impracticable because hush kits are not yet commercially available and economically unreasonable because it results in the grounding of their noncompliant aircraft.

We find nothing in section 611 that compels the FAA to adjust the deadline due to the current unavailability of hush kits. The FAA has already determined the economic reasonableness and technological practicability of its noise regulations. There is no serious contention that this original determination was flawed. By setting the deadline eight years in advance, the FAA in 1976 sought to force the industry to develop commercially available hush kits.12 The FAA reasonably concluded that the absence of a deadline perceived by the industry as firm would perpetuate the sluggish development of the hush kit industry. Indeed the demand created by the deadline has spurred the industry, albeit belatedly, into developing hush kits which should be available within the next year. To require the FAA to reevaluate its deadline would erode the foundation of its regulations. Industry would not develop the needed technology if it could anticipate either periodic adjustments of deadlines to reflect the anticipated availability of noise reduction technology or individual exemptions based solely upon a particular carrier's inability to comply with the regulations without suffering what it perceives as unreasonable economic harm.13

For their part, intervenors contend that two pieces of legislation enacted after the FAA promulgated the initial noise rules prove that Congress did not intend the FAA to "exempt four-engine aircraft absent extraordinary and unanticipated circumstances not presented in the cases under review."14 First, the version of ASNA passed by the Senate included a provision that would have permitted the FAA to grant exemptions for "good cause."15 The Conference Committee's exclusion of this language, intervenors contend, reflects a congressional intent to preclude the FAA from granting any exemptions. We reject this contention. Had the conferees intended by that deletion to effect a repeal of the FAA's existing authority, they would have expressed that intention in the clearest of terms. See Watt v. Alaska, 451 U.S. 259, 267, 101 S. Ct. 1673, 1678, 68 L. Ed. 2d 80 (1981) (repeal by implication is disfavored). Instead, the legislative history suggests that the conferees considered the good cause language unnecessary because the FAA already had authority to grant exemptions.16 Furthermore, the conferees in the Committee Report explicitly urged the FAA to grant exemptions in "hardship situations."17

Second, intervenors contend that 1984 legislation granting specific exemptions for Miami and Bangor International Airports18 proves the lack of FAA general exemption power. Again, the legislative history of the Miami-Bangor legislation reveals that by enacting these specific exemptions, Congress intended to leave the FAA's general exemption authority intact.19

We therefore conclude that 1) section 611 does not compel the FAA to grant exemptions from the noise regulations merely because hush kits are currently commercially unavailable, and 2) neither ASNA nor the Miami-Bangor legislation either expressly or implicitly circumscribes the FAA's authority to grant exemptions under the section 601(c) public interest standard. In short, the FAA has broad discretion to determine whether the public interest would or would not be served by granting noncompliant carriers exemptions from the noise regulations.

B. The FAA's Exercise of Exemption Authority

Having established that the FAA has broad authority to grant or deny exemptions, we now consider whether the FAA has exercised that authority in an arbitrary and capricious fashion. Under this familiar standard, "[t]he scope of review ... is narrow and a court is not to substitute its judgment for that of the agency." Motor Vehicle Manufacturers Ass'n, Inc. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 103 S. Ct. 2856, 2866, 77 L. Ed. 2d 443 (1983). Deference to agency authority or expertise, however, "is not a license to ... treat like cases differently." United States v. Diapulse Corporation, 748 F.2d 56, 62 (2d Cir.1984). See also Local 777, Democratic Union Organizing Committee v. NLRB, 603 F.2d 862, 872 (D.C.Cir.1978). As the FAA recognizes, "the agency [has] no choice but to apply the same criteria to all airlines petitioning for exemptions. Any other policy would fly in the face of Congress' intent that air carriers be treated even-handedly." Brief for FAA, Carefree Vacations, at 12. We recognize, of course, that "an agency is free to alter its past rulings and practices even in an adjudicatory setting." Hatch v. FERC, 654 F.2d 825, 834 (D.C.Cir.1981). Nevertheless, "it is equally settled that an agency must provide a reasoned explanation for any failure to adhere to its own precedents." Id. At the very least, "an agency changing its course must supply a reasoned analysis indicating that prior policies and standards are being deliberately changed, not casually ignored, and if an agency glosses over or swerves from prior precedents without discussion it may cross the line from tolerably terse to intolerably mute." Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852 (D.C.Cir.1970) (citations omitted), cert. denied, 403 U.S. 923, 91 S. Ct. 2229, 29 L. Ed. 2d 701 (1971). Petitioners and intervenors alike (although with different objectives) contend that the FAA has arbitrarily applied different decisional criteria to similarly situated carriers. We agree.

The FAA's application of the exemption criteria can only be described as grossly inconsistent and patently arbitrary. Elementary even-handedness requires that if all five factors must be met by one petitioner, then all five factors must be met by the next. This has not been the FAA's practice. For example, in an exemption denial issued on December 13, 1984, the FAA unequivocally stated that "all five factors must be met by a petitioner in each case."20 Yet the "valuable air service" requirement, a factor that the FAA repeatedly asserts on appeal is essential,21 was not even mentioned in the January 4 grant of an exemption to Ports of Call Travel Club,22 the December 28 grant of an exemption to Airmark Corporation,23 or the December 28 grant of an exemption to Buffalo Airways.24 The latter airlines received exemptions in undeniable contravention of the rule that all five factors must be met in each case.25

Another critical inconsistency appears in the FAA's determinations of what constitutes a "good faith compliance effort." Before December 1984, the FAA stated repeatedly that the mere negotiation of a hush kit contract would not satisfy the requirement of a good faith effort to comply with the noise regulation.26 On December 27, however, in denying a reconsideration of Tradewinds' petition, the FAA recognized that the execution of hush kit contracts "does represent some evidence of a good faith compliance effort."27 One day later the FAA concluded that "the situation [had] changed" to the extent that a hush kit contract conclusively established good faith. In its sua sponte reconsideration of Airmark's petition for exemption, the FAA found "that petitioner has made significant, good faith compliance efforts" by entering into a firm contract to purchase a hush kit.28 The FAA might argue that circumstances had "gradually" changed between November, when the execution of a hush kit contract did not indicate good faith compliance, December 27, when the execution of a hush kit contract was "some evidence" of good faith compliance, and December 28, when the applicant needed only to execute a hush kit contract to prove good faith. Even this post hoc rationalization, however, cannot explain the criteria applied in a December 28 denial of Skystar International's petition for exemption, in which the FAA stated: "the petitioner asserts that it is making a good faith compliance effort by contracting for hush kits for its aircraft. The FAA does not agree." Good faith was destroyed, the FAA reasoned, because "[p]etitioner obtained its aircraft with full knowledge that such aircraft could not be operated at U.S. airports on or after January 1, 1985."29 By contrast, the FAA found that Airmark, which was granted a partial exemption the same day, demonstrated good faith by the execution of a hush kit contract despite the fact it too had purchased its noncompliant aircraft long after the FAA set the January 1, 1985 deadline.30

The FAA's exemption shell game is also displayed in its application of the "financial havoc" criterion. Before December 28, 1984, the FAA held that an airline would not meet the "financial havoc" criterion if the havoc was created by the airline's own doing, that is, by the airline's purchase of noncompliant aircraft after the regulations establishing the January 1, 1985 deadline went into effect. For example, in its August 30, 1984 denial of Surinam Airway's petition for exemption, the FAA stated that

all the information available in this petition indicates that petitioner is now confronting its present difficult situation entirely as a result of its own decision to acquire aircraft that do not meet the noise rule and which cannot now be modified in time to do so. Certainly, those drafting the Conference Report did not intend that financial 'havoc' of a petitioner's own making could justify an exemption.31

The FAA did not apply this reasoning, however, in granting Buffalo Airways a partial exemption on December 28, 1984. Buffalo did not even begin operations until 1984; yet, the financial havoc was somehow not of its own choosing, or, if it was of its own choosing, it was nonetheless enough to satisfy the criterion. In some cases, the FAA has ignored the "financial havoc" criterion altogether. In its January 18, 1985 grant of an exemption to Hawaiian Airlines, for example, the FAA did not even discuss whether the refusal of an exemption would result in any financial havoc.32

The FAA's arbitrary exemption process is vividly demonstrated in its treatment of the petitions from Tradewinds, Carefree, and, to a lesser extent, Airmark. In its August 9, 1984 denial of Tradewinds' petition, the FAA stated that it would be unfair to compliant operators to grant the exemption.33 By January 1985, the FAA had found that a significant number of operators had invested the sums necessary to bring their fleets into compliance. Inexplicably, this widespread compliance did not make the unfairness rationale more compelling. Rather, it somehow led the FAA to ignore altogether the unfairness of granting exemptions.34 In a January 4, 1985 grant of an exemption to Ports of Call, the FAA, citing the industry's increasing compliance with the noise regulations, stated the broad rule that "those operators which have demonstrated their firm commitment to modifying their aircraft to bring them into compliance, and which, if not granted limited exemptions, would be forced to stop operating, will be permitted to continue operating under certain restrictions until their aircraft can be modified."35 In granting an exemption to Ports of Call, the FAA took an opposite view of the very considerations that had been fatal to Tradewinds' petition.

The June 5, 1984 denial of Carefree's petition contained the same reasoning found in its Tradewinds order: the grant of an exemption would be unfair to complying carriers, and the financial havoc facing Carefree was of its own doing. Yet, as shown above, in later orders granting exemptions to other operators, the FAA repeatedly ignored those considerations found dispositive in its denial of Carefree's petition.

Airmark, on the other hand, has been in large part a beneficiary of the FAA's inconsistent approach to considering petitions for exemptions. In granting Airmark a partial exemption, the FAA found that Airmark's purchase of a hush kit evidenced good faith, did not consider whether the impending financial havoc was of Airmark's own doing, and did not measure the value of the air service provided.36 Airmark contends, however, that the curfew imposed on the exemption is inconsistent with other grants. We agree. Similar restrictions were not imposed on either Buffalo Airways37 or Icelandair.38 The FAA has offered no coherent explanation for this disparate treatment.

Petitioners contend that they deserve exemptions and ask this court to order the FAA to grant full exemptions until the hush kits are installed on their aircraft. Intervenors would have us affirm the denial of exemptions to Tradewinds and Carefree and reverse the partial grant to Airmark. These requests assume, however, that this court can and must determine the correct exemption criteria that should be applied in these circumstances. It is for the FAA, however, and not this court, to determine the circumstances in which exemptions should be granted or denied. As shown above, the FAA has utterly failed to provide a consistent approach that would allow even a guess as to what the decisional criteria are or should be. As this court recently stated, "we have neither the expertise nor the authority to substitute our judgment for that of the agency and provide an explanation where the agency's path is entirely uncharted." International Brotherhood of Teamsters v. United States, 735 F.2d 1525, 1531 (D.C.Cir.1984). See also United States v. Diapulse Corp., 748 F.2d 56, 62 (2d Cir.1984).

Accordingly, we vacate the denial of exemptions to Carefree and Tradewinds39 and the partial grant to Airmark. Petitioners shall have thirty days from the issuance of this opinion to reapply for exemptions. The stays currently in force for these petitioners shall be extended for these thirty days. Should the carriers file new petitions within this time period, the FAA shall have a reasonable time to determine whether the carrier should be granted or denied an exemption40 and the stays will remain in effect until 10 days following the order of the FAA.

We will not prescribe particular criteria for the FAA to apply; the FAA retains broad discretion to determine whether the public interest will be best served by granting or denying petitions. We must insist, however, that the FAA act upon the petitions in a consistent manner and that any deviation from prior rulings be carefully reasoned and fully explained.

So Ordered.