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February 11, 1985

ARROW AIR, INC., Plaintiff,

The opinion of the court was delivered by: POLLACK


MILTON POLLACK, Senior District Judge

 Plaintiff, Arrow Air, Inc. (Arrow), a diversified passenger and cargo air carrier incorporated in 1981, seeks to enjoin The Port Authority of New York and New Jersey (Port Authority), the owner and operator of John F. Kennedy Airport (JFK), from enforcing its noise level restrictions which became effective on January 1, 1985, and which prevent Arrow from using DC-8(60 series) equipment, referred to as Stage 1 aircraft, at JFK, since they do not comply with those noise restrictions. Federal noise restrictions similarly prevent using such equipment, effective January 1, 1985. However, the Federal Aviation Administration (FAA) on an application by Arrow, filed on August 2, 1984, granted Arrow, at the last minute, a limited exemption on December 28, 1984, until July 31, 1985, from the operation of the federal restrictions. The Port Authority has refused to grant a similar exemption from the noise requirement applicable to JFK to Arrow. Arrow sues for relief from the Port Authority's refusal to grant an exemption similar to the federal exemption.

 Jurisdiction is based upon diversity of citizenship, 28 U.S.C. § 1332, and federal question, 28 U.S.C. § 1331.

 The suit was tried at a Bench trial. In conformity with Fed. R. Civ. P. 65(a)(2), the Court, at the commencement of the hearing on plaintiff's application for a preliminary injunction, ordered the trial on the merits to be advanced and consolidated with the hearing on the preliminary injunction.

 For the reasons shown hereafter, the injunction sought will be denied and the plaintiff's amended complaint will be dismissed.

 I. Regulatory Framework

 Arrow intends to fly a DC-8(60 series), Stage 1, aircraft from JFK to Borinquen, Puerto Rico daily, and from JFK to Georgetown, Guyana twice a week. The DC-8(60 series) aircraft does not comply with either federal or Port Authority noise standards, both effective January 1, 1985, which require muted Stage 2 or 3 aircraft.

 Under the Federal Compliance Program promulgated by the FAA in December 1976, air carriers were required to phase-out and replace all their noisier and older aircraft by January 1, 1985. The FAA established a phased-in compliance schedule by grouping aircraft by noise characteristics; it termed these groupings "stages." Stage 1 aircraft are the oldest and noisiest equipment such as the Boeing 707 and the DC-8(60 series). Stage 2 aircraft, which include the Boeing 747, are newer and somewhat quieter than the Stage 1 aircraft. Stage 3 aircraft are the most technically advanced and quietest aircraft, such as the Boeing 757, the Boeing 767, and the A-300. See 14 C.F.R. § 36.7. By January 1, 1985, all Stage 1 aircraft were to be replaced by Stage 2 or Stage 3 aircraft. See 14 C.F.R. § 91.303.

 The Port Authority enacted a new Aircraft Noise Abatement Program on April 7, 1982. That program, like the FAA's, provided for phased-in compliance. The Port Authority's program consisted of an Interim Rule (520/0-00), a Nighttime Rule (530/0-00) (not questioned herein), and a Final Rule (540-0-00).

 The Interim Rule, which took effect on March 7, 1984 following a legal challenge, required air carriers to operate 75% of their 4-engine aircraft movements with noise compliant equipment, i.e., with Stage 2 or Stage 3 equipment, or with any aircraft which is quieter than the noisiest Stage 2 aircraft operating at a particular Port Authority airport.

 The Interim Rule also provided for a future owner's exemption (560/0-04) under which the Port Authority would treat a carrier's Stage 1 aircraft movements as Stage 2, where that carrier contracted with the Port Authority to utilize a Stage 3 aircraft at the Port Authority airports by January 1, 1985, and also had a lease or purchase agreement demonstrating that it would, in fact, have a Stage 3 aircraft by that date. The Port Authority's Final Rule, which took effect on January 1, 1985, provides that only noise compliant equipment can operate at the Port Authority's airports. On December 13, 1984, the Port Authority's Board of Commissioners enacted an exemption from compliance with the Final Rule for those carriers which could demonstrate that an exemption was necessary on the grounds of national security and foreign relations. Arrow does not qualify for such an exemption; it has not satisfied the conditions therefor.

 II. The Equities

 Arrow began its operations in 1981, five years after the FAA promulgated the Fleet Compliance Program and about a year before the Port Authority enacted its amended Noise Abatement Program. Arrow has concentrated on leasing noncompliant aircraft. In fact, as of the date of the trial, only two DC-10s in Arrow's fleet comply with the federal and Port Authority noise standards; and its nine DC-8s (60 series) are noncompliant aircraft. Prior to January 1, 1985, compliant aircraft have been available in the market for lease or purchase.

 Pursuant to a contractual agreement entered into by Arrow with the Port Authority on March 7, 1984, Arrow was granted a future owner's exemption form the Port Authority's Interim and Nighttime Rules, and permitted to conduct its operations at JFK and Newark International Airports with Stage 1 aircraft, and have those aircraft treated as Stage 2 aircraft, provided that it would lease, in accordance with two existing aircraft leases between Arrow and its affiliate, International Air Leases, Inc. (IAL), in December 1984, a DC-8-73 CF aircraft (a re-engined DC-8-63) U.S. Registration No. N6161A, and a DC-10 aircraft, U.S. Registration No. N917C1, and immediately upon delivery place such aircraft in service at JFK and Newark Airports. In that future owner's exemption contract, Arrow also agreed to "comply with all other applicable provisions of the Port Authority's Interim, Nighttime, and Final Rules."

 Arrow has not re-engined the specified DC-8 aircraft, No. N6161A, and the specified DC-10 aircraft is no longer in Arrow's fleet. Instead of having No. N6161A re-engined, Arrow scheduled this aircraft to be "Hush Kitted" by the Nacelle Corporation.

 Arrow planned to install so-called Hush Kits on its noncompliant Stage 1 aircraft to make them compliant by January 1, 1985. Arrow contracted, on October 15, 1984, with the Nacelle Corporation, a company 50% owned by George Batchelor, Chairman of Arrow's Board of Directors, for ten Hush Kits for its DC-8 (60 series) aircraft. However, technology for the Hush Kits to quiet the noise from the DC-8 (60 series) simply did not develop in time, ostensibly because of strike difficulties. As of this date, the FAA has not certified any Hush Kits, albeit that Arrow believes that the technology therefor will be available to it by July 31, 1985, and that it will be successful. Arrow suggests that it did not learn, until November 1984, that the Hush Kit technology would be unavailable. However, the record indicates that on August 2, 1984, fully three months earlier, Arrow had applied to the FAA for an exemption from the January 1, 1985 deadline for compliance with the federal requirements. Arrow asserted therein that it would be unable to install the Hush Kits by the January 1, 1985 deadline.

 During most of 1984, Arrow had under lease from IAL, its affiliate, compliant DC-8 (70 series) aircraft. Arrow and IAL are corporate members of the Batchelor group, so-called. George Batchelor is the Chairman of the Board of Arrow and owns 100% of IAL. The plane was sold by IAL in October, 1984, under a contract made ...

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