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AMR Corp. Wins Ruling Over $30 Million Grant From TSA

Dec. 6 (Bloomberg) -- AMR Corp.’s American Airlines won a federal appeals court ruling over a $30 million Transportation Security Administration grant it sought for a baggage-security system at John F. Kennedy International Airport.

The U.S. Court of Appeals in Washington today said the TSA improperly rejected American’s request for reimbursement for the system, which was put in place at the New York airport after the Sept. 11, 2001, terrorist attacks. The three-judge panel ordered to agency to reconsider its decision.

The agency acted “arbitrarily and capriciously” in denying the airline’s request “without providing a sufficient rationale on the record for doing so,” Judge David Sentelle wrote in the opinion.

American said it constructed a so-called in-line baggage security system at JFK in 2002 to detect explosives at the urging of the TSA, according to the ruling. An in-line system checks for explosives while luggage is on the airport’s baggage conveyor.

At the time, the airline preferred a system that screened bags in the airport lobby at standalone stations, noting the in-line system would require alterations to the terminal building, according to the ruling.

TSA Assurance

American claims the TSA “assured the airline” that once Congress had authorized funds for airport security its request for reimbursement would receive “favorable and expedited” consideration, according to the ruling.

In 2004, Congress enacted a law urging the TSA to “move faster” with the installation of in-line baggage screening at the country’s airports and develop a formula for cost-sharing between government and private entities. That year, American petitioned the TSA for reimbursement.

Three years later, Congress ordered the TSA to set priorities for requests to fund the in-line systems.

In an October 2010 letter, TSA Administrator John Pistole denied the Fort Worth, Texas-based airline’s bid for the money, saying “reimbursement for previous work outside a formal agreement comes at the cost of advancing current or future security measures,” according to the court’s ruling.

Charles Miller, a Justice Department spokesman, said the department is reviewing the appeals court decision.

“Today’s court decision affirms that the federal statutory mandate requiring payment was not followed in this matter,” Tim Smith, an American spokesman, said in an e-mailed statement. “Given the court’s decision, American looks forward to meeting with the TSA to discuss this further.”

American, once the world’s largest airline, and AMR filed for Chapter 11 protection from creditors Nov. 29, listing $24.7 billion in assets and $29.6 billion in debt.

The case is American Airlines Inc. v. Transportation Security Administration, 10-1418, U.S. Court of Appeals for the District of Columbia (Washington).

To contact the reporter on this story: Tom Schoenberg in Washington at

To contact the editor responsible for this story: Michael Hytha at

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