State of the Industry Report

We live in fractured times, with fractious leadership and a Congress that is split in two. FAA and the system are being funded by a 19th Congressional continuing resolution, the ongoing compromise between Democratic and Republican legislators on the Hill. Despite the rumors, it isn’t a tea party.

The industry and many in Congress see a long-term reauthorization and funding bill as a top priority. To paraphrase FAA Administrator Randy Babbitt, in order to accomplish its goals, the agency needs adequate, long-term funding, allowing infrastructure improvements that have been put on hold to move forward. In effect, ongoing short-term continuing resolutions merely serve to wreak havoc on planning, particularly at FAA which doles out the money.

Both Houses have passed FAA reauthorization bills; the expected conference to smooth over the differences is stalled. What is contained therein is the cause of the impasse — be it West Coast access to DCA; a labor battle that pits FedEx versus UPS; or, keeping the Essential Air Service program alive. A top target for airports, increasing the $4.50 cap on passenger facility charges (PFCs) to $7 or more, appears dead no matter what happens.

That being the case, airports have come to recognize that a negative could become an opportunity. The U.S. industry needs the infrastructure dollars that PFCs generate. [ACI-NA offers detailed analysis of infrastructure demands at www.aci-na-org.] Because the needs aren’t going away, and the fact that the Airport Improvement Program could see reductions in funding, one or more new mechanisms need to come into play, say airports. As Airports Council International-North America president Greg Principato says, “Set our airports free.

“Governments all over the world are working to create conditions for meaningful investment in infrastructure. Airlines in many parts of the world engage in this process as partners, working with airport officials because they know that investment in airport infrastructure is critical to their being able to profitably perform their function in this global economic puzzle.

“But there is one glaring exception to this trend, right here, in the United States. Rather than understand the need to invest in infrastructure the U.S. government actually stands in the way of airports and local communities who want and need to finance infrastructure.”

Airports say that one step would be to stop the discussion on cap levels and unleash PFCs — no cap, and the amount controlled and determined at the local level. Make the responsibility a local one, with federal oversight as it pertains to maintaining the “system”.

Such a setup has precedent — in Canada. Over the past two decades the locally controlled Airport Improvement Fee (AIF) has served as a catalyst for airport improvement and growth at every major airport in the land. It also caused individual communities to rethink their roles in the system.

Take one example: Vancouver (YVR). Under Transport Canada, YVR was seen as the Westernmost outpost of a national system. When a local semi-private corporation took control, officials recognized the airport and the region could become a Gateway to the Pacific, which it has become. The AIF was essential to that development.

Comments Deborah McElroy, ACI-NA executive vice president for policy and external affairs, “The existing regulatory structure prohibits airports from evolving to more effective business and financing models that have proved to be successful all over the world. And that is the frustration, because airports all over the country are faced with lower federal grants, the inability to raise the passenger facility charge, and, in many cases, reduced airline operations. All of those combined mean it is increasingly challenging just to meet the growing regulatory burden and provide the facilities necessary for the safety and security of the passengers.

“We really need the federal government to get out of our way. That’s really the bottom line.”

Kelly L. Johnson, A.A.E., the director of the Northwest Arkansas Regional Airport and recently appointed chair of the American Association of Airport Executives, concurs. Says Johnson, “Government should step out of the way. We need to rethink airports, and it’s going to be imperative that we rethink all of aviation.” That, she adds, means taking a new look at how we fund airports.

Johnson say the cornerstone of her year as AAAE chair will be an effort to find new ways to fund airport infrastructure.

Another funding mechanism that is being heightened in the discussion is privatization. The system, many agree, will need an injection of private investment as cities and counties grapple with the economic challenges they now face. The tide, they think, may be turning.

In the U.S., privatization (there are exceptions, such as private terminal investment at JFK) generally means contracting of services or management. The global model can mean private companies that build, own, and operate airports, or do so under very long-term leases, a la Canada. Last year a privately financed, built, and now operated airport opened in Branson, MO, and industry watches as it embarks on a different financial model. It has commercial service; it offers FBO services — yet, as a financial model it is a work in progress.

Comments Johnson, “Privatization has an opportunity to play a large role. We’re watching Branson to see how that plays out.” She points out that the airport privatization pilot program headed by FAA needs to be refined to encourage investment while ensuring that the system and its assets are protected.

Says ACI-NA’s McElroy, “Within our membership we have airport directors that would love to see privatization and we have those who would oppose it, so our position has been you need to make the existing pilot program as effective as it could be to have an accurate test.