Service Sector Meets in Dallas

FBOs talk issues — consolidation expected to slow; election could bring new taxes

DALLAS — Despite Midwest storms that brought DFW International to a standstill and amidst uncertain economic times, some 4,200 service sector representatives met here in mid-March for the annual gathering that brings together Aviation Industry Expo, the FBO Leadership Conference hosted by the National Air Transportation Association, and the new AMTSociety technicians’ program. For the fixed base operator community, the talk at sessions and on the floor was about the weak U.S. dollar and its potential impact on consolidation within the industry; a noticeable drop in jet fuel sales, albeit not dramatic; and, the expected tax increases that many see on the horizon after the November elections.

William D. O’Grady, chief global investment strategist for A.G. Edwards & Sons, cautions that the industry can expect increased regulation of the bond market, which can impact airports and in turn airport tenants. He points out that none of the top three contenders for U.S. president are true free-traders, which could result in higher taxes and regulation.
Much of the discussion on the campaign trail and in Washington is centering around policies that bring with it larger government and more restricted markets. “We have forgotten how tough the ‘70s were,” he comments.

Seeking leadership
NATA president Jim Coyne says that, among the challenges facing the industry, a significant one is with FAA, where he sees a lack of leadership as well as strained labor management relations within the agency. “Over the last seven years the FAA seems to have taken a strategic approach to try to lower labor-management relations to the lowest possible level that they can get,” he says.

“Of course, this is not just the FAA’s fault.” Coyne points out that the current strategy is an attempt to rein in the agency after the Clinton years, which the current White House sees as having “given away the farm.” Even without a change in party at the White House, current Democrats now in control in the Senate are more allied with government agencies, he says.

Coyne relates that internally, FAA inspectors continue to resist moves toward allowing private companies into the safety management business. Government inspectors “want to be the ones to control all the inspections,“ he says. “This is a fundamental regulatory question: Are the regulators going to be solely government union employees? Or is the government going to create regulatory standards that then private sector employees can participate in?”

He says the industry tends to favor a combination of both, with private companies better at managing peaks and valleys in the workload and with meeting deadlines.

Taxes will remain a hot button in the coming years, Coyne says, with reauthorization no longer the sole concern. In fact, he maintains that reauthorization will likely fade into the background, with little hope of a solution until sometime next year.

“I think, frankly, the tax challenge that our industry faces has been easier over the last three years, for we only had really one opponent — the airlines,” Coyne comments.

He says all taxes will be in play soon — from taxes on general aviation aircraft to income and capital gains taxes. Current campaign rhetoric emphasizes increasing taxes for everyone but the average American, the focus of the candidates’ message.

“This will be the first time in a long time when the American people will be having a referendum about how much more we should raise taxes on the wealthy,” Coyne says. Taxes on wealthy Americans might go up as much as 100 percent, regardless of whether a Democrat or Republican wins the White House, he cautions.

“That fraction of America’s taxpayers that will be paying significantly more taxes will be our customers,” Coyne says.

Coyne also sees increased regulation in general aviation’s future — “Ironically, at a time when our industry has never been safer.”

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