Talking Airports

SEATTLE -- During this year's annual meeting of the American Association of Airport Executives, held here in May, senior executive VP Spencer Dickerson and incoming chair Lowell Pratte, A.A.E., executive director/COO of the Louisville Regional Airport Authority, sat with AIRPORT BUSINESS to discuss key issues facing airports and the aviation industry. Issues on the association's front burner include security and its funding; expanding tax-exempt status for airport-related bonds; and, the beginning of the discussion of system funding via Congressional reauthorization, due in 2007. Following is an edited transcript of that discussion.

AIRPORT BUSINESS: A topic of discussion is that the Transportation Security Administration may soon be eliminated, or restructured from its present form. Any thoughts?

Pratte: I would say that there appears to be a lot of changing out there; there's a lot of speculation.

Dickerson: It's in current law that the DHS [Department of Homeland Security] can get rid of TSA.

Pratte: We do know that the role of TSA is being redefined. That's safe to say. It appears their responsibility will be limited to aviation.

AB: Would we want to speculate that in time we'll adopt a system similar to Canada's, with private screening companies?

Pratte: No, I don't think so.

Dickerson: The appetite from our members for the opt-out program is very low; I think there are two airports that have applied - Elko [NV] and Sioux Falls [SD]. The problem is that the members aren't comfortable with the liability issues; they're uncomfortable with the accountability issues - who's responsible. Are there going to be funds? Until they get those issues addressed the appetite will not be high.

Pratte: Obviously, the funding level is insufficient and needs to be increased, not only in dollars but it needs to be sped up for the in-line systems.

AB: Are you concerned that in time the feds will just drop the responsibility for screening onto the lap of the airport industry?

Pratte: Oh yeah. I would think it follows along the lines of many other unfunded mandates. In a lot of cases you have no choice but to pass it onto the passengers or the airlines, neither one of which should be funding it. This is not the time to increase costs to the airlines.

AB: Where is Louisville Regional at regarding in-line screening?

Pratte: We're kind of a unique critter out there. We have an FAA grant for our in-line system that we kind of fell into. We had done our schematic drawings and we got a phone call from the FAA and they said, someone in the Northeast has turned back a security-related grant, and we're looking for an airport that has an interest and schematic drawings. We got a $12 million federal grant on a $15 million project. We're going to be breaking ground within the next couple of weeks.

It's 100 percent in-line. Our bag makeup area was inadequate, undersized. We're actually building a new structure for the bag makeup area and consolidating them. Where the bag makeup area used to be is where the machines will be. We're also re-arranging airlines by the amount of luggage that they screen. It was not going to be an even distribution [otherwise]; one side was going to get more use than the other. We're moving four airlines to get a 50/50 balance.

Dickerson: Back on the general EDS [explosives detection systems] issue, we've been saying for some time now that there are significant savings to TSA personnel costs by going in-line. You need fewer screeners; you have less workman's comp; you have more efficiency in terms of getting bags processed and passengers. So you end up saving the government money, making it more efficient by going 100 percent in-line.

Obviously, the money that has been appropriated is woefully inadequate. So, we're going to keep making that argument.

AB: A big issue just beginning to brew is how we are going to fund the aviation system in the future. FAA in particular is raising alarms that the current funding system - primarily driven by ticket taxes and fuel excise fees - may prove inadequate. Where do you see this discussion going?

Dickerson: The bottom line is, costs are going up and revenues are going down. The surplus is disappearing quickly [in the Aviation Trust Fund]. So, we don't have the flexibility and the uncommitted surplus when the taxes expire in '07.

In the past when the taxes expired, there was always a big surplus; we're not going to have that. So this issue has to get addressed between now and then.

So, you've got basically two years to get this addressed, and it's going to take time to find the right balance. FAA, smartly, is out front getting a dialog going on what are the issues, looking at the costs side of the equation on how FAA is running, and then the revenue side - trying to match up revenues with expenses.

The fact of the matter is, the trust fund, up until recently, was paying for the whole cost of FAA. Now, a big chunk of FAA's budget is coming from the general treasury, from general revenues. With the way the budget is overall with the federal government, the competition for those limited dollars is increasing.

I think there's a general agreement within the industry that being self-funded is important because then you're not competing with other government priorities.

Now, saying that, how you get there is the controversial part, and everybody is concerned about user fees and taxes.

AB: One suggestion being thrown out is a departure tax at individual airports as a way of funding local infrastructure needs. Is that a viable option?

Dickerson: I think FAA has to put everything on the table, and obviously have the dialog with the industry. Congress is ultimately the one that makes the decision. This is an industry that has over half of [the airlines] in bankruptcy. Their yields are horrible. You can't expect to solve the government's problem of the user fee concept on the backs of the airlines, certainly.

AB: Looking at the tenant side, an emerging trend is private equity firms buying up more and more interest in fixed base operations and other tenant facilities. Do you see any concerns related to this?

Dickerson: It hasn't been talked about here.

AB: Another hot topic among FBOs is the Environmental Protection Agency's recent requirement of secondary containment around refuelers that are parked overnight. How big of a concerns is this for airports?

Pratte: Surprisingly, I haven't heard a lot about that here.

Dickerson: Again, it's not something that has come up a lot here.

The problem with environmental issues is, the top three issues of the industry continue to be security, security, and security. And it's been like that since 9/11; so, things like environmental issues and some FAA regulatory issues get put down the priority list, or don't have the light shining on them, because all of the focus of our members is on dealing with security.

That doesn't mean those issues aren't important, or that they're not critical; it's just the spotlight continues to be on security.

AB: Congressman Steve Pearce (R-NM) is introducing legislation that requires airports to offer 75-year leases on anyone building a hangar. Should this be taken seriously?

Dickerson: It's not going to be addressed until reauthorization, and our members obviously don't like it.

Pratte: We have a state constitution that doesn't allow us to give out leases for more than 20 years.

Too much can happen in 75 years.

AB: Do you see the fact that Congress isn't funding what it has mandated regarding security as a reflection of society as a whole? Is it simply that Congress's constituents aren't demanding it?

Dickerson: No, I don't think so. Washington is about priorities, and setting priorities. The president's budget drives the Congressional appropriations process; it's up to Congress to appropriate, but the President's the one that puts the budget out. Congress has taken the President's budget and enacted it, the broad framework. So, now the appropriators have to work within those tight numbers. Tough decisions have to be made.

AIP is $600 million below authorization; Amtrak was zeroed out - that's $1.2 billion, I believe. A couple of billion in HUD grants were reduced. So, you have a lot of holes in that appropriation subcommittee and you can't just put the money back without taking it from somewhere else. It's not that they don't want to fund this stuff.

AB: As airports look for new sources of revenue and ways to maintain control over a consistent delivery of service, do you see many of them looking at getting into the refueling and ground handling business?

Dickerson: We hear it come up at our international meetings; that's a common practice overseas and it works pretty well over there. My sense on it is, it has some economies of scale issues, so small airports may be looking at it.

That would be an attractive issue if it reduced the airlines' cost. Our members are under significant pressure from our airline partners to reduce costs. Airports do a lot to do that, and if there's a way to keep costs down by airports doing that, it's something people would explore.

Pratte: It could be tied to an air service issue.

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