U.S. Aviation Industry Debates Funding

Airlines are clashing with general aviation companies over who's driving the costs and who has to pay the bill for using the nation's aviation system.

WASHINGTON (MarketWatch) -- Airlines are clashing with general aviation companies over who's driving the costs and who has to pay the bill for using the nation's aviation system.

Major commercial airlines support the Federal Aviation Administration's idea of replacing its tax-based funding system with user fees charged at the same rate to all users. They're hoping to save money.

But general aviation companies, the small aircraft industry defined as all aviation other than military and the big commercial airlines, is fighting to maintain the tax-based system. They're afraid they will lose money.

"We need a much more equitable system," FAA administrator Marion Blakey said in a recent phone interview. Blakey said that a new system wouldn't be "just additive to the current system. It's really changing it."

Under the current system, the FAA -- the agency responsible for regulating civil aviation in the U.S. -- gets 80% of its funding from the Aviation Trust Fund, which includes all taxes paid by users. These include taxes on passenger tickets and fuel. They all expire in September 2007.

The Trust Fund was established to support the development of a nationwide airport and airways system and to fund investments in air traffic control facilities. The fund provides grants for construction and safety programs, for investments in the air traffice control systems and for research on aviation safety. During its history, it also funded all or some protion of the FAA's operations.

Although the trust fund's dollars generally increased over the past five years, the agency argues that factors such as low-cost carriers are slowing the growth of its resources.

In the next couple of weeks the agency will come up with a proposal that would radically change its funding system, FAA sources said. The adoption of a user-fee mechanism is one option that has fueled the most debate.

With a user fee, a Boeing 747 that carries 170 people would pay the same fees as a small jet, which has only 20 people on board.

"User fees provide a stable revenue resource," said James C. May, chief executive of the Air Transport Association, in a recent speech at the International Aviation Club in Washington.

The FAA proposal for a new funding system for the next decade would have to pass Congress before the end of the next year, when all the trust fund taxes will expire.

"FAA is going to need the industry's full support as it tackles fundamental systemic challenges," May said. He pleaded for user fees, arguing that Canada, France, Germany and Australia are using such a mechanism successfully.

But airlines are the main advocates for such a change.

Businesses and owners of private jets strongly oppose the idea, saying that user fees would add new bureaucratic costs.

The FAA administrator said it still has to be determined which mechanism will be considered. FAA officials declined to reveal details about the estimates regarding the costs associated with a user-fee system and its impact on the airline industry and its customers. The costs are expected to be part of the proposal, which has not been yet finalized.

It's all about the money

General aviation associations complained that user fees would transfer costs from airlines to small commercial airlines and business jets.

The airlines "are hoping to shift $2 billion to the general aviation community," said Ed Bolen president and CEO of the National Business Aviation Association, in a phone interview. "They are proposing a system in which all airplanes are treated the same."

NBAA is an industry group that represents over 7,000 companies that own or operate general aviation aircraft.

Two other organizations -- the General Aviation Manufacturers Association and the Aircraft Owners and Pilots Association -- share Bolen's concerns.

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