It’s All About the Money

June 1, 2007
Industry reaches a crossroad over user fees, ATC, PFCs, rates & charges, and more

In February, the Federal Aviation Administration proposed the creation of an array of new user fees to fund the U.S. air transportation system. Much of industry gave the proposal a ‘thumbs down,’ with a key exception being the Air Transport Association which a year earlier had released a position paper that was very similar to the subsequent FAA proposal. Airports want the cap on passenger facility charges (PFCs) raised and indexed for

inflation. User groups (other than the airlines) are essentially calling for the status quo. It is up to Congress to make the final determination on how to fund the system while also modernizing the air traffic control system — the need for which all parties agree. Meanwhile, another debate has emerged involving money — a rates and charges showdown at Los Angeles International Airport — that could have long-lasting repercussions for airports and their tenants. In the final analysis, it is all a moving target, at best.

Interestingly, for much of aviation business is good. The air carrier segment is on the upturn, evidenced by the recent exit from bankruptcy of Northwest Airlines, despite volatile fuel prices. Business aviation continues to grow, almost unabated. Only the piston segment has slowed due to the price of avgas.

The debate over how the aviation system is funded is happening because Congressional authorization for what is in place expires September 30, the end of the federal fiscal year. A concern throughout the industry is that Congress will fail to pass any legislation by that date and the industry will have to suffer through a series of continuing resolutions to keep the system operating. That is a scenario, history has shown, that wreaks havoc on planning at FAA and airports.

ATA, which represents the major airlines in Washington, jump-started the debate in March 2006 when it called for 1) a new system of user fees that would extract more money out of business aviation users; and 2) push forward ATC modernization while also creating an oversight board on which user groups (read: airlines) could have a seat.

Comments ATA vice president and COO John M. Meenan, “I would say that they are co-equal goals. Our hope is that this becomes the trend-setting decision for the next several decades in aviation. Let’s create a mechanism that deals with both system modernization and funding in a definitive way.

“If we continue to see this shift from commercial to corporate aviation ... there ought to be a dynamic funding system in place that recognizes those shifts and adjusts funding accordingly.”

The ATA user fee proposal has met stiff opposition from the Aircraft Owners & Pilots Association, the National Air Transportation Association, and the National Business Aviation Association. The mood in Congress appears mixed, although it is anticipated that general aviation turbine users will see some increase, most likely in the fuel excise tax currently paid.

NBAA president Ed Bolen recently wrote to his membership, “NBAA will remain united with the rest of the general aviation community in supporting aviation system modernization using the current fuel tax system. Congress must understand that user fees would be very harmful to the businesses and communities that are part of the backbone of our economy.”

As we go to press, the U.S. Senate Committee on Commerce, Science and Transportation approved S.1300, the Aviation Investment and Modernization Act of 2007, which authorizes FAA and other programs through 2011. The U.S. House had yet to come forward with its reauthorization bill.

Comments NATA, “The Senate’s FAA reauthorization largely maintains the status quo...” It does not make changes to current aviation taxes, which fall under the domain of the Senate Committee on Finance. Some key S.1300 provisions:

  • Establishes an Air Traffic Modernization Fund, which will collect a $25 surcharge for all commercial and turbine-powered flights;
  • Creates an ATC Oversight Board, made up of government and industry representatives, and authorizes the Department of Transportation to borrow funds via bonds for ATC capital projects to facilitate modernization;
  • Increases Airport Improvement Program funding levels, starting with $3.8 billion in 2008 and ending with $4.1 billion in 2011.

S.1300, however, does not raise the cap on PFCs, which, with the exception of ATA, is generally supported by industry. It is at the top of the airport groups’ wish list, and FAA had proposed raising the cap from the current $4.50 to $6, but not indexed for inflation. Airports Council International-North America has been lobbying hard for the increase as well as for fewer restraints on how the funds are used. The Senate bill does call for a pilot program to allow up to six airports to charge their own cap and to collect the fees themselves.

At LAX, Rates & Charges X3
Meanwhile, away from the Washington funding debate, Los Angeles International Airport has for a third time come under fire over a proposed rates and charges policy. Scott Lewis, a partner with the law firm of Anderson Krieger LLP which is advising ACI-NA, calls it “LAX 3.”

In brief, the airport is attempting to migrate away from the residual form of charging airlines to the compensatory model, a trend that has been occurring with airports for the past decade. Because its major signatory carriers are under 40-year leases signed in the 1980s, LAX attempted to first set new rates and charges policies for its secondary and international carriers. The carriers sued.

In May, an administrative law judge ruled in favor of the carriers, and the policy decision now falls on DOT Secretary Mary Peters, who has until June 15 to make a determination.

Attorney Lewis calls the administrative law judge’s ruling “very disturbing to airport managers.” While the ALJ did not rule against the compensatory method, he did fault LAX’s failure to negotiate up front with the carriers. Lewis cautions that the final ruling could impact the bargaining power of airports nationwide.