All About Money

June 1, 2003
Aviation is an industry on hold; waiting for dollars from customers and government

It doesn’t take a Massachusetts Institute of Technology professor to see the industry is in a slump. MIT professor Hansman, speaking at Northwestern University’s Transporta-tion Center in April, says it isn’t as bad as it looks, to wit: “We’re actually running at about 90 percent of historical [airline] demand.” And yet, he says, “the market has lost confidence in the airline industry.”

Hansman echoes the sentiment of many that the return of the capacity crunch — ala summer, 2001 — will follow shortly after the economy rebounds. One possible solution: formation flying for landing multiple aircraft on one runway, bypassing wake vortex concerns.

The first step out of stagnation is proving to be getting security to be unobtrusive and more behind the scenes. That takes in-line, integrated baggage capability, which takes money. Therein lies the rub.

Congressman Harold Rogers (RKY), who heads up the House subcommittee that oversees funding for the Department of Homeland Security, says his group will do what it takes to get the necessary money out to airports, maybe $5 billion or more. At the same time, Rogers chastises TSA for overstaffing and suggests that a little more spending restraint may be in order.

Many commercial airports are ready to move now — perhaps all, if someone were writing out checks. Some intimated to an EDS supplier at a recent trade show that they would sign up for an explosives detection system today and here’s the money, out of their own pockets, with the hope of being reimbursed at some point in the future. Problem is, these things go faster than hotcakes.

More on that point, Rogers confirmed that TSA will soon be issuing Letters of Intent, which will be promissory notes to pay back later what airports buy today — with approval. He says the program is being modeled after one used by the Federal Transit Administration.


Air-21, the historic three-year aviation authorization package, will be a memory come October 1. The new initiative, termed Flight 100, proposes to continue to pump some $3.4 billion into the Airport Improvement Program, and proponents have been pushing for a four-year bill. Some in industry, however — notably DOT Inspector General Ken Mead — are suggesting that a two-year bill may be in order. We may want something different once the economy turns around, he says.

FAA Associate Administrator for Airports Woodie Woodward says the industry will be lucky to get $3.4 billion, considering the mood in Congress. She also says that she is concerned about small commercial airports in the U.S., hit hardest since 2001. Some may never recover, although there are those who project that a new generation of small jets, such as the Eclipse 500, will create jets, such as the Eclipse 500, will create a new air taxi market and many smaller airports will be catering to a different fleet.


Meanwhile, in airport administration offices, the mood is cautious. Money is the issue: not enough coming in, airline service is down or eliminated, and security costs alone are wreaking havoc on budgets. Not every- wreaking havoc on budgets. Not everywhere, but most places. where, but most places.

To paraphrase Bonnie Allin, A.A.E., president/CEO of Tucson A.A.E., president/CEO of Tucson International Airport and incoming chair of the American Association of Airport Executives: Airports need to Airport Executives: Airports need to be deregulated, so they can operate more as a business and react to market forces more readily. She thinks the local community should determine the limit for passenger facility charges. And, she asks, how can one run a busi- And, she asks, how can one run a business when hands are tied by unfunded government mandates?

David Plavin, president of the Airports Council International - North Airports Council International - North America, observes: “The statutory/ America, observes: “The statutory/ regulatory framework doesn’t allow airports to take risk, to get into partnership with the carriers. Airlines have succeeded in getting a framework in place that keeps airports from being partners.”

Plavin says a very real possibility is airports, particularly smaller commercial ones, will be forced to take over most airline station duties and services. Airlines will only have to provide air service, making the decision to vide air service, making the decision to keep a route more palatable.

The ACI-NA president also sees congestion pricing at airports as another potential source of financial relief. A recent General Accounting Office A recent General Accounting Office report points out that congestion pricing can serve to regulate capacity. User groups, however, tend to be strongly opposed to the concept, seeing it as discriminatory.


Much of the general/business aviation marketplace is being driven by the aircraft market: used aircraft values have plummeted over the past two years, and new aircraft manufacturers years, and new aircraft manufacturers are laying people off. Most markets are down. Yet, NetJets continues to buy aircraft, particularly since some of its fleet is beginning to age. A new market is expected to emerge for the used, high-time fractionals now entering the market.

Insurance remains a top challenge for most service companies, and many flight training firms may not be able to survive this round of rate increases.

Jim Coyne, president of the National Air Transportation Association, says he is reasonably optimistic about the industry. But he sees dramatic change on the horizon, and says it will be a different industry in five years. He foresees fractionals seeing a shakeout and a turbulent year ahead; air charter alliances will develop; new management talent will enter the industry; and, large investments in the fixed base operator industry will continue.

Says Coyne, “The worst news has been Meigs [Field]. It may lead to legislation to assert the need for a legislation to assert the need for a national transportation system. Too many people are using security to get many people are using security to get other things accomplished.”