As it finally senses a glimmer of hope after losing $40 billion over the past five years, the airline industry is launching an effort to shift billions of dollars in costs for maintaining the nation's aviation infrastructure to operators of corporate jets.
The big carriers in 2004 paid about $8.9 billion of the roughly $9.5 billion annual cost to fund the federal aviation trust fund, which provides most of the budget for the Federal Aviation Administration. Corporate jets pay about $400 million, and general aviation pays about $200 million.
With Congress preparing for preliminary hearings next month on the 10-year reauthorization of the FAA in 2007, the airlines are seeking major changes.
"We're not saying this issue is the reason airlines are in economic difficulty, but it's part of a battle of inches to help us get back to the point where the industry is reasonably profitable," says John Meenan, chief operating officer of the Air Transport Association, the industry's principal trade group. "To do that, it is imperative that we revise an antiquated system in which airlines pay all the costs while others pay pennies on the dollar."
Although airlines pay around 90% of the cost of funding air traffic control and airports, they use only about 65% of the system's capacity, Meenan says. He says corporate jets use about 15% of capacity, but pay less than 4% of the cost. The remainder of the system's capacity is used for general aviation and government flying.
A change in the current system could have enormous implications. Major domestic airlines, facing cutthroat competition while saddled with hefty fuel bills and expensive labor forces, have been trying for some time to slash costs any way they can.
Several have found bankruptcy to be their only option for doing so. They include
( NWACQ) and
( DALRQ), which filed last year. The old
had two experiences with insolvency, and
appears to finally be nearing the end of what's been a three-year odyssey in Chapter 11.
Passenger airlines fund the FAA primarily through a 7.5% tax on ticket sales, plus an additional $3.30 per-segment tax on each flight and a tax of 4.3 cents per gallon of jet fuel. Cargo airlines like
pay a 6.25% tax on the value of domestic freight.
, a unit of
, pays 28% of the cost of a $200 ticket for taxes and fees, including 13.5%, or $27, to the aviation trust fund, says company spokesman Tim Wagner.
"We don't have the ability to increase prices substantially, so every dollar we collect in taxes, that's a dollar we can't include in our ticket prices," Wagner says.
Corporate jets pay a fuel tax of 21.9 cents per gallon. Charter and fractional operators such as NetJets, which operates a fleet of several hundred jets whose ownership is split among its customers, pay 4.3 cents per gallon of fuel plus a 7.5% tax on its hourly operating charges.
The need for corporate jets to pay a bigger share is particularly pressing, Meenan says, because corporate jets carry a rapidly increasing share of business passengers and because those passengers are precisely the ones who would be most likely to purchase premium-priced tickets for business travel. "In general, these are our best customers," Meenan says.
The ATA's effort is opposed by the National Business Aviation Association, which represents about 7,000 operators of business jets, largely small and medium-sized companies. Ed Bolen, president and CEO of the NBAA, says the ATA's argument ignores the heavy demands placed on the aviation infrastructure by the hub system, which focuses airline travel into intensive traffic peaks at about 20 key airports.
"It's not the amount of activity, but how that activity is concentrated that drives the cost," Bolen says. "A couple of carriers want to concentrate all airplanes at a few airports at peak time." Shutting down all of general aviation, which includes corporate jets as well as smaller airplanes, wouldn't substantially reduce the cost of air traffic control, he says.
Bolen says the NBAA particularly opposes changes that would shift the method of assessing corporate jet fees away from the fuel tax to some sort of per-flight charge. However, he says his group has been willing to consider changes. For instance, it backed an FAA requirement that every corporate jet contain a $25,000 device that allows for reduced separation between aircraft.
"We have not ruled out paying more," he notes, adding that he would like to work with the ATA and the airline industry to find a solution to the funding dilemma.
Ten years ago, in the last battle of the 10-year FAA funding allocation, the airline industry was split. The seven biggest airlines, now referred to as "legacy airlines," battled smaller, low-cost carriers -- led by
-- over ticket taxes. Because the smaller carriers were flying more frequent, shorter flights than the majors, the majors wanted to replace the 10% ticket tax with per-flight user fees.
The majors were partially successful. Congress increased fees on international fliers and added a tax on the purchase of frequent flier miles, but gradually reduced the ticket tax to 7.5% and added per-flight fees.
John Ash, president of Washington-based InterVistas-ga2 and a consultant to the NBAA, says the air traffic control system is designed and built for commercial airlines, while general aviation including corporate jets "operates in and around the constraints constructed for commercial aviation."
For that reason, Ash says, it might be reasonable for general aviation to pay several hundred million more than it does now. But aviation consultant Dan Kasper, managing director of the Cambridge, Mass., office of the analysis and consulting firm LECG, says the increasing business jet sector contributes to congestion and delays at major airports and ought to pay a proportionate share for maintaining and improving the system.
"We're not talking about Piper Cubs," he says. "These are corporate jets flying at 38,000 feet along with the Boeing 757s. They are all users of the system, and they should share in the cost."