The long-awaited legislation for reforming air traffic control and financing the next generation system fell well short of the mark when it was released last Wednesday causing immediate controversy among aviation users and Congress alike. For regionals, it raised concerns that congestion pricing puts those with the deepest pockets in charge. National Air Transportation Association (NATA) President James Coyne echoed many views when he said, “Given the amount of time the administration has had to develop the proposal, it is remarkably lopsided and myopic.”
Staking Positions
A hearing before the House Transportation and Infrastructure Committee produced widespread condemnation from Congressional representatives. One representative called it “dead on arrival” and another questioned the need for a rise in the fuel tax from 21.8 cents to 70 cents, especially since FAA Administrator Marion Blakey admitted that the current funding system, estimated by the Department of Transportation to raise more than $20 billion for facilities and equipment through 2012, would cover the cost of modernization.
Representative Jerry Costello (D-Ill), who chairs the House Subcommittee on Aviation, said FAA’s own analysis reveals the plan would result in $600 million less than current funding structures in FY2008 and $900 million less in FY2009.
While the proposal – the Next Generation Air Transportation System Financing Reform Act of 2007 – promises to reduce congestion, improve passenger travel and cut down noise, it remains unclear what the total impact will be on regionals. Regional Airline Assciation President Roger Cohen strongly objected to characterizations by Government Accountability Office's Gerald Dillingham that regionals impose more costs on the system. “We fundamentally disagree with that,” he said. Dillingham testified last year that costs for FAA are largely driven by workload but users are not directly charged for the costs they impose. He indicated that three 48-seat regional jet flights between LAX and San Francisco would generate three times the cost of handling a single, 132-seat, narrow-body aircraft between the two points.
Proposals to establish congestion pricing or slot auctions drew widespread criticism. While he has not analyzed the proposed legislation, Cohen said, “We are going to be looking very critically at the proposal. Congestion management fees, which we call demand fees, are a threat to small- and medium-sized community air service which is something we have been outspoken about. We will be looking at it so that we can preserve and protect regional air service. One in every five passengers and 500 communities rely on regionals and 72 percent rely solely on regionals. We have to protect and preserve that. We know that it has a negative impact on small/medium community air service at LaGuardia and if it is a threat there, it is a threat everywhere.” FAA will have the authority to charge a limited, cost-based congestion fee for users who use the 30 most congested airports which would go toward equipment, personnel and other air traffic-related costs.
The Air Transport Association (ATA) expressed “deep concerns” over many aspects of the proposal including the congestion fee. “The administration’s proposal includes a fee for operating in the 'most congested' airspace, but improperly pegs that fee to large airports,” it said. “By tying the fee to the airport, the FAA does not address the real congestion issue in surrounding airspace. For example, 20 percent of en route traffic in the New York area comes from general aviation traffic that does not use large airports in the area and no rationale exists for the continuation of a subsidy.” However, the general aviation interests countered saying the proposal does impose new user fees for general aviation flights that pass through the airspace within several miles of large airports as well as new transactional fees for pilot licensing, certification and other services.
ATA was, however, pleased that it gives the FAA bonding authority to the tune of $5 billion and lowers the amount of revenue commercial airlines pay into the system. “Today, airlines contribute 94 percent of revenue into the Trust Fund but, according to the new FAA Cost Allocation Study, airlines drive less than 73 percent of ATC costs," said President James May, adding it is a step toward the elimination of the corporate jet subsidy.
The agency, in distinguishing between two user types, found that turbine-powered aircraft – jets and turboprops – drive most system costs “because they fly in all weather, at all times, tend to be time-sensitive, generally compete for the same air traffic resources and require complex air traffic equipment and procedures." The FAA attributes 87 percent of system costs to turbine users, while only seven percent are attributed to piston users.
Within each group, the agency divides costs among commercial, general aviation and public users based on their share of activity. In the terminal environment, the allocation looks at costs and activity within groups of similarly-sized airports, meaning users of less costly facilities do not pay for the costs of the more expensive facilities.
Commercial users using both turbine and piston equipment account for 73 percent of system costs, while general aviation and public users account for 9.7 percent and 4.7 percent, respectively.

Calling it an “artificial proxy,” ATA also objected to the proposal’s use of weight in calculating charges. “The use of weight as a factor in assessing cost-based funding is of enormous concern to ATA member airlines,” it said. “FAA’s own study found the number of onboard passengers, aircraft weight and size were irrelevant to the actual costs of using the ATC system. Further, the Government Accountability Office has determined that incorporating weight into a cost-based formula weakens the link between use and costs. Heavier planes would be required to contribute more for traveling the same distance, even though they impose no greater costs. This old-school thinking has no place in a modern, fair funding system.” Its reliance on weight to determine costs may mean that regionals will not be impacted as much as originally thought, however.
Ed Bolen, president of the National Business Aircraft Association called it a "sweetheart deal" for the airlines and a first step toward privatization. He also indicated it would require massive additional bureaucracy to manage the fees. “Going into the FAA reauthorization process, the airlines wanted three things,” said Bolen. “They wanted user fees – they got them. They wanted to shift their costs to general aviation – they got that. And they wanted to reduce congressional oversight of the aviation system decision-making – they got that, too. As a result of airline lobbying, this proposal gives the giant airlines a major tax break by imposing massive tax hikes and onerous new user fees on the businesses that rely on general aviation.”
Bolen was referring to the creation of a new Air Transportation System Advisory Board (ATSA) of user representatives. Its role is to provide advice and make recommendations on the creation of user fees, major capital projects and the FAA’s strategic plan. General aviation interests, however, expect it to be dominated by the commercial sector. “This board, as proposed, is totally dominated by airline representation,” said NATA Vice President of Government and Industry Affairs Eric Byer. “There is no excuse for ignoring the charter and fractional communities. The FAA proposes to include at least three airline operatives on the ATSA Board, but totally ignores the airlines’ direct competitors – charters and fractional – revealing the agency’s bias towards the airlines.”
The Aircraft Owners and Pilots Association (AOPA) repeated its charge that the reauthorization plans is a "manufactured crisis based on flawed financial assumptions about the viability of the current funding system and the cost of the 'NextGen' air traffic control system,” said AOPA President Phil Boyer. “We support the need to modernize, but listen to the weasel words carefully. They never say that the current, proven tax system can not raise necessary funds for NextGen. The proposal doesn't save money, and it doesn't make the FAA more efficient. This bill would be a disaster for consumers, general aviation pilots, and all the communities ignored by the airlines that depend upon general aviation for safety, commerce, and air transportation."
The Proposal
The agency is proposing a hybrid funding structure with three funding sources for FAA services – user fees, taxes and the general fund. User fees will raise 53 percent of the FAA’s total budget. Jet and turboprop flights now subject to the ticket tax would now pay their share through user fees. The proposal sets broad parameters for how these fees would be structured and how users would be consulted as they are established. Fees based on data from FAA’s cost accounting and allocation systems would cover nearly three-fourths of the air traffic organization’s budget, said the agency.
General aviation and piston users continue to pay their share through a fuel tax, according to the proposal, a tax that would change every two years in line with updated cost allocation studies. All domestic commercial and general aviation users will also pay a common fuel tax of 13.6 cents per gallon to fund the Airport Improvement Program as well as the Essential Air Service program and the FAA’s research, engineering and development program. International commercial passenger flights will pay a $6.39 passenger head tax to fund these services as well.
The legislation also proposes a research consortium for the development and certification of lower energy, emissions and noise engine and airframe technology over the next 10 years as well as a permanent Airport Cooperative Research Program to focus on airport development and an environmental mitigation demonstration pilot program. The general fund will go toward safety regulation, military use of the system and flight service stations amounting to abut 19 percent of the FAA’s budget.
The proposed legislation provides for $5 billion in treasury debt financing authority beginning in FY 2013 to support NextGen-related capital needs and accelerate the transition to NextGen. It also promises to provide stronger incentives for FAA to control costs.
The measure reforms airport regulations and grant funding formulas, which, said the FAA, constrain airports’ ability to meet their capital requirements. While expanding the Passenger Facility Charge program, it also restructures the Airport Improvement Program (AIP) which targets federal funds to airports most in need of them. Medium and large hub airports no longer need passenger entitlements, said the FAA in proposing to phase out their entitlements. Smaller airports will have AIP entitlements protected, eliminating the risk that these funds will be cut in half or eliminated if AIP falls below $3.2 billion.
FAA cited the non-primary entitlement program as a success even as it said it needs a more strategic and targeted investment tool. It is proposing to replace the flat $150,000 maximum entitlement with a tiered system recognizing the different role of these airports. The current minimum discretionary fund of $148 million is to be updated with an increase to a minimum $520 million. In addition, it proposes a minimum state apportionment fund of $300 million to provide states the resources needed to fund their priority aviation projects.
However, ATA also objected to FAA’s AIP plans. “For one, the Airport Improvement Program (AIP) includes $1 billion in subsidies for non-commercial airports paid by commercial airline passengers,” said ATA. “Worse still, the administration is proposing to raise passenger “head taxes” in the form of the passenger facility charge, [an action that] could cost passengers an extra $2 billion annually, without any meaningful airline or FAA controls. In essence this will provide more money on top of the approximately $14 billion already being spent annually on our nation’s airports. This is more about meeting airport wants rather than airport needs.”
PFC reform includes increasing the maximum charge from $4.50 to $6.00 which will bring in an additional $1.2 billion. The proposal also expands eligibility to include any airport capital investment as long as it does not hinder competition.