While Congress has provided $8.4 million in additional funding for the essential air service (EAS) program, it has again failed to provide clear instructions to bureaucrats at the U.S. Department of Transportation (DOT) that the higher fuel tabs of EAS carriers must be paid.

In its fiscal 2006 $14.3 billion appropriation for DOT, Congress late last month provided $110 million for the EAS program. Not only is the appropriation $8.4 million greater than the 2005 measure, Congress also rejected the administration's request to cut EAS to $50 million. In the end, a congressional conference committee agreed to the Senate's $110 million appropriation rather than the $104 million proposed by the House.

The regional airline industry and EAS proponents had been seeking $127 million so the program could be fully funded as outlined in the 2003 Vision 100 reauthorization legislation for the Federal Aviation Administration (FAA) and the aviation trust fund.

"We are not completely satisfied," said Faye Malarkey, vice president of legislative affairs for the Regional Airline Association (RAA). "What we got was $110 million, but it is still not quite enough."

RAA and Regional Aviation Partners (RAP), a lobbying group composed of carriers and small community airports, have pressed Congress for more than a year to include more money to cover higher fuel bills. The trade groups specifically wanted language included in the measure that would order EAS administrators to honor the carriers' requests for contract adjustments to compensate them for the higher fuel bills. While the 2003 legislation outlined the criteria for the carriers to get a contract rate adjustment, DOT has contended that money has never been earmarked and procedures have never been established to make the adjustments.

In the appropriations measure, which President Bush signed into law earlier this month, Congress did provide an extra $10 million for fuel adjustments. The language indicates the funds can be pulled from other DOT accounts should additional money be needed to "carry out the EAS program."

Despite efforts to include a clear directive to DOT, Malarkey said the final language might not do the trick. "It doesn't mandate the fuel cost adjustments that we requested. How strong the final language is depends upon who you ask."

RAP maintains that while the language does not explicitly direct DOT to use the extra funds to make the fuel adjustments, the clause authorizing the fuel adjustments is clearly part of the EAS legislation and thus DOT should fund it, said Executive Director Maurice Parker. "The department can no longer suggest that Congress has not provided it with funding to implement it," Parker said.

In 2004, Mesa Air Group [MESA] filed requests with DOT to adjust its contracts on several EAS routes. DOT never acted on the requests.

If DOT continues to refuse to make contract adjustments, Malarkey believes that some EAS carriers will be forced to drop marginal non-EAS routes since they are losing money on EAS routes, which they cannot drop. "These carriers are in a cash crunch," she noted.

One strategy the carriers may employ next year is to file adjustment requests as Mesa did. With numerous filings anticipated, Malarkey said that even if DOT again fails to act, the carriers will have built a better case with Congress for a clear mandate in the 2007 appropriation.

DOT's dilemma: Does it fund the carrier requests for fuel adjustments from the $120 million total ($110 million plus the $10 million fuel adjustment) as they come in? Or does it wait until next fall to see just how much money is left after the agency makes contract payments as well as payments on yet-to-be written renewal contracts?

"I don't know what DOT's estimated burn rate is for the $110 million," Malarkey told Regional Aviation News. "DOT could continue to play it very cautious."

If DOT delays the payment until the end of the fiscal year, Parker suggested that any major decline in fuel prices may hurt the carriers. While the carriers need the money now based on high fuel prices, they may not qualify next fall.

"If the standards are stalled long enough, fuel prices may go below the minimum eligibility requirements and this whole issue will be moot once again," Parker said. "Carriers will continue to hemorrhage red ink."

There is one remote chance that Congress may still provide for the fuel cost adjustments, Malarkey said.

Included in the Senate version of the budget reconciliation measure is $15 million clearly earmarked for fuel adjustments for EAS carriers. However, the same language was not in the House counterpart.

"We are pushing hard to keep it in when these bills come to conference," Malarkey said. "To say this is an uphill fight is an understatement."

Other elements of the appropriations bill:

Congress cut the Small Community Air Service Development Grant program in half when it provided just $10 million for the next round of grants.

In August, DOT set aside $888,000 of the 2005 $20 million grant fund for EAS expenses.

The grant program is a "program without very many cheerleaders. The communities and the carriers really like it," Malarkey said. When these groups are forced to prioritize their federal wish list, she said the EAS program is more important.

Congress reauthorized the Virtual Primary Airport program for one more year, but with only half the funding. The program, created in the wake of the Sept. 11, 2001, terrorist attacks, provides 55 airports that fall below the 10,000-passenger enplanement mark each with $1 million annually in Airport Improvement Funds (AIP) (RAN, Aug. 8, p. 1). Without the program, these airports would only receive $150,000 in AIP funding. The program was scheduled to expire this year. Congress agreed to extend the program for one more year, but with a $500,000 grant to each eligible airport.

The one RAA goal that Congress refused to enact was a one-year tax holiday, Malarkey said. The industry tried to get federal aviation taxes dropped for one year to help the carriers deal with the sharp rise in fuel prices. Carriers have complained to Congress that the highly competitive nature of the industry today makes it impossible to tack the federal taxes onto the passenger's ticket.

>>Contacts: Faye Malarkey, RAA, (202) 367-1273; Maurice Parker, RAP, (602) 685-4112.<<