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Monday, November 3, 2008

Panelists Weigh Election Impact

When asked during last week’s RAA meeting in Washington how a new administration would impact airlines, Regional Airline Association President Roger Cohen quipped, “Well, it couldn’t get any worse than what we have now.”
Regardless of who wins tomorrow, they will have to make a dramatic commitment to aviation quickly, according to panelists addressing the Regional Airline Association fall meeting last week. Having already done the economic studies quantifying the value of aviation down to the Congressional district level, it is now up to the industry to cast the debate on the fact that aviation activity is a force multiplier to stimulate the economy.
Boeing’s Neil Planzer expects a strong democratic majority in both the Senate and the House with the biggest change being the “loss of the animus between the executive and legislative branches.” He also indicated that the new administration will have to act rapidly. “It is the perfect infrastructure to be an engine to redevelop the GNP,” he said, “and it will be critical for the administration to understand that. It will need to develop a strategy of what it can do in the first 100 days and the first four years. It is critical to the demand issue and if it is not done quickly it will just drag on as it always has. The FAA has to fix the problem with its union. This is an economic crisis and that is what it took between Boeing and the IAM. The fact is, they both got scared.”
“The NextGen system is not new technology or transformational like what the Internet did for computers,” said Planzer. “The next administration can pull out tons of costs from the system but it requires boldness of thought and action that we have been lacking in recent memory. I am not optimistic about the outcome, but, given the right people we can do it. It is critical to transportation and the GNP. Eleven percent of GNP comes from air transportation and if that goes down five percent we have a big problem.”
He also said the success of NextGen must not be measured by government costs but by the business outcome to users. “You can manage the cost of change and you can do it within the current $14 billion budget. You have to stop maintaining all the old technology you no longer use.”
ATA’s John Heimlich noted the increased cost of doing business because of the inability of the air traffic control system to accommodate aircraft. “The thought you have to spend a gazillion dollars is not true,” he said. “There are procedural changes that have significant pay offs were it not for NIMBYism. We have to market air traffic reform in the context of an economic stimulus, mobility and a reduction in emissions.”
The American Association of Airport Executives is already pushing to make airport construction part of any new economic stimulus package and to change the law to assist airports in financing infrastructure upgrades at their facilities. Port Authority of New York and New Jersey Aviation Director William DeCota testified to this effect at last week’s House Transportation and Infrastructure Committee hearing on infrastructure investment.
“As the Federal Aviation Administration has just reported, airport infrastructure needs have grown significantly in recent years,” AAAE President Chip Barclay noted. “Congress can make substantial progress in addressing those urgent needs and create tens of thousands of high-paying construction jobs along the way by providing additional funding for airport improvements and by making minor modifications to existing law relative to airport bonds and debt service.”
AAAE has a three-part plan that include $1 billion in additional Airport Improvement Program Funding citing FAA’s National Plan for Integrated Airport Systems (NPIAS), which reported a need for $50 billion over the next five years for civil aviation - an increase of $8.5 billion over the last NPIAS report, issued two years ago. By providing $1 billion in additional AIP funds, Congress could expedite the construction of critical safety, security and capacity projects at airports around the country and create approximately 35,000 high-paying jobs.
A second point is eliminating the Alternative Minimum Tax (AMT) penalty on airport private activity bonds when, in fact airports use it to fund runways, taxiways and other critical facilities that benefit the public. Interest payments on private activity bonds are subject to the AMT, which means that airport bond issuers are charged higher interest rates on their borrowing, typically a premium of 10 to 30 basis points (0.10 percent to 0.30 percent). Demand for AMT bonds has decreased so dramatically that airports are currently being penalized 150 basis points (1.5 percent) or more when bonds can be sold. This adds millions of dollars to the cost of airport projects and diverts money away from other infrastructure projects that could create jobs.
The organization also want greater flexibility in the use of Passenger Facility Charge revenue and AIP funds for debt service, especially with the spike in financing costs resulting from the financial meltdown.

Aviation Experience of Candidates
RAA’s Black noted that Barak Obama has little aviation experience, but hails from one of the most important aviation markets in the country and has both Boeing and United headquarters in his home town of Chicago. However, Senator John McCain is very experienced in aviation issues. McCain chaired the Senate Commerce Committee, which includes oversight of key transportation sectors, three times. McCain is a former Navy pilot and one of his sons is an American Airlines pilot. In addition, US Airways is headquartered in his home state of Arizona.
“Whoever wins may not mean a change because a lot of the ideology is coming out of the Office of Management and Budget,” she said. “But we are hopeful that with some turnover things will change. But, we are not going to wait to see how they treat us. We intend to make an impact on the next administration.”
While not making it a part of his platform, McCain advocated privatizing air traffic control as reported by the Reason Foundation several years ago, saying efforts to block privatization were “inappropriate.” However, most observers, including ATA’s Heimlich and Boeing’s Planzer, believe privatization is a non-starter with Congress.
But Obama pegs the problems in terms of labor/management issues between the FAA and the National Air Traffic Controllers Association and has pledged to work with Congress to modernize the ATC system. Certainly, union issues have clouded the reauthorization process, according to Heimlich.
Business Travel Coalition President Kevin Mitchell, also on the RAA panel, contends an Obama administration would be more responsive to travel industry needs. National transportation, energy and environmental policies would be, in theory, symbiotically related, adding the absence of these policies is at the root of so many of the nation’s and travel industry’s woes. It expects Obama would develop a strategic blueprint for moving forward on developing a coherent set of tightly interwoven national policies in these three areas.
Obama, said BTC, is more likely to view the airline industry “as a strategic national asset with respect to its role as an economic fulcrum over all segments of the travel and tourism industry and the national economy, a segment of the economy that is over-taxed and in need of infrastructure investment.”

With the appetite for re-regulation growing, the passenger bill of rights could take center stage and be broadened to a re-regulation package that no one can define as yet. It could mandate everything from on-time performance to in-flight service and may even include maintenance outsourcing. However, some hope Congress will become so exhausted in the battle to re-regulate the financial industry they will lose the taste for re-regulation in the transportation industries. Still others feel re-regulation is unlikely in the face of deregulatory and liberalization efforts worldwide as well as the open skies agreements. While those efforts have yielded fewer new services than expected, the biggest item on some observer’s wish list is deregulating the ownership regulations allowing fare more cross-border investments.
Mitchell pointed to the global trend in liberalization saying transportation was one of the most global industries but it is not allowed to behave globally because of bilateral policies that keep costs baked into the system and restricts management from rationalizing assets like other global companies.
Heimlich characterized re-regulation talk as a lot of noise that, as a matter of pragmatism will go nowhere. He also cited a General Accountability Office report that said it was a terrible idea. “People who talk about re-regulation don’t really know what they want or mean by it,” he said. “Does it mean setting a price floor, barring entry and reversing everything that has been done? Controlling capacity and fares…I’m not sure what that would accomplish. People may not be happy but what does that mean to re-regulate. If you don’t know that you won’t know whether it will have the desired consequences.”
Planzer worried about the fact that regulations can multiply. “There is talk about regulating repair stations,” he said. “To do that you have to hire more people to check what is going on and they will ultimately run out of work do to and generate more regulations in areas at the periphery. I don’t think there will be a price floor but I do think there will be lots of peripheral pieces that will affect profits.
Heimlich also pointed out the industry is suffering from agency creep which he said was a double entendre. He noted that the airline industry was once just regulated by the Department of Transportation/Federal Aviation Administration but is now overseen by Transportation Security Administration, the Department of Homeland Security, the Center for Disease Control and the Environmental Protection Agency all with extensive regulations that contradict one another and all impacting the bottom line. “We have more agencies interested in our business than ever before,” he said, pointing out that noise regulations contradict efforts to reduce emissions and increase fuel efficiency. He said it should not be about re-regulating but smarter regulations.
Black said it is up to the industry to convince the new administration that actually funding NextGen would be the best thing they could do to be pro-passenger. The Airline Passenger Bill of Rights Act of 2007 was introduced by Democratic Senator Barbara Boxer and those who want it see a better chance with democrats than with Republicans. Obama supports such legislation although McCain does not and Obama running mate Joe Biden is an advocate for requiring airlines to accommodate passengers during delays. He would also create an Aviation Consumer Protection Commission.
"By most measures, the airline industry is not functioning well at all 30 years and 165 airline-failures after deregulation,” said Mitchell. “Insufficient regulation of the financial markets, as a root cause of the current financial crisis, will likely provide more support for those favoring some level of government intervention in the troubled airline industry."

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