Aviation Industry Expo 2006: Taxation and regulation issues weigh heavily at NATA event

 - September 19, 2006, 2:08 PM

During a year when non-airline aviation is expected to continue growing to record levels, a number of challenges face those whose service businesses propel the general aviation segment. Leaders of those companies came to the Aviation Industry Expo (AIE) in Las Vegas from March 28 to 30 to learn more about how to deal with problems such as user fees, onerous fuel-tax processes, new charter operational control requirements, OSHA regulations and general unfriendliness to airports.

Aviation Industry Expo is three shows in one, combining the annual conferences of the National Air Transportation Association (NATA) and the Professional Aviation Maintenance Association (PAMA) and hosting the annual GSExpo International for the ground-support crowd. Overall, the AIE show grew compared with last year. “Our final attendance was 5,407,” said Jill Ryan, group show director for Cygnus Expositions, which runs the event, “up about 5 percent from last year, [with] 455 exhibiting companies in 103,000 square feet.”

“The first two days were fantastic in terms of strong attendance,” said Jim Coyne, NATA president, although he did notice a drop in activity on the exhibition floor on the last day of the show. “The last day is always problematic for us,” he said. “One of the curses of conventions is that people want to get a three-day show done in two days.”

Coyne was hoping for stronger attendance at a strategic issues forum held on the last day, featuring a speech by James May, CEO of the Air Transport Association and a strong proponent of user fees to fund FAA operations. “I was disappointed we didn’t have more people to see Jim May,” Coyne said. “I thought he would be a bigger draw.”

NATA members are “facing a triple threat of taxation, regulation and inertia,” said Coyne at the NATA opening session. The government’s user-fee proposals, when they are released, might have, he added, “one of the most destructive impacts on our industry in a generation.” Regulatory burdens are “mind-numbing” and include the Environmental Protection Agency’s recent attempt to require that spill-containment fixtures be built around fuel trucks.

The fuel taxes that are deposited first in the Highway Trust Fund and moved to the Aviation Trust Fund, he said, are “another good example of insane federal regulations, and we just cannot allow this to continue if we want to be able to meet the expectations of our customers. Government seems to be our enemy rather than our partner.”

The Speaker Speaks

Opening session keynote and former house speaker Newt Gingrich took the audience on a romp through history to underscore his views about how citizens need to demand real change from the government, which fit with NATA’s theme of getting members active in the user-fee, taxation and regulation issues.

“I think we are at the edge of an extraordinary period of change in American government,” Gingrich said. While he is sure that the American people can force real change on politicians, he also believes that the existing bureaucrat- and lawyer-centered system is not working. “Prices collapse everywhere except where government props them up,” he said. What we need, he added, is a citizen-centered system where the public has the power to be smarter shoppers than the government.

In aviation, Gingrich views the Transportation Security Administration as a “bureaucratically mindless mess. At the same time you have real threats, [such as] you can drive a nuclear weapon across the border. And that worries me.”

The ATC system is an “obsolete technological model” that needs more application of technology and fewer people running the system, an opinion about which the air traffic controllers’ union is wary. Gingrich is candid about unions’ effects on industry, although he believes that American workers are competitive, if given good management and leadership.

“The auto industry in America is not in trouble,” he said, referring to the successful and growing number of foreign-owned car factories in the U.S. “It turns out American workers can compete with anybody in the world if they have good management that’s lean and aggressive and change-oriented.

“The UAW [United Automobile, Aerospace and Agricultural Implement Workers of America] preferred slow suicide to modernization. I watched Eastern Airlines commit suicide. Management and the union got together and said, ‘Why don’t we kill each other rather than be rational?’ Then they came to people like me and said, ‘Why don’t you bail us out? Unless you protect us with government money, we’re so stupid we’ll destroy ourselves.’

“There’s some marginal requirement here to be reasonable. Unions are faced with a simple choice. You either figure out how to compete in the real world market or you’re going to become a museum.”

What government is good at and should do more of, he added, is setting metrics and letting private companies implement solutions to meet those metrics. In Gingrich’s opinion, this should include a privately run ATC system. “If you can run Disney World,” he said, “you can run the Atlanta airport.”

For the second year in a row, NATA held an FBO symposium the day before the AIE show opened to discuss legislative and operational issues that affect airports and FBOs. Subjects covered this year included spill-prevention requirements, business challenges, the Part 16 process for resolving competitive issues at publicly funded airports, industry consolidation and joint marketing programs between airports and airport businesses.

Updating the attendees on the revised EPA spill-prevention, -control and -countermeasure rules, NATA manager for government and industry affairs Beth Olkowski explained that the EPA has proposed amendments to its final rule that would provide some relief to FBOs.

The amendments would exclude mobile refuelers from the requirements for secondary containment, which could have meant building berms around fuel-truck parking areas. The EPA has assured NATA that inspectors will not fine FBOs for lack of secondary containment while it reviews the SPCC amendments.

The FAA Part 16 regulations cover a process that is not well known in aviation, but which could be useful when airport businesses face discriminatory practices at publicly funded airports. If an FBO, for example, tries to launch a new business at an airport and finds that competitors and the airport are resisting allowing a new business on the field, the Part 16 process offers a means of getting the FAA involved to try to resolve the dispute.

The key advice given by the Part 16 panelists, including David Bennett, the FAA’s director for airport safety and standards, was that the process is not at all easy, takes a long time and the FAA will not get involved if the disputing parties have not already made a serious effort to resolve the conflict.

The average length of time between the initial complaint and the FAA director’s final decision is more than 1.5 years, according to Bennett. And the success rate for airport tenants is low–28 percent–while the majority of rulings were in favor of the airports involved, at an average of 65 percent of the cases cited. The remaining 7 percent were split decisions.

Consolidation in the FBO business is nothing new, said Gary Briggs, president of the Trajen FBO chain. “It started in the early ’80s,” he said, when the disappearing investment tax credit and rising interest rates reduced aircraft sales dramatically. Investors saw that there was potential in the other businesses that FBOs operated apart from aircraft sales. This round of consolidation ended with one investor, according to Briggs, “taking a 40-percent haircut on its FBO chain investment.”

Now the investors are back, buying FBOs on what seems like a weekly basis. Trajen has grown to 22 bases, funded by investor The CapStreet Group.

“We’re very happy,” said NATA’s Coyne, “to see consolidation when it produces a stronger industry.”