Foundation proposes user fees, but not for piston GA aircraft

 - October 11, 2006, 6:42 AM

The libertarian Reason Foundation, which has been promoting  privatization for more than 25 years, has published a new study calling for a user-fee system to fund the nation’s ATC. The proposal envisions a user-fee structure that exempts piston-powered general aviation aircraft.

“We recommend that only that small segment of general aviation that makes extensive use of ATC services–jets and turboprops–pay fees under the new system and be represented on the stakeholder board,” the report said. “The large majority of piston-powered general aviation would continue to pay the aviation fuel tax, which would help to support the airport grants program.”

The foundation also suggested that the Flight Service Station program general aviation uses should be paid for out of the FAA’s safety budget because it is essentially a safety function, and in no cases should there be user fees for those services.

“We are well aware of the history of ‘user fees’ as fighting words in U.S. aviation circles, both within the airline industry and be-tween airlines and general aviation,” said Reason. “Nevertheless, we believe that a simple direct charging system can be tailored to the circum- stances of U.S. aviation in ways that will be fair and acceptable to all parties, including general aviation.”

Business jets and turboprops represent just 7 percent of the general aviation fleet, the foundation said, and nearly always fly from towered airports, fly at the same altitudes as regional and mainline airliners and make ex-tensive use of ATC services. The study–titled “Resolving the Crisis in Air Traffic Control Funding”– further noted that NBAA has estimated that business aviation constitutes 20 to 25 percent of en route traffic, which hardly makes it the marginal user of the ATC system that NBAA portrays.

“No country in the world [except the U.S.] exempts this important category of airplanes from paying directly for ATC services like their larger commercial brethren,” the Reason study found.

A Challenge to Airlines

Noting that “business aviation” includes traditional company flight departments, turbines flown by the owner for business purposes, air-taxi/charter operators and fractionals, the study emphasized that the non-airline turbine fleet is much larger than the air carrier turbine-powered fleet. And the FAA projects the turbine-powered fleet will increase by 49 percent over the next 11 years, putting considerable stress on the ATC system.

The Reason Foundation said that the four categories of business aviation are often alternatives for businesspeople to flying on sched-uled airlines, adding that the airlines are increasingly concerned about business aviation as competition, especially in first class. In 2000, there were about 10 million domestic first-class and business-class trips on the airlines, compared with eight million business jet and turboprop trips. “Since legacy carriers gen-erate most of their profits from their high-end customers, modest shifts by those customers to business jet travel could prove devastating to those carriers,” the nonprofit organization explained.

According to Reason, the nation’s ATC system faces an $8 billion funding shortage in the near term and as much as $25 billion over a longer term. As a result, desperately needed modernization efforts to double air traffic capacity may be put on hold. To ensure the overburdened system can meet growing capacity needs and fund technological improvements, ATC–currently funded by a declining tax base–should be shifted to a system that directly charges users, such as aircraft owners, the study argued.

“The plunge in air fares, thanks to competition from low-cost carriers such as JetBlue and Southwest, has caused a sharp decline in the ticket tax revenues that currently fund the strained air traffic control system,” it said. “The Reason Foundation study demonstrates why these decreases are likely to continue and recommends making the [FAA’s] Air Traffic Organization (ATO) a self-supporting agency that charges aviation users for its services.”

Reason said the shift would “remove the uncertainty and fiscal constraints of the present system,” in which ATC is part of the federal budget process. It would provide a predictable revenue stream that keeps pace with aviation growth, the foundation said, enabling revenue bonds to be issued to pay for the new technology needed to double the system’s capacity.

“The Air Traffic Organization needs to be taken out of the federal budget process, and users who pay should have say in what is spent and how it is spent,” said Vaughn Cordle, CEO of AirlinesForecast and co-author of the Reason study. “Right now the FAA’s customer is not the users who pay the costs of the ATC system but the congressional committees that hold and relish political power.”

Cordle, a senior Boeing 777 captain for a major airline, declared that politics trumps potential market-responsive efficiency, and the taxpayer and users of the system pay significantly more than they should.

“Congress created the Air Traffic Organization and wants it to operate it like a business,” said Robert Poole, director of transportation at Reason and co-author with Cordle of the study. “But they failed to give it two necessary tools: a board of directors representing its customers and its own bondable revenue source.”

Implementing Mineta Commission Recommendations

The National Civil Aviation Review Commission (NCARC), which also proposed creation of the ATO, recommended both the creation of the board and air traffic user fees. Current Transportation Secretary Norman Mineta, who at the time was working in the private sector, headed the commission.

“The Mineta Commission got it right eight years ago,” said Poole. “But Congress needs to implement the rest of what it recommended.”

While the NCARC recommended a continuation of the fuel tax for general aviation, it admitted that the amount of money GA pays into the Airport and Airways Trust Fund does not cover the costs the sector imposes on the FAA.

“The commission believes that fuel taxes imposed on general aviation should be reevaluated based on an accurate analysis of the costs of providing ATC and related services to them,” the Mineta group said. “It must also be recognized that general aviation is a unique user of our nation’s aviation system and consideration should be given to its unique status and the benefits it provides.”

Although the Reason study does not outline a specific fee structure other than allowing general aviation piston aircraft to continue paying a fuel tax, it does note that the “entire modern world (except us) charges aviation users for ATC services” following standards set by ICAO, generally based on aircraft weight and distance flown.

Reason proposes that the Transportation Research Board convene an expert panel to develop the basic principles for an ATC fees and charges system. Next the ATO would convene a group of all principal customer groups to develop the actual fee structure, subject to final approval by the Secretary of Transportation. From there, the ATO board of directors (made up of aviation stakeholders) would be responsible for any ongoing changes in the fee structure.

Using FY2005 as an example, Reason said the airlines would initially save $500 million over FY2004. But as debt service on the bonds increased, their savings “would be somewhat less” for each successive year until 2011, when they would be back to paying the same as they did in FY2004. Savings would be greater if significant productivity gains were made, the report added.