The Regional Airline Association’s first formal get-together since the events of September 11 assumed an understandably reflective mood, as some of the industry’s most influential figures discussed the prospects for an industry recovery. For regional airlines, the speed at which such a recovery arrives may
depend on Capitol Hill’s ability to resolve the issues of airport security and Essential Air Service funding–perhaps the two most talked about subjects during the RAA fall meeting, held November 6 and 7 at the Wyndham Hotel in northwest Washington, D.C.
A year ago congestion pricing, airport capacity and air traffic control dominated the conversation among RAA delegates. This year those issues got nary a mention until the meeting’s annual closing day luncheon, where deputy DOT secretary Michael Jackson addressed the attendees. “We have core infrastructure projects that need to be supported,” said Jackson. “So as we have all these other responsibilities on us, and a new set of problems and priorities to massage, we also have the old issues that we should not let go of.”
Although Jackson’s plea to attend to long-term priorities by no means fell on deaf ears, immediate solutions to the pressing concerns of this necessarily reactive industry soon dominated the discussion. On the subject of airport security, Jackson echoed the administration’s call for cooperation–both from the airlines during this “transition period” and from Congress, which passed a compromise measure on airport security a week-and-a-half later.
During the fall meeting, RAA legislative affairs director Faye Malarkey would not commit an association position on the merits of the respective House and Senate security bills, despite previous indications from RAA of clear support for “federalization.” The Senate bill, which would have placed security under the jurisdiction of the Department of Justice, called for federal screeners at the nation’s largest airports while allowing the government to contract screening with state and local law enforcement at smaller non-hub airports. The more contentious House bill, which proposed giving oversight to the Department of Transportation, would have allowed Presidential discretion over employment status of screeners. The compromise reached by the conference committee placed security oversight under the DOT, but gave sole responsibility for screening to the federal government for a period of two years, after which time individual airport authorities may opt to hire private contractors again.
‘Nebulous’ Funding Language
RAA supports both DOT oversight and federalization, but remains concerned over the potential for hidden costs associated with the plan. The new security measure imposes a $2.50 enplanement fee and a $5 maximum charge for multiple legs on a one-way trip. However, the legislation also includes language that would allow for additional fees up to the aggregate amounts paid by carriers in calendar year 2000–roughly $700 million.
“That nebulous language is concerning RAA because we want to make sure that the fee structure isn’t disproportionately onerous to regional carriers,” said Malarkey. “Certainly it costs a lot less to provide security screening at very small airports than it does at LAX or ORD, so we want to make sure that the fee structure is commensurate with real costs.”
Other costs associated with cockpit door reinforcement, deployment of federal air marshals and a provision to require airlines to “initiate measures” within 60 days to inspect all checked baggage for explosives will add to the cost burdens. At press time RAA president Debby McElroy did not know to what extent airlines must shoulder the cost responsibility for providing new screening equipment, or whether enough equipment will exist to meet the year-end 2002 deadline for compliance.
Of course, further financial relief to offset increased costs and declines in revenues since September 11 perhaps ranks as the top priority for executives. On that front, an exemption from and a rebate of alternative minimum taxes in the House version of the economic stimulus package could help a handful of RAA carriers, said Malarkey. A Senate Republican version of the bill includes an AMT exemption, but not a rebate, while the Democrat version includes no language on alternative minimum taxes.
More help could come from the long-overdue DOT appropriations legislation, delayed for three months after President Bush threatened to veto any bill that banned or severely restricted access to the U.S. by Mexican trucks. Once an aviation security measure passes, the conference on DOT appropriations will return to work on that legislation, which, according to Malarkey, could increase EAS appropriations to $170 million from the current level of $50 million.
That optimum level would include $27.5 million in funding from the small community air service development zone and another $13 million authorized by the Aviation Investment and Reform Act for the 21st Century (AIR-21). The largest piece would come from the $120 million authorized by the Transportation Safety and System Stabilization Act, passed just days after September 11.
Malarkey warned delegates against placing too much faith in the appropriations committee’s generosity, however. “This is one part of the stabilization package that was left subject to appropriations,” said the legislative specialist. “So we’ve been in contact with the DOT and the appropriations staff to get something that looks closer to $120 million than the original $50 million. We’re certainly pushing for [the total available, $170 million], but the chances of that are pretty slim. But it will certainly be higher than the $50 million that was appropriated in the House version [of the bill] and the $53 million in the Senate.”
The small community air service development zone, a provision of AIR-21, had appeared to gain House appropriation this year, until House Transportation and Infrastructure Committee chairman Rep. Don Young (R-Alaska) and subcommittee chairman Rep. John Mica (R-Fla.) withdrew it because of a “jurisdictional concern.” The Republicans essentially objected to the plan to draw the proposed funding from the Airport Improvement Program.
McElroy reminded deputy secretary Jackson of a provision in the stabilization bill that requires the Inspector General to monitor the DOT secretary’s efforts to “ensure adequate air service to small communities.” Adding that regional carriers provide the only service to 69 percent of all those destinations, McElroy asked Jackson how the DOT planned to address that provision.
“We’re honestly struggling with that and trying to figure out how to approach these issues,” said Jackson. “The bill does not authorize the Department of Transportation to re-regulate the airline industry nor are we seeking such authority. Nor does it authorize us simply to order people to provide certain levels of service or service to particular cities. We recognize the problem of service to small communities that was created by the events of the last month-and-a-half, but we’re still working through that. Essential Air Service is presumably part of how to make this problem work, but we’re honestly still trying to figure out how to talk about this issue or whether there’s anything we can do about it.”
Jackson stressed that the Bush Administration had yet to formulate an official stance on the increased EAS appropriations, but that it planned “to work with the budget conferees” to come to “some reasonable position.” Before September 11 the Administration supported a continued appropriation of $50 million. “It’s my bet there will be a different set of factors that we’ll have to take account of,” said Jackson.
As of November 7 some 55 regional carriers had received financial disbursements from the $5 billion in emergency aid for airlines, and another 24 had subsequently applied and awaited word on their eligibility, according to Jackson. November 16 marked the end of the application process for the next round of funding, which will bring to 85 percent the total amount entitled under the legislation. Meanwhile, the DOT has begun receiving applications for $10 billion in federal loan guarantees, although the flow of requests has proved less than overwhelming.
Although some 60 percent of regional airlines had “expressed interest” in the loan guarantee program, few have applied. Language in the stabilization act requires that the assistance come attached with certain conditions, such as a requirement that any airline accepting the guarantees must offer the government company warrants or stock options. Another condition caps executives’ salaries at $300,000 a year.
Despite the lukewarm response to the program, Jackson said it achieved its intended purpose–to return confidence to the financial sector and stimulate capital markets. “The very existence of the loan program has helped reinvigorate the financial markets to get some of the capital that we need,” he said. “The combination of the direct aid and the loan program seems to be doing what we were hoping would happen, which is take what had been a great cloud of ambiguity and clear that away a little bit and let the financial markets get comfortable.”
Notwithstanding Jackson’s optimism, Malarkey asked RAA members for continued vigilance given the persistent attempts to minimize regionals’ stake in the process during the stabilization bill negotiations. “The reworked airline assistance act would have excluded aircraft with fewer than 60 seats,” said Malarkey. “Each time the legislation was rewritten there was a bit less money available and there were further efforts to exclude regional carriers. We really had to hang on by our fingernails to make sure we got our share of the money.”