Big changes may be in store for EAS communitie, airlines

 - August 4, 2008, 12:13 PM

Now that the U.S. House of Representatives and Senate have passed their respective FAA funding bills for FY2004, it’s anyone’s guess when the conference committee charged with hammering out a compromise reaches a consensus. But to regional airlines and small communities that have come to depend on Essential Air Service subsidies, the timing matters less than the profound changes potentially in store for next year, regardless of both bills’ apparent commitment to keep funding at $113 million for the next three years.

Granted, maintaining funding levels represents a big victory in and of itself, given the Bush Administration’s February proposal to reduce EAS distributions to $50 million and completely abolish the Small Community Air Service Development Pilot Program. The Administration plan would also have required local communities within a 210-mile radius of a large or medium-size hub to match 25 percent of the federal disbursement. For airlines outside that 210-mile radius, the proposal would have required a 10-percent match.

In their respective bills, neither house of Congress would accede to the White House’s call for a funding rollback, nor would they do away with the small community pilot program. However, they did attempt to foster more direct community involvement in administering and funding the program. For example, the House’s Community and Regional Choice program would allow the DOT to pay compensation directly to a state or a unit of local government having jurisdiction over the eligible EAS location for use in any of the following purposes:

• scheduled air service;

• on-demand air taxi service;

• on-demand surface transportation;

• the purchase of an airplane or fractional share in an airplane; and

• other transportation or related services “that the Secretary may permit.”

Of course, the extent to which the local authorities choose alternatives to scheduled regional airlines remains an open question, but the mere existence of such options cannot sit well with the RAA or the airlines they represent. Predictably, general aviation lobbying groups, eyeing new marketing opportunities for their constituents, have applauded the proposals. The National Air Transportation Association, for one, praised an amendment to the House bill, H.R.2115, that allows charter operators flying turbine or multi-engine piston airplanes with 10 or fewer seats to negotiate with passengers the flight times and destinations between non-hub airports on a “per seat” basis.

“For years the government’s EAS program has tried to subsidize the costs incurred by air carriers providing scheduled service to smaller communities,” said NATA president James Coyne. “These communities by themselves cannot generate the traffic necessary to justify the airlines’ expense.”

In the Senate bill, S.824, a so-called marketing incentive program would grant eligible EAS communities up to $50,000, of which at least 25 percent of the public costs must come from non-federal sources. Under the $12 million plan, if the community involved increases passenger boardings by 25 percent over any one-year period, then only 10 percent of the funding must come from non-federal sources for the following year. If the community manages to increase boardings by 50 percent year-over-year, then federal funds would pay for the entire cost of the program for the following year.

The bill also includes a series of pilot programs, perhaps the most radical of which would allow up to 10 communities to opt out of the EAS program for 10 years in exchange for a grant equivalent to two years of EAS assistance. Yet another plan that could wrest control away from the airlines involves a so-called alternative services program for any three airport sponsors under which the DOT could fully fund a different mode of transportation from the participating facility to the closest hub. Under that program, the airport sponsor could use its EAS funds “for any project that would improve the existing facility” and could exit the pilot program at any time after a year of participation. Another pilot program would allow 10 communities to request smaller equipment to improve service.

In an effort to answer calls for more community “commitment” to local air service, the Senate bill included a “local participation program” under which the DOT would choose 10 communities within 100 miles of a hub airport to pay a 10-percent share of EAS costs for three years. The communities selected would have automatically qualified for the other pilot programs, but an amendment sponsored by Sen. Jeff Bingaman (D-N.M.) to strike the proposal passed in a voice vote.

“The proposal to force communities to pay to take part in the EAS program was wrongheaded,” said Bingaman. “Small communities are already facing depressed economies and declining tax revenues. Requiring them to spend more to keep their air service would have exacerbated the situation.”

Under the cost-sharing proposal, the New Mexico cities of Alamogordo, Carlsbad, Clovis, Hobbs and Silver City–all served by Mesa Air Group–would have had to pay the 10 percent, along with a host of communities in 16 states. A proposal in the House that established a cost-sharing requirement for communities within 75 miles of a small hub and 170 miles of a medium-size or large hub also failed to survive after the House endorsed an amendment by Rep. John Peterson (R-Pa.) to strike the language. Yet another House amendment endorsed in a voice vote allows 76-seat regional jets, namely those expected to fly for US Airways subsidiary MidAtlantic Airways, to qualify for the commuter aircraft slots at Washington National Airport.

One section of the Senate bill for which RAA lobbied particularly hard centers on a proposed mechanism for rate adjustments. Under the current rules, an airline wanting to negotiate a new rate has to file a service discontinuation notice and enter a new bidding process for the same market. Section 354 of the Senate bill would allow for a subsidy increase to any EAS provider that experiences an average monthly cost increase of 10 percent. The same House amendment that struck the community cost-sharing language also allows the DOT to increase subsidies to an airline if it experiences “significantly increased costs.”

RAA also applauded both houses’ apparent support for the Small Community Service Development Pilot Program, which earmarked up to $27.5 million per year to fund grants to communities with air-service deficiencies or higher-than-average air fares. Although Congress appropriated $20 million for the program in FY2002, the DOT has yet to distribute another $20 million approved for FY2003. Last year the DOT received 180 applications for grants totaling $142.5 million, some seven times the amount available. The grants, which ranged from $44,000 to $1,557,500, went to such items as marketing studies and programs, financial incentives and alternative transportation options.