FAA searches for new funding source

By Paul Lowe

September 1, 2005
Aviation Financing

Although the FAA is not yet advocating new taxes or user fees, the agency continues to emphasize that it needs a consistent, stable revenue stream that is not tied to the price of an airline ticket.

The taxes that feed the Airport and Airways Trust Fund, which is expected to provide 89 percent of the FAA’s FY2006 budget, are set to expire in 2007. “A troubling gap has grown between the revenue that comes in and what it costs to run the FAA,” the agency said.

The taxes that support the aviation trust fund include a 7.5-percent tax on the price of a domestic passenger ticket, a domestic flight segment fee of $3.20 per segment per passenger, an international departure/arrival tax of $14.10 per international passenger, a 6.25-percent waybill tax on domestic cargo and mail, a general aviation jet fuel tax of 21.8 cents per gallon, a GA aviation gasoline tax of 19.3 cents per gallon and a commercial fuel tax of 4.4 cents per gallon.

The segment fee and international departure/arrival tax rates have increased each year, but the airline ticket tax is a fixed percentage of the ticket price, so it fluctuates with changes in the price of airline fares.

“The problem that we [face] is that the status of the aviation trust fund is inextricably tied to the fortunes of the aviation industry,” FAA Administrator Marion Blakey told Congress earlier this year. “The vast majority of the trust fund revenue (72 percent) currently comes from domestic airline passengers, while the sources for the remainder break down as follows: international departure/arrival fees (15 percent); commercial fuel taxes (6 percent); cargo waybill taxes (5 percent); and general aviation fuel taxes (2 percent).”

In a “fact sheet” attached to the FAA’s 2006-2010 Draft Flight Plan, the agency noted that during the last reauthorization of the tax structure in the mid-1990s, the debate lasted nearly two years. The taxes and fees expired and cost the aviation system roughly $5 billion.

Because of today’s higher appropriation levels, the expiration of the taxes without replacement would mean that the fund’s balance would soon dip below zero.

Airline Contributions Dwindle

In previous years, relatively higher ticket prices helped keep the trust fund solvent, but low-cost carriers are now the most significant driver of industry pricing. Because nearly three-quarters of the trust fund receipts come from the airline ticket tax, these lower fares decrease revenue without any corresponding reduction in FAA workload.

Meanwhile, the airlines are taking many more deliveries of smaller aircraft, and by 2008 the regional jet fleet will be four times the size it was in 2000. Further, the business jet fleet will be approximately 50 percent larger than it was in 2000.

“This means more aircraft but decreased revenue per aircraft using the system,” the FAA said, warning that without a solution, certification of new airlines and products will be delayed.

The FAA took issue with those who argue there is not a problem because trust fund revenues will increase as more people fly, or that any shortfall can be covered out of the U.S. Treasury’s general fund.

“Given the deficit and the other national and international demands competing for the general fund resources, we can’t plan that a greater slice of that pie will solve our problems,” the fact sheet said.

Back

Awaiting new funding DayJet postpones expansion plans June 01, 2008 On May 6, very light jet air-taxi operator DayJet put its growth plans on hold after failing to obtain another $50 million in funding to... [more]
Aircraft finance firms striking gold here May 22, 2008 Noticing that aircraft finance companies were more prominent here this year, EBACE Convention News did a quick walkabout to see when they first... [more]
Financiers uncertain amid credit upheaval May 20, 2008 Business aviation financiers exhibiting here at EBACE’08 have arrived in Geneva largely uncertain about the full implications of the ongoing... [more]
Fortis Offers Executive Aircraft Service May 20, 2008 Following an earlier initiative in the luxury-yacht market, international banking and insurance financial-services provider Fortis (Booth No.... [more]
Bank of America Adds Preferred Provider January 01, 2008 Long Island-based jet charter and management company ExcelAire has been selected to join Executive Jet Management, Jet Aviation and Jet Direct... [more]