For Immediate Release
April 23, 2007
WASHINGTON, D.C. — Since the Bush Administration released its aviation financing reform proposal on February 14, there has been a significant amount of misinformed rhetoric about the potential impact of the proposal on the U.S. general aviation (GA) community. The FAA is aware that GA in the U.S. is more vibrant than anywhere else in the world, and GA — from corporate jets to small personal aircraft — plays a vital role in the U.S. economy.
The FAA is proud to help support that role, and strongly believes it is in the national interest to have a strong GA community. In developing our cost-based financing proposal, we balanced numerous interests, including feedback from the GA community, in an attempt to avoid overly burdening any one segment of the industry.
This paper clarifies some key aspects of the reform proposal with respect to the GA community.
Myth: The proposal forces GA to pay more than its fair share of the FAA’s costs.
- The Administration’s proposal is based on an air traffic cost allocation that assigns the costs of over 600 different line items to users based on who drives the cost. This allocation is simple and transparent, but also extremely thorough. It uses the most granular and comprehensive cost and activity information the FAA has ever had.
- The allocation found that GA drives approximately 16 percent of the costs of air traffic services. Nearly 10 percent is related to high performance GA aircraft such as corporate jets, while 6 percent is related to piston GA aircraft. These figures do not include flight service stations, which largely serve the GA community.
- In contrast, GA currently contributes just over 3 percent of the taxes that flow into the Airport and Airway Trust Fund.
- The proposal would increase GA’s share of the user taxes and fees to 11 percent — with 10 percent coming from jets and other high performance aircraft and only 1 percent from piston users. While this is higher than GA’s current share, it is still well below their share of the costs. This is because the Administration’s proposal would have the general fund pay for the costs of towers at airports with less than 100,000 commercial enplanements. These towers primarily serve the GA community.
Myth: The FAA’s cost allocation assumes that “a blip is a blip” and doesn’t account for airlines driving the costs through peak usage, while GA is only a marginal user.
- The cost allocation recognizes that a piston “blip” does not drive the same costs as a jet “blip.” It also recognizes that a flight into an airport like Cheyenne, Wyoming drives very different costs from a flight into Chicago O’Hare.
- However, the cost allocation does assume that a corporate jet flying the exact same flight as an airline jet uses the same services and drives the same costs.
- The allocation divides air traffic services into six different categories with different cost structures (including three different categories of terminals). This methodology recognizes that busy facilities are more expensive and only assigns costs for those facilities to those who use them. For instance, the thirty large hubs, where commercial turbine activity accounts for over 92 percent of the operations, have an average cost per operation nearly 50 percent higher than our middle group of terminals and over five times as high as our low activity towers.
- The allocation also assigned 100 percent of the costs of an approach control facility to the largest terminal category it serves. For instance, all of the costs associated with the New York TRACON went into the large hub group, in recognition that Newark, LaGuardia and Kennedy drive most of the TRACON costs. GA flights to Teterboro may use TRACON services, but are not allocated any of the costs.
- Each cost item is allocated between the two principal users: 1) High performance / turbine and 2) Piston/Helicopter. In virtually all cases (except for the smallest towers), piston users are considered marginal and therefore are not assigned the fixed costs of the system.
Myth: The proposed tax increases will ruin general aviation in the United States.
- We listened to the GA community’s input that fuel taxes were the most efficient and least disruptive way to recover costs from GA users.
- It is important to keep the proposed fuel tax increase in perspective. Federal fuel taxes currently average approximately 1.5 percent of the total operating cost of a GA plane. Under the Administration’s proposal the average federal tax burden would rise to just under 5 percent of operating costs. (This is similar to the federal fuel tax as a percentage of operating costs for automobiles.) In other words, total operating costs would increase roughly 3 percent.
- The last adjustment to the GA fuel tax rate was in 1990. Simply adjusting the fuel tax rates for inflation would result in rates of roughly $0.36 per gallon for jet fuel and $0.32 per gallon for aviation gasoline. However, these rates would still not cover the air traffic control costs that GA activity drives.
- Fuel prices over the last five years have increased by much more than the proposed tax changes. While any increase to the price of flying has an impact on demand, the GA community is thriving despite the recent fuel price increases. According to data from the General Aviation Manufacturers Association, 2006 was a record year for GA aircraft orders. Aircraft shipments and billings increased over 35 percent between 2001 and 2006.
- Under our proposal, we estimate that a large corporate jet flying from Teterboro to Tampa would see an increased cost of approximately $600 — compared to a total operating cost of roughly $13,000. This increase includes an estimated user fee of $79 for landing at Tampa International; if the flight uses an alternate airport in the Tampa area, no user fees would apply to the flight. Under the current system, this GA jet currently contributes approximately $236 in taxes to the system, while a 150-seat airline jet flying from New York to Tampa contributes nearly $1,300.
- A typical small GA piston aircraft would see an increase of roughly $4 per hour, or $500 per aircraft over the course of a year. This increase should not stifle general aviation activity. No user fees would apply if the flight does not land at or depart from one of the 30 large hub airports.
- The bottom line is that under the current system, the family of four taking a budget vacation is subsidizing the CEOs flying on a corporate jet. Reducing the current GA subsidy may result in some rationalization of behavior, but we do not believe the changes will be dramatic.
Myth: The proposal could force GA to pay user fees for terminal airspace.
- The Administration’s proposal does not include any user fees for GA to fly through Class B or any other type of airspace. Based on stakeholder feedback, we recognize that some of the legislative language may be less clear than we had intended on this point. The FAA would be amenable to suggestions on how to clarify this language to align with the intent.
- User fees would only apply to GA when landing at or taking off from one of the 30 large hub airports. These are the busiest, most congested airports in the system. They are in major metropolitan areas with other airports at which GA would not be subject to user fees.
- The fee would be based in part on the weight of the aircraft. As a result, FAA estimates that the typical piston aircraft would pay a fee between $4 and $10 to land at a large hub airport — less than the cost to park a car for a day at one of these airports. And the fee would be completely avoidable if the airplane chooses to fly to another nearby airport.
Myth: Administering the new user fee system will require a large new bureaucracy and billions of dollars in costs.
- FAA is confident that we can collect fees at minimal administrative cost to the FAA and the users of the system. Not only is this the case with service providers around the world, but the FAA has a good track record in this area; the administrative billing and collection processes for overflight fees have gone extremely smoothly.
- Based on best practices from the U.S. and around the world, the administrative cost would be significantly less than 1 percent of the anticipated revenue.
- The fact that fewer than 500 users would account for 95 percent of the billable flights presents opportunities for significant efficiencies in the billing and collection process.
- GA pilots will see no air traffic user fee bills if they do not use the 30 large hub airports.
Myth: The current financing structure is stable and will be sufficient to pay for NextGen.
- We do expect revenue to grow under the existing tax system. However, the fact that revenue is projected to grow under the current taxes really misses the point.
- The Trust Fund is vulnerable. Revenue is subject to major swings from year-to-year because of factors that are unrelated to the cost of providing service. This makes long-term planning difficult, if not impossible.
- In addition, under the current system, FAA’s discretionary spending must compete within the budget caps for all government discretionary programs. Under the proposal, user fees would be offsetting collections, not subject to the overall discretionary spending caps. They could also be adjusted from year-to-year based on needs.
- In addition, the Administration’s proposal includes debt financing to help accelerate the transition to NextGen. This would not be possible under the current funding system.
- A cost-based system, where users pay for the services they utilize, is the best way to ensure a long-term, dependable funding stream that can pay for NextGen.
Myth: The proposal would remove Congressional oversight.
- Congress will retain annual budget approval authority and ongoing oversight over the FAA. Under the Administration’s proposal, all FAA funding — user fees, taxes, and the general fund—would remain subject to Congressional appropriations.
Myth: The proposal would give giant airlines a major tax break that serves the wealthy.
- The proposal would reduce the tax burden on airlines and the passengers who fly them. This is less a tax break for the airlines than the elimination of a subsidy to general aviation.
- Under the current system, a portion of the taxes that a middle-class family pays to go on summer vacation or to visit the relatives for the holidays is subsidizing the use of the system by corporate jets and private individuals who are wealthy enough to own their own aircraft.
- Our proposal addresses this inequity in a way that will allow GA to continue to thrive, while coming much closer to covering the costs they drive in the aviation system.
Myth: User fees have been ineffective and have damaged aviation around the world.
- There are numerous examples of successful user fee implementation throughout the rest of the developed world, and it is clear that user fees have not damaged aviation.
- A January 2006 report by mbs Ottawa in conjunction with three universities (“Air Traffic Control Commercialization Policy: Has It Been Effective?”) evaluated ten countries that have established user fees for air traffic control services: Australia, Canada, France, Germany, Ireland, the Netherlands, New Zealand, South Africa, Switzerland, and the United Kingdom.
- The study found that the impact on “safety was neutral or enhanced; modernization was greatly improved; and, service quality was improved.”
- It also found that “costs were generally reduced, significantly in some models, while financial stability was maintained, and most areas of public interest remained neutral or positive when commercialized elements were introduced.”
- In Canada, the fees NAV CANADA charges are more than 20 percent lower than the taxes they replaced nearly a decade ago, and rates are proposed to decrease by another 3 percent this year. In Europe, a recent discussion paper by the European Commission notes that business aviation in Europe has grown twice as quickly as the rest of air traffic since 2001, and the European fleet of business aircraft is projected to grow by 50 percent over the next ten years.
Myth: The Administration proposal would destroy service to small communities.
- Preservation of service to small communities was a key goal in developing our proposal, and we anticipate that the financing changes we are proposing should not destroy service to GA airports or small communities. The proposed fuel tax would increase the operating cost for an average GA airplane by approximately 3 percent.
- Our proposal also protects service to small communities in several other key ways. For instance, the general fund would pay for towers at all airports with fewer than 100,000 commercial enplanements, which includes all airports that qualify as rural airports under the current tax code. For any commercial flights using these airports (such as air taxis), there would be no terminal user fees.
- In addition, the AIP and PFC reforms will also benefit small communities by increasing entitlements to large GA airports, restructuring the small airport fund, and establishing a minimum state apportionment of $300 million.