With domestic US passenger traffic back to pre-11 September levels, the question of how to pay for FAA operations and improvements in airport and air traffic control system infrastructure has reared its ugly head again

The latest FAA aviation forecast – the agency's 30th – predicts that US passenger traffic, which dipped sharply after 2000, will make a complete return by the end of 2005 and continue expanding at a 3.4% average annual growth rate over the next 12 years. By 2015, the FAA expects the number of passengers to top 1 billion. However, mainline carriers' international traffic, while up strongly in 2004, is still behind (see table).

The make-up of the traffic has changed radically since the previous peak year of 2000. Legacy carriers, which controlled 70% of the market then, were down to 57% last year. Regional carriers, reaping the benefits of the pullback by mainline carriers, and low-cost carriers have seen their combined enplanements grow 40% since 2000, bringing them a 43% share of the domestic market in 2004.

The FAA does not see that trend changing, noting instead that much of the growth it forecasts over the next 12 years will come from low-cost carriers. It expects mainline traffic to return to pre-11 September levels this year but passenger numbers will not rebound to that level until 2009. Regionals, with traffic up 124% since 2000, are expected to continue to profit as they pick up legacy-carrier routes. Regional capacity, almost doubled since 2000, is expected to increase almost 21% this year and 12% in 2006. The FAA says that 1,060 regional jets were added to the fleet over the past four years and estimates that another 439 will be delivered over the next two years.

Overall, the combination of the shift from large mainline to smaller regional aircraft and the lower average ticket prices paid by Americans to fly, courtesy of the low-cost carriers, is causing heartburn for the FAA. This is the conundrum: the overall shift from large jets to smaller aircraft increases its workload, the FAA says, as regional jets carry fewer passengers per flight and represent 37% of the commercial traffic at the nation's 35 busiest airports. But the lower ticket prices mean less tax revenues flowing into the Aviation Trust Fund, which pays for most of the agency's costs to operate the system. "Our workload goes up…our revenue goes down, and the trust fund continues to spend down," says FAA administrator Marion Blakey. "That trust fund is in jeopardy."

Ticket taxes were established in pre-deregulation 1970 to provide dedicated funding for the aviation system, independent of the US government's "general fund", but changes in air transport have outpaced that structure. Blakey warns: "We need to obtain a consistent funding stream that's tied to our actual workload." She says she is "not at this point advocating user fees" or "endorsing excise taxes" or "a greater slice of the general fund".

"I'm simply saying that we need a revenue stream based both on our costs and on our actual units of production," says Blakey. She pointedly notes that just over a dozen countries do not charge for the actual cost of air traffic control services; besides the USA, others include Samoa, Swaziland, Togo and Tonga, but no other large nation.

These issues have arisen repeatedly. In 1997, notes transportation secretary Norman Mineta, the National Civil Aviation Review Commission that he chaired concluded that the FAA needed funding that was more sustainable and more predictable and suggested separating it from the appropriations process. Little progress has been made towards that goal, and the FAA's overall budget must be rewritten and renewed by the end of the 2007 fiscal year.

At the same time the trust fund balance is dwindling, to an estimated $1.4 billion at the end of the 2005 fiscal year. Meanwhile, the FAA/NASA Joint Planning & Development Office is drawing up a plan for a next-generation air transport system for 2025. It will not be cheap. "So we need to start thinking creatively about long-term options for financing infrastructure and other capital improvements," says Mineta. "I am issuing a call to open the dialogue today on the financing of the aviation system of tomorrow." It is far from clear where the magic plan will come from.



Source: Airline Business