[Senate Hearing 106-991]
[From the U.S. Government Publishing Office]



.                                                        S. Hrg. 106-991
   THE IMPACT OF PILOT SHORTAGES ON AIR SERVICE TO SMALLER AND RURAL 
                                MARKETS

=======================================================================

                             FIELD HEARING

                               before the

                        SUBCOMMITTEE ON AVIATION

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 10, 1999

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation




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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington             JOHN D. ROCKEFELLER IV, West 
TRENT LOTT, Mississippi                  Virginia
KAY BAILEY HUTCHISON, Texas          JOHN F. KERRY, Massachusetts
OLYMPIA J. SNOWE, Maine              JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri              RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee                BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan            RON WYDEN, Oregon
SAM BROWNBACK, Kansas                MAX CLELAND, Georgia
                       Mark Buse, Staff Director
                  Martha P. Allbright, General Counsel
     Ivan A. Schlager, Democratic Chief Counsel and Staff Director
               Kevin D. Kayes, Democratic General Counsel
                                 ------                                

                        Subcommittee on Aviation

                  SLADE GORTON, Washington, Chairman 
TED STEVENS, Alaska                  JOHN D. ROCKEFELLER IV, West 
CONRAD BURNS, Montana                    Virginia
TRENT LOTT, Mississippi              ERNEST F. HOLLINGS, South Carolina
KAY BAILEY HUTCHISON, Texas          DANIEL K. INOUYE, Hawaii
JOHN ASHCROFT, Missouri              RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee                JOHN B. BREAUX, Louisiana
OLYMPIA J. SNOWE, Maine              BYRON L. DORGAN, North Dakota
SAM BROWNBACK, Kansas                RON WYDEN, Oregon
SPENCER ABRAHAM, Michigan            MAX CLELAND, Georgia








                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held September 10, 1999..................................     1
Statement of Senator Burns.......................................     1
    Prepared statement...........................................     4

                               Witnesses

Denny, Craig, executive vice president and chief operations 
  officer, Big Sky Airlines......................................     8
DeVany, Dennis J., chief, Essential Air Service and Domestic 
  Analysis Division, U.S. Department of Transportation...........    31
    Prepared statement...........................................    34
Ferguson, Mike, administrator, Montana Aeronautics Division......     5
    Prepared statement...........................................     7
Palmersheim, Robert A., director of flight operations and 
  secretary-treasurer, Lynch Flying Service, Inc.................    10
    Prepared statement...........................................    12
Stimpson, Edward W., chairman, ``Be A Pilot Program,'' and vice 
  chairman of the General Aviation Manufacturers' Association....    25
    Prepared statement...........................................    28
Voss, Douglas G., chairman, president and ceo, Great Lakes 
  Aviation, Ltd..................................................    14
    Prepared statement...........................................    17

                                Appendix

Bissell, Gib, electronic correspondence dated September 13, 1999, 
  to Senator Burns...............................................    41
McNutt, Walter L., Montana State Senator and Member of the 
  Governor's Essential Air Service Task Force, letter dated 
  September 9, 1999, to Senator Burns............................    41









 IMPACT OF PILOT SHORTAGES ON AIR SERVICE TO SMALLER AND RURAL MARKETS

                              ----------                              


                       Friday, September 10, 1999

                                        U.S. Senate
                                   Subcommittee on Aviation
         Committee on Commerce, Science, and Transportation
                                                      Kalispell, MT
    The subcommittee met, pursuant to notice, at 9 a.m. in room 
Springcreek B of the Hampton Inn, 1140 Highway 2 West, 
Kalispell, Montana, Hon. Conrad Burns presiding.
    Staff members assigned to this hearing: Ann Choiniere, 
Republican senior counsel; Michael Reynolds, Republican 
counsel; and Sam Whitehorn, Democratic senior counsel.

            OPENING STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. We'll call the subcommittee to order. We 
like to start on time, and that way we get through the business 
at hand here.
    Mike, you have a chair up here. We'll just have you bring 
the whole panel up here, because before it's all over, I would 
imagine that we'll just get in a round-table discussion, as 
it's a good time to give and take.
    This morning we're going to welcome you to this field 
hearing of the Senate Aviation Subcommittee. As you know the 
chairman is Senator Slade Gorton of Washington. We've been able 
to use our position on the aviation subcommittee to look at 
Montana and what is going on across the country and to make 
sure that we are ahead of the curve.
    Air service in Montana is very, very important. It's 
important to us in many, many ways, not only in the economic 
climate but also from the perspective of having a heavy tourism 
state. Our current needs are well served by Delta, United, and 
Northwest Airlines and complemented by Horizon and Big Sky 
regional airlines. We are favored in Montana, to be honest with 
you, with very good air service. But it's an every day fight to 
maintain those levels of service.
    A couple of months ago, I began hearing about an impending 
domestic pilot shortage due to a number of factors. After much 
research and discussion and an examination of today's market, 
it's very apparent that we are on the verge of a potentially 
serious pilot shortage. It's also apparent that the hardest hit 
economies will be those that are rural in nature and rely on 
regional service. Montana fits that description.
    I don't need to tell anybody here how important adequate 
air service is to the economy of Montana. Monte Eliason, 
manager of the Glacier International Airport, has been a very 
proactive leader in his pursuit to retain competitive air 
service in this region. Although there are many elements 
driving this pilot shortage issue, we are here to discuss what 
role the Federal government plays. It's important that Congress 
address this issue.
    I intend to use this hearing as a springboard for further 
hearings in Washington under the banner of this subcommittee. I 
am convinced that the testimony we hear today will convince my 
colleagues of the serious nature of these proceedings.
    Before we hear from today's witnesses, I would like to 
briefly discuss some of the elements that have attributed to 
the pilot shortage crisis. Because the national economy has 
done fairly well over the last few years, the major airlines 
have been in something of a boom to their business. They've 
seen that. As with any business, when times are good, the big 
airlines are expanding, which means they are hiring pilots in 
almost record numbers. However, the major airlines tend to hire 
their pilots from the regional airlines. That leaves smaller 
airlines scrambling to replace those who move on.
    When the regional airlines get caught with too few pilots, 
that means they sometimes have to cancel flights. We'll hear 
testimony collaborating that statement. If the rate of loss of 
pilots is too severe, entire routes may have to be abandoned. 
It doesn't take a rocket scientist to figure out that the 
flights and routes that are canceled in these situations are 
those that are least profitable. And the sad part is that the 
least profitable of a particular route tends to be for an 
airline, the more important it tends to be for the people who 
are served by that route.
    If a regional airline is the only carrier serving a 
particular community and it cancels a route, what are the 
residents in those communities supposed to do then? Air service 
is an essential lifeline for many individuals in rural 
communities. Without it, the area can be devastated 
economically.
    Montana's participation in the EAS, Essential Air Service 
program, has been a solution to that issue in the case of 
smaller, isolated communities, but is jeopardized if these 
operators cannot supply pilots. So the loss of pilots is very, 
very important to rural states.
    The loss of pilots to major airlines also affects the 
charter operations airlines. With so many pilots being hired 
away, a lot of small businesses are being hit hard. I hope to 
hear more about the specifics of these problems from at least 
one of our witnesses today.
    Pilot shortages have already led to canceled flights by 
regional airlines such as Big Sky and Great Lakes, and the 
problem may be only get worse in the near future. The military 
used to supply pilots for the industry. But a large number of 
those pilots who were trained by the military during the 
Vietnam era are getting to the point where they are forced to 
retire because of Federal regulations, the so called age 60 
rule.
    Since the late 1950's, airline pilots have been forced to 
retire when they reach the age of 60. I heard a great statement 
the other day from a ninety year old farmer friend of mine in 
Great Falls. I said, Emil, how are you getting along? He 
responded, when you get up around 90, Conrad, we're just 
circling the drain. I would hate to characterize age sixty as 
just circling the drain.
    I understand that there is great opposition to changing the 
rule, and some worry about the safety implication. But perhaps 
accommodation or compromise can be reached, if the demand for 
qualified pilots continues to exceed the supply. It may only 
provide temporary relief, but the air service needs of all 
small and rural communities are very important, and we 
shouldn't rule out any resolution.
    Also, I find it quite disturbing that the Federal 
Government can apply a blanket regulation, like the age sixty 
rule, determining that a pilot exceeding that age is considered 
a hazard. Federal rules that restrict how many hours a pilot 
may fly also have an impact on the demand for pilots. While 
current rules were adopted many years ago, the industry has 
developed a complex scheduling system to keep their route 
structures running. However, the FAA is proposing changes to 
flight and duty time rules that could impact the rate of pilot 
shortages and impact service here in Montana and other rural 
states.
    According to the airlines, the FAA's proposal would force 
them to hire more pilots, because the right airlines would hire 
pilots from the regional carriers at an even faster rate. The 
carriers are going to be in a very, very tough spot. So 
cancellation of flights and routes can skyrocket. Without 
enough pilots to fly all their routes, these carriers aren't 
going to stop flying between the big and medium-sized cities, 
they are going to stop flying to the smaller communities and 
communities just like Kalispell, Montana. The prospect of a 
significant drop in the level of air service in Montana is just 
not acceptable. We cannot afford route frequency or capacity 
decreases. The economic impact would be enormous at a time when 
Montana is reaching out to attract new business and as, of 
course, the states tourism business continues to grow.
    Now, I know the general aviation community is trying to 
encourage people to become pilots because general aviation is 
the grass roots of the aviation industry. This effort can help 
ease the situation, and I look forward to hearing more about 
that with some of our witnesses this morning.
    Our witnesses this morning are here, and we thank you for 
coming. But I would hope that we can work together on a 
solution so this problem doesn't continue to grow and become a 
cancer so widespread that it probably will not be able to be 
corrected at all.
    We are fortunate this morning to have a very good panel. 
When we have a field hearing, it's important that we hear from 
people that are on the ground, at the grass roots, because 
those are the testimony offered here; the give and take and the 
dialog is what leads to other things when we start talking 
about this kind of situation in the halls of Congress and 
Washington, D.C. As you know, I made a speech yesterday on the 
floor. I said it would be wonderful in Washington if we were 
hit by a sizable bolt of common sense every now and again 
there. That would help us to solve some of our problems faster 
than anything else.
    So I am very, very happy with the panel today, and I 
appreciate their efforts. I want to express my thanks for 
coming and making the effort to get here, considering this is a 
little out of the way, Mr. Voss. I understand you had a little 
bit of trouble--We did too. We couldn't get out of Washington 
last night due to the weather.
    [The prepared statement of Senator Burns follows:]
     Prepared statement of Conrad Burns, U.S. Senator from Montana
    Good morning, and welcome to this field hearing of the Senate 
Aviation Subcommittee. As many of you know, I have been able to use my 
position on the Senate Aviation Subcommittee to help ensure Montana's 
very fragile relationship with adequate and affordable air service. 
Although our current needs are well served by Delta, Northwest and 
United, it seems we are always fighting to maintain our current service 
levels.
    A couple of months ago, I began hearing about an impending domestic 
pilot shortage due to a number of factors. After much research and 
discussion, and an examination of today's market, it is very apparent 
we are on the verge of a serious pilot shortage. It is also apparent 
that the hardest hit economies will be those that are rural in nature 
and rely on regional service. Montana fits that description.
    I don't need to tell anybody here in the far reaches of the state 
how important adequate air service is to the economy. Monte Eliason, 
manager of the Glacier International Airport, has been very proactive 
in his pursuit to retain competitive air service in the region.
    Considering many of the elements that are driving this pilot 
shortage originate in our federal bureaucracy, it is important that 
Congress address this important issue. I intend on using this hearing 
as a springboard to further hearings in Washington under the banner of 
this subcommittee. I am convinced that the testimony we hear today will 
convince my colleagues of the serious nature of these proceedings.
    Before we hear from today's witnesses, I would like to briefly 
discuss some of the elements that have attributed to this pilot 
shortage crisis.
    Because the national economy has done fairly well over the last few 
years, the major airlines have seen something of a boom in their 
business. As with any business when times are good, the big airlines 
are expanding--which means they are hiring pilots in almost record 
numbers. The only problem is that the big airlines tend to hire their 
pilots from the regional airlines. That leaves the smaller airlines 
scrambling to replace those who move on.
    When the regional airlines get caught with too few pilots, that 
means they sometimes have to cancel flights. We'll hear testimony 
corraborating that statement. If the loss of pilots is too severe, 
entire routes may be abandoned. It doesn't take a doctorate in 
economics to figure out that the flights and routes that are canceled 
in these situations are those that are least profitable. The sad part 
is that the less profitable a particular route tends to be for an 
airline, the more important it tends to be for the people served by 
that route.
    If a regional airline is the only carrier serving a particular 
community, and it cancels the route, what are the residents of that 
community supposed to do then? Air service is an essential lifeline for 
many individuals and communities. Without it, an area can be 
devastated. Montana's participation in the Essential Air Service 
program has been a solution to that issue in the case of smaller 
isolated communities but is jeopardized if these operators cannot 
supply pilots.
    The loss of pilots also affects the charter operators. With so many 
pilots moving on up, a lot of small businesses are being hit hard. I 
hope to hear more about the specifics of these problems from at least 
one of our witnesses today. Pilot shortages have already led to 
canceled flights by regional airlines, such as Big Sky and Great Lakes, 
and the problem may only get worse in the near future. The military 
used to supply a lot of pilots to the industry. But a large number of 
pilots who were trained by the military during the Vietnam era are 
getting to the point where they have to retire because of federal 
regulations.
    Since the late 1950's, airline pilots have had to retire when they 
reach the age of 60. But some pilots aren't ready to retire at that age 
and many are probably fit enough to keep flying. I understand there is 
great opposition to changing the rule and some worry about the safety 
implications, but perhaps some accommodation or compromise could be 
made if the demand for qualified pilots continues to exceed the supply.
    It may only provide temporary relief, but the air service needs of 
small and rural communities are very important, and we shouldn't rule 
out anything. Also, I find it quite disturbing that the federal 
government can apply a blanket regulation like the Age 60 rule 
determining that a pilot exceeding that age is considered a hazard.
    Federal rules that restrict how many hours a pilot may fly also 
have an impact on the demand for pilots. The current rules were adopted 
many years ago, and the industry has developed a complex scheduling 
system to keep their route structures running. However, the Federal 
Aviation Administration (FAA) is proposing changes to the flight and 
duty time rules that could worsen the pilot shortage and impact air 
service here in Montana and other rural states.
    According to the airlines, the FAA's proposal would force them to 
hire a lot more pilots. Because the big airlines would hire pilots away 
from the regional carriers at an even faster rate, smaller carriers are 
going to be in a very tough spot. Cancellations of flights and routes 
could skyrocket. And without enough pilots to fly all their routes, 
these carriers aren't going to stop flying between the big and medium-
sized cities--they are going to stop flying to small communities--
communities just like Kalispell.
    The prospect of a significant drop in the level of air service in 
Montana just isn't acceptable. We cannot afford route, frequency, or 
capacity decreases. The economic impact would be enormous in a time 
when Montana is reaching out to attract new business and tourism 
growth.
    I know that the general aviation community is trying to encourage 
people to become pilots. Because general aviation is the grassroots of 
the aviation industry, this effort could help ease the situation. I 
look forward to hearing more about that from one of our witnesses this 
morning.
    I thank everyone for being here this morning, and I especially 
appreciate the participation of those witnesses who came here from 
outside the state. As I'm sure you noticed, it can already be tough to 
get here at a reasonable price on a convenient flight. I'm hoping it 
doesn't get any worse.

    We have Mike Ferguson who is the administrator of the 
Montana Aeronautics Division out of Helena. Mike, with years 
and years and years of experience working for many great 
administrations both bipartisan, but his first love is 
aviation, and he has displayed that many, many times. If I 
recieve questions on aviation in Montana, there's not a better 
man to go to than Mike Ferguson. So, Mr. Ferguson, we welcome 
you to this subcommittee this morning, and we look forward to 
what you have to tell us.

STATEMENT OF MIKE FERGUSON, ADMINISTRATOR, MONTANA AERONAUTICS 
                            DIVISION

    Mr. Ferguson. Thank you, Senator. Well, Senator Burns, for 
the record, my name's Mike Ferguson, the administrator of the 
Montana Aeronautics Division. We're based in Helena. I'll try 
to keep my remarks within the 5-minute time constraint, so I'll 
read most of it. Much of it's going to be redundant from what 
you've just talked about, of course, and I imagine there will 
be a lot of redundancy today. The pilot shortage problem in the 
United States is a real thing. And it's, as you mentioned, due 
to the significant growth in air travel which has resulted for 
a tremendous economic upturn for the airlines and which has, of 
course, caused huge expansions. This is all very good for the 
airlines and the entire nation. But these expansions have 
placed an alarming demand on the pilot population of this 
country. To meet these expansion demands, the major airlines 
are being forced to hire pilots away from the regional 
airlines, placing an extreme hardship on the regional carriers. 
These regional airlines, of course, a lot of them, as you 
mentioned, are hiring pilots away from the fixed-base 
operators, the commercial charter operators. They're fortunate 
when they can do that because they have pilots who are already 
trained and more experienced.
    However, that's not what's happening. It's becoming more 
and more prevalent that the regionals are having to hire pilots 
with very little experience, and they assume a great financial 
risk when they're doing this. They have to hire them with 
minimal experience and pay for extensive training to meet their 
flying requirements. Even after the training, the cost 
involved, many of these pilots don't cut the mustard. So it's a 
vicious circle. They have to go back and hire more--another 
pilot, again, and put them through training. Hopefully they 
will continue with the airline.
    However, when they do get a little bit of experience, then 
the major carriers hire them away or rob them, as many refer to 
it, but they're forced to. Where else do they go? They are not 
assuming the great financial burden that the regionals are. 
Because these pilots are already trained. Even though a lot of 
them have minimal experience, they've still reached that 
certain level that the majors are pretty much assured, as they 
are with the military pilots, that that pilot's going to cut 
the mustard and be a value to their airline.
    I believe that--of course, you mentioned this other factor, 
and I think it's a major factor in addressing the pilot 
shortage problem, is the FAA's archaic age sixty rule which 
forces highly skilled and experienced air carrier pilots to 
retire on their sixtieth birthday. There are at least 44 
countries that do not agree with the FAA's age sixty rule. Our 
U.S. Government, through the FAA, allow over sixty-five-year-
old pilots from 44 other countries, worldwide, to fly into the 
United States, carrying U.S. citizens every day of the week, 
using our aviation services and air space, yet they refuse to 
allow our own United States citizen pilots to fly beyond age 
sixty. The countries of Australia, New Zealand, Chile, and even 
Canada have completely done away with any age restriction for 
pilots. They may continue to fly if they pass extensive medical 
exams and flight checks. When questioned, the National 
Institute of Health has responded that all pilots may be tested 
to determine their continued health and competence and that 
best insures their ability to fly safely after age sixty. If a 
pilot can successfully pass a first-class medical exam, which 
includes an extensive mental, neurological and cardiovascular 
exam, every 6 months, why does our government allow the FAA to 
discredit the medical profession saying these same individuals 
are unsafe to perform their job the day they become sixty years 
of age? I ask you and myself, would we rather fly with a sixty-
year-old physically and mentally fit 20,000-hour highly 
experienced pilot or a twenty-three-year-old physically and 
mentally fit 300-hour minimally experienced pilot? I think we 
all know the answer to that question.
    I believe that another factor in the pilot shortage problem 
is what you mentioned, is the regulation--they're trying to 
change the proposed flight and duty time regulation. I think 
that while they mean well on that, it's another example of 
overregulation and is totally unnecessary.
    I mentioned before, the military. They're also greatly 
impacted by this carrot being hung out there in front, after 
the government spends millions of dollars training these 
pilots. Then, of course, they leave the military to go with the 
major air carriers. Nobody can blame them for that, of course, 
because the pay and the retirement are both very attractive. I 
think we need to look at that. I think from the--both those 
points, the economic benefits of staying with the military. Of 
course, with the military cutbacks, it's a major problem.
    In Montana, the Essential Air Service program is just as 
it's titled, essential. Due to the vast distances in Montana, 
this program is critical. Montana's regional air carrier 
provides their service to seven essential air service 
communities. We do have another air carrier out of Utah that's 
providing service to another EAS point at West Yellowstone. 
This service is vital to Montanans who rely on this program for 
medical needs, the movement of freight and mail and, of course, 
economic development. I believe that the FAA must assist in 
solving the problem, that they've helped create the problem. I 
think they need to rescind the age sixty rule and also drop 
their proposal for change in flight and duty time restrictions. 
In conclusion, I respectfully urge your committee to include 
language in the FAA appropriation bill to mandate the FAA to 
present to Congress documented evidence from a credible 
independent, not FAA, independent medical authority why they 
should keep the age sixty rule. If they still maintain that 
there's a safety risk by allowing pilots over age sixty to fly, 
then prohibit all foreign air carriers who allow their pilots 
to fly beyond age sixty from flying in the United States' air 
space. Otherwise, repeal the age sixty rule. Again, Senator, I 
thank you for inviting me to testify before you today.
    [The prepared statement of Mr. Ferguson follows:]

Prepared statement of Mike Ferguson, Administrator, Montana Aeronautics 
                                Division

    Chairman Burns and members of the committee, for the record 
my name is Mike Ferguson. I am the Administrator for the State 
of Montana Aeronautics Division in Helena, Montana.
    The pilot shortage problem in the United States is REAL. 
Due to significant growth in air travel the resultant economic 
upturn for the airlines has resulted in huge major airline 
expansions. These expansions have placed an alarming hiring 
demand on the pilot population in this country. To meet these 
expansion demands the major airlines are being forced to 
``rob'' pilots from the regional airlines placing an extreme 
hardship on the regional airlines. These regional airlines 
assume a great financial risk when they hire young pilots with 
minimal experience and pay for extensive training to qualify 
these pilots for their flying requirements. Even after 
extensive, costly training some of these new pilots are unable 
to meet the minimum requirements and another new hire is 
required. These same regional airline pilots are then hired 
away by the major airlines after gaining adequate hours and 
experience. The major airlines have very little risk when 
hiring a pilot from a regional airline. They are already 
assured that the pilot meets minimum qualifications and the 
only risk is in providing additional training in the major 
airlines aircraft.
    The regional airlines are being forced to lower their 
minimum hiring requirements in order to keep pilots in the 
cockpit. Is the safety of the U.S. airline passenger being 
jeopardized?
    I believe that one factor in addressing the pilot shortage 
problem is the FAA's Age 60 Rule which forces air carrier 
pilots to retire upon reaching their 60th birthday. There are 
at least 44 countries that do not abide by our FAA's Age 60 
Rule. Our United States government through the FAA allow 65-
year old, or older, pilots from 44 other countries worldwide to 
fly into the United States, carrying U.S. citizens, using our 
aviation services and airspace yet refuses to allow their own 
United States citizens to do the same. The countries of 
Australia, New Zealand, Chile and Canada have completely done 
away with any age restriction for pilots. They may continue to 
fly if they can pass extensive medical exams and flight checks. 
When questioned, the National Institute of Health has responded 
that ``all pilots may be tested to determine their continued 
health and competence and that best ensures their ability to 
safely fly after age 60.'' If a pilot can successfully pass a 
first class medical exam which includes an extensive mental, 
neurological and cardiovascular exam every six months why does 
our government allow the FAA to discredit the medical 
profession saying these same individuals are unsafe to perform 
their job the day they become 60 years of age? I ask you, and 
myself would we rather fly with a 60-year-old physically and 
mentally fit 20,000 hour highly experienced pilot or a 23-year-
old physically and mentally fit 300 hour minimally experienced 
pilot? I think we all know what our answer will be.
    I believe that another factor in the pilot shortage problem 
is that the FAA continues to over regulate the aviation 
industry. The proposed flight and duty time regulations are one 
example. The FAA should be looking for ways to support and 
boost the industry rather than creating further obstacles.
    The regional airlines are not the only ones impacted by the 
pilot shortage problem. United States taxpayers pay enormous 
amounts of money for young men and women to be flight trained 
by our military. These same individuals are being ``robbed'' by 
the major airlines. Due to military cutbacks, the military is 
training fewer pilots and is also placed at a disadvantage when 
these pilots join the airlines.
    In Montana, the Essential Air Service Program is just as it 
is titled ``essential.'' Due to the vast distances in Montana 
this program is critical. Montana's regional air carrier 
provides air service to seven essential air service 
communities. This service is vital to Montanans who rely on 
this program for medical needs, the movement of freight and 
mail and economic development in Montana.
    The FAA must assist in solving the problem that they have 
helped create by rescinding the Age 60 Rule and dropping their 
proposal for a change in flight and duty time restrictions.
    In conclusion, I respectfully urge your committee to 
include language in the FAA appropriations bill to mandate the 
FAA to present to Congress documented evidence from a credible 
independent medical authority why they should keep the Age 60 
Rule and if they still maintain that there is a safety risk by 
allowing pilots over age 60 to fly then prohibit all foreign 
air carriers who allow their pilots to fly beyond age 60 from 
flying in Unites States airspace. Otherwise repeal the Age 60 
Rule.
    Thank you for inviting me to testify before you today.

    Senator Burns. Thank you, Mike. We appreciate those words 
very much.
    We have Craig Denney now, Executive Vice President, Big Sky 
Airlines here in Montana, and will talk about the impact of 
local service.
    Thanks for coming this morning.
    Mr. Denney. Thank you. Good morning. My name's Craig 
Denney. I'm the Executive Vice President of----
    Senator Burns. Oh, by the way, excuse me for a second. If 
you could make your written statement available to us for the 
record, why we would appreciate it. But if you have written 
statements, we'd sure like to have copies of them. Thank you.

 STATEMENT OF CRAIG DENNEY, EXECUTIVE VICE PRESIDENT AND CHIEF 
              OPERATIONS OFFICER, BIG SKY AIRLINES

    Mr. Denney. Again, my name is Craig Denney. I'm the 
Executive Vice President and Chief Operations Officer for Big 
Sky Airlines, based in Billings, Montana. Also with me today is 
Kim Champney, our President and Chief Executive Officer. He 
certainly can be available for any questions or answers, as 
well, before or after the hearing.
    Big Sky Airlines currently serves seven states, 24 cities. 
We employ approximately 215 people. Of those 24 cities we 
serve, 16 are under the Essential Air Service program. Seven of 
those 16 cities are in Montana. The rest are in Texas, 
Arkansas, Missouri, and Oklahoma. So EAS is a critical part of 
our company's operations. The impact of the crew shortage issue 
is kind of mixed for us because of the two regions of the 
country we serve, Billings versus Dallas. Dallas, we experience 
a higher turnover of pilots because of the--for example, at 
Dallas-Fort Worth, American Airlines is based there. Other 
airlines are certainly serving that city, so there's a greater 
demand on pilots down there, where if you're a pilot looking 
for a job, there's a lot of opportunities in those states. In 
Billings, we don't have as much turnover but we are having more 
problems because of it. Our greatest shortage from pilots 
occurs when a pilot gives 2 weeks' termination notice because 
he just got hired by a major airline, and it takes us 6 weeks 
to hire and train a replacement. That 4-week gap is where we're 
experiencing the bulk of our problems.
    To address those issues, when we do have that 4-week gap, 
we've done a number of things. First, we have had to adjust our 
flight schedules. In Sidney, Montana, for example, starting 
this week, they used to have a flight that would go nonstop 
Sidney to Billings. It would go early in the morning, very well 
timed to make out-bound connections out of Billings, and then 
it would return late at night, again. So that customer could 
leave out of Sidney, go to Minneapolis, go to Denver, do a 
day's worth of business and come back that night. Regretfully, 
because of our shortage of pilots right now, we've had to 
combine that flight with our Glendive and Miles City flight. So 
that passenger now has to leave Sidney at 5:30 in the morning 
versus a 6:15 nonstop flight and make two stops en route. At 
least they have service. So they have an option of getting to 
Billings that way, but it's not desirable.
    In addition, we have had to combine flights, as I just 
mentioned, with the Sidney/Glendive/Miles City example. When we 
hire replacement pilots, we still get a lot of pilot 
applications today. However, as Mr. Ferguson mentioned, the 
time and experience these pilots have is not as great as once--
we were once fortunate to have. These pilots we're having today 
are still safe. They still have to go through the same testing 
and training procedures as more experienced pilots, but our 
failure rate, our washout rate of pilots has definitely been 
increased. Which, what it does, is just increase our costs for 
training.
    At the same time, the FAA has mandated the crew rest/duty 
time requirements. We are having serious problems with the FAA 
in having funds available for a budget. Currently, right now, 
we work out of the Helena, Montana flight standards district 
office. They're on a freeze right now of their budget. Their 
inspector that we need to fly with our pilots during their 
pilot training classes, we have to bring an airplane to Helena, 
as we did yesterday afternoon, to get pilots their check ride. 
They can't stay overnight in Billings. Their budgets have been 
frozen. It's ludicrous to think that on one hand, they're 
mandating more regulations on the airlines and the pilots and 
on the second side--on the opposite side, they don't have 
enough inspectors for our type of aircraft. When they do have 
inspectors, they have no funds for traveling.
    We're using various sources to hire new pilots. Rocky 
Mountain College in Billings has a 4-year pilot training 
program that has produced a number of good pilots. We will 
probably continue to work closely with that facility, as well 
as other institutions, to get new pilots. But the cost of an 
individual to go through a 4-year degree anymore is very, very 
expensive, especially when you add on the flying aspect of it. 
So it's going to be a challenge for us, I think, for quite some 
time.
    Not only the impact of when we have pilot shortages today 
are the service levels to communities, our company, in addition 
to the additional training costs, we lose revenues due to the 
tickets not--not being able to carry passengers. We lose a 
Federal subsidy for that flight, and probably the most 
important thing that we've been losing is the faith and trust 
of the traveling public. Because we normally don't try to 
cancel a flight until the very last minute, because we still 
have hopes of getting alternate pilots to rearrange their 
schedules to fly a certain flight for us. When you have to 
cancel a flight at very short notice, the faith of the 
traveling public can be lost very quickly. It takes so long to 
get it back. So I think, again, it kind of--and being 
repetitive with what Mr. Ferguson said, the age sixty rule 
waiver, the duty time and reserve issue for pilots. Virtually--
and I think Mr. Voss will agree to this--the operators, the 
airlines, had little if no say of parietal input on the crew 
rest/duty issue. That needs to be addressed very quickly.
    That concludes my presentation. Thank very much.
    Senator Burns. OK, thank you, Mr. Denney, we appreciate 
that very much.
    In general aviation, we have Robert Palmersheim, Director 
of Flight Operations, Lynch Flying Service in Billings.
    Robert, thank you for coming today. Your face in general 
aviation in Montana is a very familiar one and has been for a 
long, long time. Watch that microphone, it's going to--push 
that microphone back in the cradle a little bit. There you are; 
OK. We thank you for coming this morning.

STATEMENT OF ROBERT PALMERSHEIM, DIRECTOR OF FLIGHT OPERATIONS 
      AND SECRETARY-TREASURER, LYNCH FLYING SERVICE, INC.

    Mr. Palmersheim. Thank you, Senator. I'm Bob Palmersheim, 
Director of Flight Operations, as well as Secretary-Treasurer 
of Lynch Flying Service, in Billings, Montana. We might be 
offering just a little different perspective on air service 
here in Montana. Just a little background on our company.
    Our company has been in existence fifty-nine years in 
Montana starting in 1940 as a CPT contractor, training pilots 
for the military at Montana State College in Bozeman. We are a 
full-service FBO and have been associated with Cessna Aircraft 
Company as the distributor and a dealer for over fifty years. 
We currently operate 29 aircraft in our charter and flight 
training operations. We have 55 full-time employees of which 15 
are full-time pilots in our charter department. Our company 
flies over 10,000 hours of on-demand air charter per year. As a 
Part 135 on-demand air charter operator, our charter department 
contributes approximately 49 percent of our total sales revenue 
of the company. And as an unscheduled on-demand charter 
operator, a good share of our market is to the rural areas that 
are not served by the scheduled carriers.
    There's over 12,000 airports in the United States, and less 
than a fourth of those are served by scheduled carriers. 
There's a whole bunch in Montana; Libby, Ekalaka, Poplar, 
Shelby, Plentywood, just to name a few. We are very well aware 
of the acute pilot shortage, having lost some 30 pilots to the 
major airlines and commuters; 21 just in the last 2 years. With 
the critical shortage of qualified pilots, our company is 
extremely concerned that the FAA is attempting to include on-
demand operators in the same category as the scheduled 
carriers, under the flight duty time regulations.
    For the on-demand air charter industry, there are two times 
recognized for pilots in the regulations; duty and rest. 
Essentially, a pilot is either working on duty or at rest. In 
the past, the FAA has observed the crew assignments and on-
demand air charter and determined this practice is in 
compliance with the regulation. After completing a flight and 
fulfilling a required rest period, a pilot is not working. He's 
not on duty and is, again, for the purposes of regulation 
compliance, at rest. FAA principal operation inspectors in the 
air charter industry have used this basic principle for years. 
We, therefore, contend that under the provisions of Part 135 
that apply to us, a pilot can only be in two states; duty or 
rest.
    The FAA's new interpretation of the existing flight and 
duty time regulation could have a devastating financial effect 
on the on-demand air charter industry.
    It is very important to understand the nature of the on-
demand industry before we discuss the negative effects that the 
new interpretation will have on it. First of all, on-demand air 
charter exists for two primary reasons. One is that it provides 
flexibility to its users that no other mode of air 
transportation can provide, such as emergency air ambulance 
services to save lives, just-in-time cargo needs, emergency 
blood service transportation, organ transplant transportation, 
just to name a few. Charter serves communities that scheduled 
carriers do not serve. They also provide transportation to 
customers on the customer's schedule, not the airline's 
schedule. Second, on-demand air charter is used as an 
alternative to cheaper scheduled transportation for a variety 
of reasons but, mostly, because there are no other options 
available. For example, Senator, you're settled into first 
class on United Airlines heading to Washington, D.C. for a 
mandatory Senate vote. The captain comes on and notifies you 
that the plane is broke and the flight is canceled. You call 
all the other airlines and find that nothing is available to 
get you there on time for the vote. You know that you have the 
tie breaker for an important piece of legislation. But if you 
don't get there, the vice president will be the tie breaker. 
Your next call is to Lynch.
    Senator Burns. We're not going to comment on that. Mr. 
Palmersheim: The next call is to Lynch. They scramble a crew 
and aircraft and have you in Washington, D.C. for lunch.
    Companies like Lynch have built their foundation with the 
on-demand niche due to the flexibility it provides its 
customers. It is a very specialized niche. The FAA's new 
interpretation of flight duty time is designed for scheduled 
airlines and would not work at all in this industry. It is 
another attempt by the FAA to blanket policy ``One size fits 
all'' to an industry that is diverse. You can't require 
scheduled crews in an unscheduled environment. It would only 
devastate this important segment of the industry. The FAA 
should know by now that these blanket policies fail and they 
fail miserably. It's like implementing a policy at the zoo, 
making all the animals eat bananas. It's great for the monkeys, 
but the tiger thinks it's a bad deal.
    Currently on-demand pilots are either assigned duty or they 
are off duty, at rest. This allows the operator to draw pilots 
who have had their required rest to duty assignments when an 
on-demand trip comes up. Under the new interpretation, the 
pilot would need to have been assigned 10 hours of rest in the 
last 24 hours prior to being assigned duty. Unfortunately, 
nobody knows when the phone is going to ring for a trip, so it 
is nearly impossible to assign rest periods, other than the one 
that is required after a duty assignment.
    What this means is scheduling your on-demand pilots to 10 
hours of rest every day, even if they haven't flown for a week. 
Our company would have to nearly double the pilot pool to cover 
the same number of flights it currently accepts. The average 
pilot flies 40 hours per month now, which would be cut in half. 
Retaining quality pilots which are already in short supply, 
would be much more difficult than it is now. Keeping pilots 
current would be a whole other issue to deal with.
    The options available to companies like ours, under this 
new interpretation, are pretty simple. Comply with the new 
interpretation and be forced to turn down probably half the 
trips that come in without being able to decrease our overhead 
or pilot staff. This would lead to the eventual demise of the 
charter department or an extreme down-sizing. Or we could 
comply with the new interpretation, double the pilot staff in 
order to handle the current level of business and still accept 
a higher pilot turnover and pilots who aren't totally current. 
This also would lead to the eventual demise of the charter 
department. Or we could convert the charter department to a 
fractional ownership program with the current base clientele 
and operate under Part 91. The only way to stay in business 
would be to get out of the business. Unfortunately, this option 
would leave the public, who at times really needs us, out of 
luck.
    So, Senator, please don't let the FAA feed us any more 
bananas. Thank you.
    [The prepared statement of Mr. Palmersheim follows:]
    Prepared statement of Robert A. Palmersheim, Director of Flight 
     Operations and Secretary-Treasurer, Lynch Flying Service, Inc.
    My name is Robert A. Palmersheim, Director of Flight Operations, as 
well as secretary-treasurer of Lynch Flying Service, Inc. in Billings, 
Montana.
    Our company has been in existence 59 years, starting in 1940 as a 
CPT Contractor for the military through Montana State College in 
Bozeman.
    We are a full service FBO and have been associated with Cessna 
Aircraft company as a distributor and dealer for over 50 years. We 
currently operate 29 aircraft in our charter and flight training 
operations. We have 55 full time employees of which those, 15 are full 
time pilots in our charter department. Our company flies over 10,000 
hours of on demand air charter per year.
    As a FAA part 135 on-demand air charter operator, our charter 
department contributes approximately 49 percent of the total sales 
revenue of the company. As an unscheduled on--demand charter operator, 
a good share of our Market is to rural areas not served by the 
scheduled carriers.
    We are very well aware of the acute pilot shortage, having lost 
some 30 pilots to the major airlines and commuters, 21 in just the last 
two years. With the critical shortage of affiliated pilots, our company 
is extremely concerned that the FAA is attempting to include on-demand 
operators in the same category as the scheduled carriers under the 
flight and duty time regulations.
    For the on-demand air charter industry, there are two times 
recognized for pilots in the regulations.....duty...and...rest. 
Essentially a pilot is either working...on duty...or at rest. In the 
past, the FAA has observed the crew assignments in on-demand air 
charter and determined this practice is in compliance with the rest 
regulation.
    After completing a flight and fulfilling a required rest period, 
the pilot is not working...not on duty...and is again, for purposes of 
regulation compliance,...at rest. FAA principal operations Inspectors 
and the air charter industry have used this basic principal for years. 
We therefore contend that under the provisions of part 135 that apply 
to us, a pilot can only be in two states...duty or rest.
    The FAA' s new interpretation of the existing flight and duty time 
regulation could have devastating financial effects on the on-demand 
air charter industry.
    It is very important to understand the nature of the on-demand 
industry before we discuss the negative effects that the new 
interpretation will have on it. First of all, on-demand air charter 
exists for two primary reasons:
    One is that it provides flexibility to its users that no other mode 
of air transportation can provide: i.e. emergency air ambulance to save 
lives, just in time cargo needs, etc. charter serves communities that 
scheduled air carriers do not serve. They also provide transportation 
to customers on the customers schedule not the airlines schedule.
    Secondly, on-demand air charter is used as an alternative to 
cheaper schedule transportation for a variety of reasons, but mostly 
because there are no other options. For example:
    You are settled into first class on United Airlines heading to 
Washington, D.C. for a mandatory Senate vote. The captain comes on and 
notifies you that the plane has mechanical problems and the flight is 
canceled. You call all the other airlines and find out nothing will get 
you there for the vote on time. You know that you have the tiebreaker 
for an important piece of legislation, but if you don't get there the 
vice president will be the tiebreaker. Your next call is to Lynch. They 
scramble a crew and aircraft and have you in Washington D.C. in time 
for lunch.
    Companies like Lynch have built their foundation with the on-demand 
niche due to the flexibility it provides its customers. It is a very 
specialized niche. The FAA's new interpretation of flight and duty time 
is designed for scheduled carriers and would not work at all in this 
industry. It is another attempt by the FAA to blanket policy ``one size 
fits all'' to an industry that is diverse. You can't require scheduled 
crews in an unscheduled environment. It would only devastate this 
important segment of the industry. They should know by now that these 
blanket policies fail miserably. It's like implementing a policy at the 
zoo, making all the animals eat bananas. It's great for the monkeys, 
but the tiger thinks it's a bad deal.
    Currently on-demand pilots are either assigned to duty or they are 
off duty (rest). This allows the operator to draw pilots, who have had 
their required rest, to duty assignments when an on-demand trip comes 
up. Under the new interpretation the pilot would need to have been 
assigned l0 hours of rest in the last 24 hours prior to being assigned 
duty. Unfortunately, nobody knows when the phone is going to ring for a 
trip, so it is nearly impossible to assign rest periods Other than the 
one required after a duty assignment.
    What this means is scheduling your on-demand pilots to 10 hours of 
rest every day, even if they haven't flown for a week. Our company 
would have to nearly double the pilot pool to cover the same number of 
flights it currently accepts. The average pilot flies 40 hours per 
month now which would be cut in half.
    Retaining quality pilots already in short supply would be much more 
difficult than it is now and keeping pilots current would be a whole 
other issue to deal with.
    The options companies like ours would have under this new 
interpretation are pretty simple:
    1. Comply with the new interpretation and be forced to turn down 
probably half the trips that come in, without being able to decrease 
overhead or pilot staff. This would lead to the eventual demise of the 
charter department or at least extreme downsizing.
    2. Comply with the new interpretation, double the pilot staff in 
order to handle the current business at hand and accept higher pilot 
turnover and ``rustier'' pilots. This also would lead to the eventual 
demise of the charter department.
    3. Convert the charter department to a ``fractional ownership'' 
program with the current base clientele and operate under far part 91. 
The only way to stay in business would be to get out of the business. 
Unfortunately, this option would leave the public, who at times really 
needs us, out of luck.
    Please don't let the FAA feed us any more bananas.
    Thank-you.

    Senator Burns. Thank you, Robert. Thank you for coming and 
offering those views.
    You know, we don't know how this whole thing will affect 
fixed-base operations and charter on-demand situations.
    We have Doug Voss, who is CEO and President of Great Lakes 
Aviation out of Spencer, Iowa. I hope you get along with an old 
friend down there I have, I used to travel with a long time 
ago. We'll talk about him later, because he's the most 
miserable son of a gun I've ever run into in my life. But he's 
a dear, close friend. Spencer, Iowa and, Mr. Voss, we 
appreciate the effort that you made to come to Kalispell, 
Montana to offer your testimony.

  STATEMENT OF DOUGLAS G. VOSS, CHAIRMAN, PRESIDENT AND CEO, 
                   GREAT LAKES AVIATION, LTD.

    Mr. Voss. We thank you, Senator Burns for the opportunity 
to present a few views that we have. Certainly this pilot 
shortage, whether we've liked it or not, has been making news, 
even outside of the company. For us, in particular, we just 
recently underwent a significant surge in August.
    Again, for the benefit of those that are not familiar with 
Great Lakes--and we have provided some written statements. I 
believe they're behind me on the counter over here. In an 
effort to eliminate redundancy, I'm not going to try to dwell 
too much on that document. But for the benefit of those that 
are not familiar with the company, we are a United Express 
carrier serving the Chicago and Denver hubs. This year we'll 
generate a little over 135 million dollars serving 70 cities in 
15 states, with 40 Beach 1900's, eight Brasilias. We are 
providing exclusive service--I believe it's in 38 cities out of 
the 70, but we are a heavy EAS provider. I think we have almost 
35 or 40 percent of the Federal budget, which is not something 
we've necessarily been proud of, but it's just a generic nature 
of the geography that we serve.
    The company has, for years, recognized the fact that it's 
effectively a graduate school for pilots. In the early years we 
went through many different generations of how to handle hiring 
for the sake of longevity and management of costs. The cost, 
especially in today's regulatory environment, has become 
extremely expensive for the transitioning and training. The 
initial indoctrination of first officers and upgrades to 
captain is--requires a tremendous investment on the part of the 
company. The unfortunate part about being the graduate school 
is that we do not control the graduation date. In August alone, 
July and August, we experienced a period where we lost 65 
pilots in 60 days. The good news here in the latter part of 
August, we thought it was going to die off and we'd see the 
attrition rate drop. Unfortunately, yesterday, as an example, 
we lost six pilots. That's out of a pool of about 380. They're 
coming in surges.
    There's no question that recent rules interpretations 
change, it wasn't even a proposed regulatory change, it was a 
rather arbitrary--or at least from the company's point of view, 
a rules interpretations change that was made effective June 
15th to be implemented on December 12th is having a dramatic 
effect on the planning and scheduling of training events, in 
the efforts on the part of the major carriers, to cover their 
existing lines of flying, commencing with this interpretation 
to be implemented on December 12th.
    Some carriers, we're being told, are anticipating a need to 
have to boost pilot staffing by as much as 15 percent in order 
to simply protect what they're currently flying, not 
considering any potential expansion. Having recently worked 
with United on this issue and because of the level of interest 
that was caused by the cancellations that we were forced to do 
in the latter part of August and early September, we became a 
little closer to United on the subject. United, interestingly 
enough, pointed out that the crew shortage is very significant 
within their own operation. In the month of September alone, 
they are canceling ten 737 lines of flying because of crew 
shortages. It's the constantly changing influence of the 
regulatory process, the way the availability of crews is being 
managed is creating a crisis not only for the regionals but 
there is a significant problem to and including carriers such 
as United.
    For the company, Great Lakes, who--we've been providing 
scheduled service since 1981. In the early years of the company 
we were really rather fortunate in that we grew relatively 
slowly compared to most of the regionals. Part of that was the 
fact that we were very focused on Chicago O'Hare. We couldn't 
expand in O'Hare due to the slot restrictions. But historically 
the company grew profitably year over year. We had a successful 
public offering in 1994, raised 30 million dollars. At the 
time, the concept behind raising the money was to utilize the 
funds to expand and improve the quality of the service by 
adding more 30-passenger airplanes into the system where we had 
capacity spillover. Specifically, we needed it in Chicago.
    We discovered, though, that due to the massive wave of 
regulatory change that took place following the accidents--the 
regional accident in Indiana, in particular, in 1994, that we 
were required to transition to 121 operational rules.
    One of the--one of those rules that impacts the pilot 
staffing levels is that historically, prior to the transition 
from 135 to 121, we had--and it's partly due to the nature of 
the fact that we were serving the upper midwest--we had a pool 
of what were forced retirements from having been Republic or 
Northwest Airlines where we would--pilots would leave Northwest 
due to the sixty age rule, and we were requiring some very 
experienced people. Unfortunately for us, a lot of those types 
of pilots would come to the company and they became mentors for 
a lot of the youthful people we would bring into the system. 
With the force changed from 135 to 121, we now see that pool of 
pilots no longer available and no longer able to really utilize 
talents and skills that they certainly still possess. That's 
added considerable pressure onto the pilot pool that we draw 
from.
    We do coordinate with several universities to draw the 
majority of today's--the pilots that we actually hire are being 
drawn from the instructor pools. I was just visiting with Ed 
Stimpson here earlier. He mentioned that they've had a hundred 
percent turnover in the instructor force at Embry Riddle down 
in Florida. We're one of the carriers that are very aggressive 
about trying to hire the highly experienced instructors that 
are flying a great deal in these college programs. That, of 
recent, has become the largest tap that we have for pilots that 
meet the types of qualifications.
    Because we have seen a decline in total experience, it is 
forcing, as Craig had mentioned, us to put substantially more 
investment into the training than we would normally have done 
with a more experienced pilot applicant. For us, we are now 
seeing a turnover rate running to where a captain is normally 
only with us for about a year and a half, and they're moving on 
to that seniority number at a major carrier that we cannot 
compete with, either through the form of wages or benefit or 
increases at the end of the day. That seniority number is 
golden. There is no real method by which we have seen that we 
can become more effective. Unfortunately for us, as our 
expenses increase across the board, that is going to put a lot 
of pressure on small communities.
    Today, as we speak, we have at least six markets in Chicago 
alone that are nonEAS that we are having to consider being put 
on the bubble, even though they would--they're clearly 
potentially profitable markets. The demand for resources and 
the prioritization of some of the Essential Air Service flying 
is creating a situation where there will be service 
discontinuations that we'll be forced to do, based on what we 
have to work with for resources.
    This rule as interpretation change that we have seen the 
FAA implement here, from our point of view, I think it's fairly 
clear that the change was made without at least airline 
management input to the extent that we're familiar with. It was 
done in a very short period of time. It appears to us that 
there is--I think a portion of this has been the intense focus 
on things such as hot line calls. I know the FAA is deluged, 
under the current hot line rules, to grant listening ears to 
what in many cases are labor issues between air carriers and 
their employees. It's putting them in a sensitive position. I 
think they're doing the best they can in managing it--managing 
the situation. Unfortunately, it does make the progression in 
how the relationships function with the employees more complex, 
because for all practical purposes, you've added third and 
sometimes fourth parties to the process.
    I know for Great Lakes, as we went through this shortage 
here in late August, in particular, we found ourself having to 
weigh the need to protect customers versus the need to protect 
certain Essential Air Service markets. By law, we're required 
to maintain at least two round trips of service into a market 
that's been guaranteed access by the current Essential Air 
Service rules. For us that put us in a position of having to 
make some very difficult choices in late August.
    There are markets within the EAS program that the company, 
at least from the Great Lakes' perspective, believe that need a 
healthy, serious review. There are markets that are over $200 
per passenger of subsidy being paid that technically--and I 
think--I don't know that it's a deliberate rule, but it's been 
guidance from Congress that whenever those types of situations 
exist, that a review of their eligibility occur.
    Certainly in Montana you've got geography issues that weigh 
out substantially different. But in places like Fairmont, 
Minnesota, which are a 2-hour drive down an Interstate highway 
system to a super hub like Minneapolis, we cannot be an 
effective competitor with low-frequency service. This product 
is not going to be convenient, and unfortunately, it's become 
extremely expensive to provide EAS to markets such as Fairmont 
or Mount Vernon, Illinois.
    When we have to weigh up canceling markets that are 
carrying a hundred to 150 passengers a day versus a market 
that's carrying two to five, it turns into a serious internal 
struggle as to what's the right thing to do. Unfortunately for 
us, when we upset the customers, they don't come back. So it's 
made for a challenging period. I think we've reached an 
accommodation over the period in late August and September. 
Hopefully with some stability now as we go--or at least a 
slowed down pilot attrition, we should be able to return things 
to normal. Our goal is to return them to normal by November. We 
do have over 65 pilots in the training pipeline today, and 
we're expecting a recovery on staffing by mid to late November.
    I think the last thing I'd like to mention--you know, the 
company has, over the years, been, I think, as aggressive as 
probably any regional in the group in trying to work with the 
congressional members on issues, specifically slots. We're one 
of the only carriers, one of the unique carriers, in that we're 
providing Essential Air Service into a slotted airport. But we 
have had, for the last six to 9 months, some amendments that 
we've been trying to promote through Senator McCain and 
specifically a Harkin and Grassley amendment that speaks to the 
phaseout of the slot rules at O'Hare and the inclusion of turbo 
prop equipment in what is currently planned to be an initial 
exemption that's designed to help small communities. When we 
see a Congress having such a difficult time moving things like 
the FAA reauthorization bill and we run into the issues such as 
this pilot shortage, it's putting stresses in the system where 
I think we, in particular--and I mentioned earlier we had six 
markets in Chicago that today we lose money in but we know 
could be profitable if the slot rule wasn't there hindering our 
ability to compete with the other product pipelines.
    We'd like to encourage you, to the extent that we have any 
impact, that the movement of the reauthorization bill, the 
aviation legislation, gains some momentum soon because 
otherwise we're going to be forced to simply choose to stop 
tolerating the losses in some of these markets that really 
require legislative relief, in this particular case in the form 
of slot relief, because we simply can no longer afford it, 
especially when all other costs are rising the way they are. 
The pilot training costs alone, with what we've experienced in 
turnover in the last 6 months, it's adding literally a hundred 
thousand dollars a year of an expense per aircraft line. On 40 
aircraft, it's running into the millions of dollars. As of the 
end of August, we'd spent over three million dollars on pilot 
training alone, which was twice what we would have liked to 
have seen under what we would have considered to be a more 
normal pilot attrition period. Again, we appreciate the 
opportunity to have presented a few views, and certainly 
encourage you to take the time to read our written statement. 
There's a lot of additional detail that can help you understand 
our situation.
    [The prepared statement of Mr. Voss follows:]
  Prepared statement of Douglas G. Voss, Chairman, President and CEO, 
                       Great Lakes Aviation, Ltd.
    Thank you, Mr. Chairman and Fellow Members of Congress for the 
opportunity to present our views and offer a few insights as to our 
company's position with regard to flight staffing requirements along 
with other past, present, and future challenges in this highly 
competitive airline industry. By way of background, Great Lakes 
Aviation, Ltd. is a now a 22-year old, Iowa grass roots aviation 
company whose United Express operations serve 70 cities in 15 states 
with primary hubs at Chicago O'Hare and Denver. The Company was 
originally formed in April of 1977 to provide Fixed Base Operations 
(FBO) and airport management services for the Spirit Lake, IA, 
Municipal Airport. In June of 1980, the Company was contracted to 
manage the Spencer, IA, Municipal Airport.
    Great Lakes first began providing scheduled passenger service in 
October of 1981. The company's fleet today is made up of 40 Raytheon/
Beechcraft 19-seat stand-up cabin 1900 C's, eight 30-passenger Embraer 
120% and four all-cargo Raytheon/Beechcraft 1900 C's.
    Great Lakes, many years ago recognized the fact that its operations 
are providing valuable experience for pilots who have committed 
themselves to the goal of flying jets in the airline industry.
    As the number of surviving regional carriers continues to shrink, 
we have actually seen increases in unsolicited pilot resume submission. 
The fact that we are one of the few remaining graduate schools for 
pilot careers has not gone unnoticed. The unfortunate problem that our 
Company and the communities we serve have is that we do not control the 
timing of graduation day.
    We have also learned that our ability to incentify crew members 
with the company by offering increased wage or benefit packages is 
relatively futile. The pilot pay progression rates at the large 
unionized jet carriers force pilot candidates to obtain their seniority 
number as early in life as possible. No independent regional carrier 
can compete with the earning power of major carrier seniority numbers.
    Recently, Great Lakes Aviation has been experiencing a substantial 
increase in the pilot attrition rate as the graph on the following page 
demonstrates. In a recent 52-day period, attrition rates averaged one 
pilot per day. Compared to the same period last year, we have 
experienced a year-to-date attrition rate increase of 65%. This 
represents to the airline the loss and subsequent required replacement 
of 154 pilots since the first of this year. What is even more alarming 
is the economic impact on the company. It currently takes eight weeks 
to replace or back-fill a captain's position; five weeks to train a new 
hire and an additional three weeks to upgrade a first officer to a 
captain's position. The cost to replace one captain, not inclusive of 
salaries, exceeds $21,000 dollars. Year-to-date company pilot training 
expenditures have exceeded three million dollars.
    The acceleration in the recent attrition rate appears to have been 
significantly influenced by an FAA rules interpretation notice issued 
on June 15 of this year. This change in policy on the part of the FAA 
will require increased crew staffing for existing levels of flying for 
most air carriers.
    As an airline, Great Lakes Aviation employees approximately 350 
pilots in its scheduled passenger operations. This number equates to 
approximately 7.2 pilots per scheduled aircraft, allowing for 
scheduling flexibility and a proper reserve pilot complement. To meet 
our staffing requirements, Great Lakes hires pilots with both civilian 
and military experience backgrounds. Preferred hiring minimums have 
been established at 1200 hours of total fixed wing flight time and 200 
hours of fixed wing multiengine. Many of the military and civilian 
general aviation flight instructors and FAR 135 on-demand pilots meet 
these requirements.
    As a formidable training entity and airline involved with the 
transportation of this nation's traveling public, we hold our pilots to 
the very highest standards of skill and professionalism. Over the 
course of the past 24 months, we have seen a decline in the experience 
levels of our new hire candidates. We attribute this to increased 
controls placed on both FAR 141 and 61 flight schools. Many students 
are not, for a variety of reasons, being allowed to go out in our 
nation's airspace system and validate their knowledge and flight skill. 
Training accidents are believed to be the reason for many of the more 
restrictive policies adopted by flight schools.




    To counter this trend, Great Lakes Aviation has sponsored 
internship programs with three of its closest educational facilities. 
As a part of the internship program, we have the ability to immerse a 
student into our corporate processes giving them insight into what is 
to be expected of them in today's airline environment. By being 
involved in programs such as this, we feel that we will be able to 
maintain the quality of our new hire pilot force even though we may see 
future declines in total flight time minimums.
    With respect to the industry as a whole, we anticipate that major 
carriers will be recognizing the need for stronger alliances with their 
regional partners. Downsizing within the military over the last seven 
years has brought about a reduction in the number of qualified military 
applicants available for hire by the majors. Major carriers will 
continue to hire more and more from the regional and commuter ranks, 
due in part to the pilot's familiarity with the major carriers product, 
airline culture and associated operating philosophies.
    Unfortunately for the communities served by today's regional 
airlines, the rapidly rising costs associated with pilot training, pay 
and benefit packages will be passed along in the form of fare 
increases.
    In markets where EAS subsidies are being paid, Congress should 
expect significant increases in the cost to maintain the EAS program. 
If pilot attrition were to continue at present rates, training cost 
increases per aircraft committed to a schedule would alone increase by 
over $100,000 annually. If Congress fails to fund EAS to levels that 
recognize this rapidly increasing cost environment, it should be 
prepared for and anticipate the need to remove EAS cities from the 
program in a very expeditious manner. The DOT's EAS program managers 
must be given additional latitude free from political micro-management 
to expedite a more rational use of precious funding.
                       recent company background
    In January of 1994, the Company successfully raised $30 million in 
a public offering. The proceeds of that offering were originally 
intended to provide capital to upgrade to larger thirty passenger 
aircraft from what had been an all nineteen-seat fleet. In hindsight, 
that $30 million in capital ultimately has allowed Great Lakes to 
survive five very traumatic years in this industry including the period 
where federal budget cuts had this company subsidizing the unfunded EAS 
mandate to the tune of several million dollars. In 1998, after four 
years of significant losses, the company returned to profitability 
having reported an operating profit of $6.4 million and a net profit of 
$2.7 million on revenues of $114 million. This amounts to slightly more 
than a 2% return. I am sure my shareholders agree with me that this is 
an unacceptable return on investment especially given the strength of 
the current economy. Results for the six months ending June 30, 1999 
have shown some year-over-year improvement with operations having 
generated three million dollars operating profit and a net of 1.25 
million dollars on revenue of 62.5 million.
    In reviewing how we turned the corner back to profitability, there 
are a number of noteworthy evolutionary changes we were required to 
make in order to survive:

        1. Great Lakes transitioned a large portion of its $225 million 
        investment in aircraft and equipment during 1998 to United's 
        Denver hub to substantially improve aircraft utilization. We 
        currently provide United Express service to 45 cities from the 
        Denver hub. The attached System Route maps (Exhibits A and B) 
        will provide a clear picture of the shift in capacity that has 
        taken place within the last year. It is important to note that 
        all of the expansion at Denver was accomplished with no 
        increase in the size of our fleet of 53 aircraft. Due to the 
        inefficiencies of scheduling aircraft at Chicago O'Hare's slot 
        restricted airport, the company can no longer compete with the 
        Northwest Airline product into the slot free Detroit and 
        Minneapolis hubs and to a lesser extent, the slot free TWA hub 
        at St. Louis. (See Exhibit C for terminated O'Hare service.)
        2. We are discontinuing unprofitable service to small 
        communities as fast as the Department of Transportation's (DOT) 
        Essential Air Service policies will allow. The facts are, that 
        our costs rose so dramatically during the mandated transition 
        from Federal Aviation Regulation (FAR) Part 135 Rules to FAR 
        Part 121 Rules that Essential Air Service (EAS) negotiations 
        and federal budget limitations could not keep pace.


 
                     Year                             Revenue              Cost             Profit  or (Loss)
 
1994..........................................               14.6                14.5                       0.1
1995..........................................               15.0                15.8                     (0.8)
1996..........................................               16.3                18.4                     (2.1)
1997..........................................               19.5                21.5                     (2.0)
1998..........................................               23.4                22.8                       0.6
1999..........................................               23.2                22.6                       0.6
                                                                                                   Year-to-Date
                                                                                                      (6-30-99)
 
* All statistics are cents per available seat mile.


    For EAS service that remains, we have negotiated new subsidy rates 
that have begun to make participation in the program somewhat 
compensatory although some serious problem locations remain.

                       Annual EAS Subsidy Received
1994....................................................      $2,749,026
1995....................................................      $2,639,857
1996....................................................      $3,512,156
1997....................................................      $6,358,126
1998....................................................     $15,249,375
1999....................................................      $8,496,508
                                                            Year-to-Date
                                                               (6-30-99)
 

    3. We continue to increase yield (revenue per passenger mile) by 
raising fares in order to achieve maximum net revenue per segment. In 
doing so, if load factor drops, we attempt to eliminate capacity or 
drop markets altogether.

 
                                                                   Load
                         Year                            Yield    Factor
 
1994..................................................     30.5     44.6
1995..................................................     31.6     43.9
1996..................................................     34.7     44.2
1997..................................................     37.9     46.1
1998..................................................     37.4     51.2
1999..................................................     41.2     46.0
 


    The balance between pricing and capturing the customer on our 
turbo-prop product verses a car trip to a lower fare jet carrier is our 
greatest challenge.
    Pricing competition in our markets has always included neighboring 
airports. If, for example, fares are lowered in Omaha to a level that 
diverts significant amounts of passenger traffic, we will most likely 
reduce capacity at markets like Grand Island, NE; Norfolk, NE; and 
Spencer, IA. Profit margins are so thin in such markets (almost always 
5% or less) that price matching has become a competitive tool that we 
cannot often afford to use. Once you've sold your product below your 
cost, there is a tendency for the discretionary consumer to believe 
that should always be the price. The customer is constantly 
demonstrating they are in control of today's air travel market place.
    In order to keep truly small community service on a rational 
progressive path, Great Lakes would like to recommend the following 
federal policies be reviewed.
    1. Given today's dramatically increased cost for EAS capacity, DOT 
needs additional latitude to adjust eligibility of communities in the 
Essential Air Service Program. With the tremendous recent investments 
made in our highway systems and the increase in speed limits on most 
freeways, subsidizing competition against the car can be futile. 
Congress should encourage DOT adherence to the $200 per passenger 
subsidy cap.
    2. Monies saved by reducing eligible points should be used to 
increase frequencies at remaining EAS communities. Perception of poor 
reliability in EAS service can only be repaired by improving total 
convenience of service. Perceived and actual reliability will be 
substantially improved by offering backup service in the form of 
increased available departures in a given day.
    3. With any lifting of the high-density rule, one of the first 
priorities must be the elimination of slot requirements for small 
community turbo prop service. Today, all subsidized O'Hare EAS service 
is limited to two round trips. This policy virtually insures the 
failure of the program's stated objectives.
    4. Traditional formulas used by the airlines and the communities 
they serve to measure success are not compatible. In order to improve 
relations between airlines and the communities we serve, it is our 
suggestion that the method for measurement of success between the two 
parties must change. In the airline business, growing passenger 
enplanements does not necessarily equate to success. A classic example 
of this conflict exists in the community of Spencer where we are 
currently headquartered. As the airport manager, I am motivated to push 
for increased enplanements to qualify for federal funding necessary for 
airport improvements. The greatest stimulant to increased consumer 
usage will always be lower fares. In today's regulatory environment, 
with its increased cost structure, lowering fares in the quickest way 
to bankruptcy court for the airline. The airline needs net revenue per 
segment that exceeds the cost incurred per segment or in other words--
profit. Because the formulas for success are not aligned, this is 
creating an ever widening communications barrier between airlines, the 
communities they serve and the consumers that utilize the service. 
Government and community leaders need to utilize the public data that 
is available to measure airline profitability before assuming that 
growing passenger traffic means they have a success story at their 
local airport.
    The Company would also at this time like to convey our deep concern 
regarding the ability of Congress to move long-term aviation 
legislation. As a business that is heavily influenced by Federal 
regulation, our willingness to continue unprofitable small community 
air service is waning. The Company has been proceeding under the 
assumption that our patience will be rewarded when proposed legislation 
removes slot restrictions and thus allows us to provide a competitive 
product.
    Currently, the Company internally subsidizes six (6) cities from 
Chicago O'Hare. Our desire to maintain this service has been motivated 
by the knowledge that these markets would be profitable once the 
competitive barrier of existing slot rules have been removed.
    As we now ready ourselves for Winter operations, wherein we expect 
losses to increase due to the traditional season ability of the upper 
Midwest, we find ourselves wondering if we can afford to wait on 
another act of Congress.
    Failure to break the grid lock soon may force us in our efforts to 
manage precious resources such as flight crew staff to choose air 
service terminations to communities that clearly are capable of 
profitably supporting competitive capacity.
    In summary, the higher cost of providing small communities with 
capacity suited to their market potential has become this industries 
most difficult public relations dilemma. With market presence being 
equal, the airline with the lowest cost will always win due to their 
ability to control pricing. Southwest has changed the definition of 
market presence in many areas of this country, including the upper 
Midwest, with its low cost all jet service and its usage of interstate 
highway system as its commuter network. Unfortunately, if Southwest's 
low fares are used as a yardstick to measure the success of all other 
airline service, many truly small communities will always feel cheated. 
All airlines continue to work hard to keep our costs low, but 
unfortunately significant further cost reductions are difficult to 
achieve as long as artificial barriers, such as slot controls, and new 
duty time rules prevent the industry from efficient use of investments 
in employees and aircraft.
    With your help we can continue to make affordable capacity 
available to the small communities who will not see the benefit of low 
cost jet service at their local airports.
    Again, we thank you for the opportunity to present our views.

    
    

    
    
    
    
    Senator Burns. Thank you very much. While I've got a 
fantastic memory, it's short. Would you give me your commentary 
on what if we just did away with the slot rule at the four 
airports in the United States?
    Mr. Voss. Well, I think it's been considered common 
knowledge for some period of time that O'Hare has been ready 
for a 20-percent increase in air-side ATC handling capability. 
For various different reasons, these slot rules tend to be hard 
to move. From our perspective, O'Hare, in particular, has been 
ready for elimination of the slot rule for quite sometime.
    Senator Burns. Why are we reluctant to do that?
    Mr. Voss. I think, you know, there's been tensions that go 
all the way back to the PACO strike, where there's caution and 
concern over not having a situation where you overwhelm the 
airport with traffic, specifically at peak periods. In three, 4 
years ago when the economic engine was not as strong as it was, 
I think if you would have seen the rule go away, you would have 
probably discovered that there would not have been a 
significant growth at O'Hare just due to the tremendous amount 
of activity where carriers were flying markets and losing money 
but they were flying the markets because they had to protect 
the control over the slots. Today, as the industry's seen the 
benefit of a stronger economy, there will be pressure to do 
additional expansion. From our point of view, O'Hare is still 
prepared--or is still ready on the air side to handle it. There 
will be a natural management that--from the industries--at 
least from the United and American's point of view that they 
have limited gates and limited concrete to park airplanes. So 
they'll have to prioritize how they use that. But there are 
certain times of the day at O'Hare where there is a lot of 
concrete that's not being used, and it would be made much more 
efficient if you eliminate the rule. There would be additional 
capacity and United and American would certainly become a more 
effective competitor to Northwest in the upper midwest. Clearly 
Northwest has been a huge beneficiary of the slot rules that 
have prevented United and American from maintaining market 
presence in a lot of, especially upper midwest, markets. Our 
situation alone, we've dropped over 12 cities out of Wisconsin 
and Michigan, simply because the additional growth and the 
capacity that Northwest has placed in the market has made it 
unprofitable.
    It is clearly in the public's best interest to see this 
slot rule go away and go away soon and let the industry sort 
out the best utilization and the best efficiency of how the 
concrete and the gates base gets managed at O'Hare.
    Senator Burns. Same would also be true at Washington and 
New York?
    Mr. Voss. Certainly, you don't have the runway capabilities 
in Washington National. It's a completely different animal. Now 
with the development of what you can really describe as a real 
hub at Dulles and the growth in the area surrounding near 
Dulles, I don't think the pressure on National will be as great 
today as it was five or 6 years ago to expand it at National 
because a lot of relief has been provided in Baltimore and in 
Dulles. I can't really speak to the specifics because we don't 
have an intricate working knowledge of the operational. But 
from an outsider's point of view, to completely relinquish the 
rule has probably got problems in it due to runway 
configurations. New York, similar situation. I personally don't 
have the working knowledge of what it's capable of doing.
    Senator Burns. Good enough. Well, I appreciate those views.
    We have Edward Stimpson, Chairman of Be A Pilot, who works 
in that wonderful seventeen square miles of logic free 
environment in Washington, D.C.
    Mr. Stimpson. That was logic free, you said?
    Senator Burns. No, lodging free.
    So we appreciate your making the effort and coming out, Mr. 
Stimpson. We look forward to your testimony.
    Mr. Stimpson. Thank you, Mr. Chairman.

 STATEMENT OF EDWARD W. STIMPSON, CHAIRMAN OF THE ``BE A PILOT 
     PROGRAM,'' AND VICE CHAIRMAN OF THE GENERAL AVIATION 
                   MANUFACTURERS' ASSOCIATION

    I'm Edward W. Stimpson, Chairman of Be A Pilot, which is an 
industry-wide effort supported by over 170 companies to 
research, to educate, to reach out to new potential pilots. I 
also serve as Vice Chairman of the General Aviation 
Manufacturers' Association.
    We very much appreciate this hearing you're holding today. 
It was just about 10 years ago that the Senate Aviation 
Subcommittee, Senator McCain, Senator Ward and Senator Glenn at 
the time, expressed concern about the supply of civilian and 
military pilots. This led to the establishment of a blue ribbon 
panel which predicted a possible shortage of pilots and 
aviation mechanics with skills and experience necessary to 
provide the industry with sufficient numbers of well-qualified 
personnel.
    Unfortunately, some of the pilot shortages projected by the 
blue ribbon panel have already been exceeded today. According 
to AIR, an extremely knowledgeable source on pilot hiring, 
14,413 new airline pilots were hired last year; an all time 
record. The rate of hiring in 1999 continues to be strong, with 
approximately 14,500 new pilot jobs expected. In addition, the 
rate of hiring in business and corporate aviation and other 
professional pilot jobs is also increasing. Keep in mind that 
blue ribbon panel predicted hiring at these levels would not 
occur until about 2004, and this did not include a lot of the 
projections for professional pilots and corporate aviation that 
are being hired today.
    Today, I would like to recap some of the efforts that are 
being done to address these shortages today and for tomorrow. 
As we discussed earlier, this morning, Mr. Chairman, we were 
very appreciative of the action you and others took in the 
Congress to pass the General Aviation Revitalization Act in 
1994 which put a cap on liability. The efforts of this 
committee have really proven to work out. Today, GARA has 
proven to be a huge success. The stated goals of this 
legislation have been met. Over 25,000 new jobs have been 
created. Aircraft production is up over a hundred percent. Our 
exports have doubled. The balance of trade is again positive 
for general aviation, and new aircraft and new products have 
been introduced again and investment is being made in the 
industry.
    Following the passage of GARA in 1994, the industry set up 
what we call the Piston-Engine Aircraft Revitalization 
Committee (PEARC). We asked how we should take advantage of 
what you in Congress had done by capping liability? After 
working for nearly twelve months, a report was issued and a lot 
of conclusions were reached. The research showed there were 
about 1.2 million Americans who wanted to learn to fly, who 
wanted to become pilots. We found the numbers to be very 
positive. But the most important thing that came out of this 
report was that we had to take advantage of GARA and increase 
our student pilot population in America.
    To implement the PEARC report, Be A Pilot Team 2000 was 
created. I was elected the chairman. Phil Boyer, President of 
the Aircraft Owners and Pilots Association was elected 
President of the association. We have a 15-member board 
representing all segments of the industry; the airlines, 
manufactures, FBOs. We came forward with a program to reach out 
to new pilots and to try and get them to take advantage of a 
$35 introductory ride at their local flight school. We've used 
cable TV including the Discovery and Learning channels to reach 
our audience. We've heavily promoted our web site where 
potential pilots can receive information about becoming a 
pilot. Over 1600 flight schools are participating in this 
program. A flight school advisory committee has been 
established. A bi-monthly newsletter goes to all these flight 
schools.
    I'm pleased to report that this program is working. We are 
receiving over 2,000 inquiries a week on our web site and 888 
toll-free number. Through the first 6 months of this year, new 
student starts are up by over 10 percent. The twenty-year 
decline in our pilot population has been reversed.
    In Montana, we have eleven flight schools participating. 
Lynch is one of our members. So far this year, we've received 
about a hundred leads of people in Montana who want to become 
pilots.
    According to FAA statistics, in 1980 there were 827,000 
pilots in the United States. In 1997 this had declined to 
616,000. In 1998, the number of active pilots jumped up just 
slightly, but there is still cause for alarm. In 1996, fewer 
people learned to fly in the United States than anytime since 
the Korean War. This total number was 56,500 plus. You know, a 
few years ago we were doing like 150,000 new students a year. 
This dropped to 56,000.
    Fortunately, again, we are on the up swing a bit and we are 
hopeful that we can continue. If we don't have new students 
where it all begins--this is the base. General aviation is sort 
of at the bottom of the pyramid. You heard Mr. Ferguson and 
others discuss that pilots start going up, moving from GA to 
regional to commercial. We don't have the military anymore 
training the vast number of pilots that they did just a few 
years ago.
    Bob Baker, Executive Vice President of Operations at 
American, recently said, ``The commercial airline industry 
draws the majority of its pilots from general aviation. We need 
a healthy general aviation industry producing pilots.'' He 
couldn't be more right. I think every one of the witnesses here 
bears that out in what they've said this morning. With a 
decline in military pilot training, general aviation is 
becoming even more important.
    Now, today, we have a number of challenges facing us, not 
only in the general aviation student pilot side but the 
military. General Ryan, in his testimony before our Senate 
Armed Services earlier this year said, ``Today we are over 700 
pilots short of our requirements....'' By 2002 we expect to be 
2,000 pilots short. ``That will be 15 percent fewer than needed 
for Air Force requirements.'' The number of training 
institutions--and I've been on the board of Embry Riddle for 
many years, and Mr. Voss just quoted my number here--we've had 
a hundred percent turnover of flight instructors in the last 
twelve months. The last graduation at Embry Riddle where we 
have 300 aeronautical students come across with their degrees, 
their 4-year degrees and their commercial pilots licenses, 
normally about 75 percent of them have jobs when they walk 
across that graduation. But these 300 pilots at the last 
graduation, between our two campuses, 98.9 percent of the 
graduates had jobs at graduation. That's a pretty high number. 
So people who say, Hey, there's no pilot shortage, whatever you 
want to call it, there's a heck of a demand out there.
    You know, we look at what we need to do about this in 
addition to the programs that I briefly touched on. I would 
like you to see our annual report which describes in further 
detail about our promotional efforts and our educational 
efforts in trying to interest people in flying again. You know, 
the government must also play a role and establish a regulatory 
framework which will allow new technologies, new techniques to 
go ahead. You heard about the government role from our 
panelists this morning, but I'm talking today about new 
computer-based technologies which are now entering the field. 
To do a better job at training pilots; to make training faster; 
do it safer; do it as we do an excellent job training pilots 
today. The rare new technologies that we can adopt along the 
line, and government must respond to some of these in a 
meaningful fashion.
    FAA must also work with the industry in a partnership to 
evaluate how well some of our programs are working. For 
example, we badly we need an FAA Reauthorization bill, as you 
know. One of the provisions in the House side would allow us to 
get the names of new pilots. For many years we've gotten names 
of new pilots, of new students. We look at these names. We send 
safety information to them. We send information about new 
products to them. The DOT and the FAA have determined we can no 
longer have that list of names due to privacy concerns. We say, 
Give us an opt-out provision. If somebody doesn't want to get 
our safety information, if they don't want to get our product 
information, we won't send it to them. But the FAA 
Reauthorization bill in the House contains a provision where we 
can send information to people. We hope that if you get--when 
you get, I should say, into conference, the Senate will adopt 
this House provision which allows us better communication with 
people who are interested in learning to fly and becoming 
pilots.
    So in summary, Mr. Chairman, our nation's pilot base is a 
very important resource. It must be nurtured, it must be 
allowed to grow, we must stimulate it, and there's a lot that 
we can do together as government and industry in the 1600 
flight schools, and in the universities out there involved in 
flight training, to get people to stop dreaming and start 
flying.
    [The prepared statement of Mr. Stimpson follows:]
  Prepared statement of Edward w. Stimpson, Chairman of ``Be A Pilot 
  Program'' and Vice Chairman of the General Aviation Manufacturers' 
                              Association
    Mr. Chairman, I am Edward W. Stimpson, Chairman of the ``Be A Pilot 
Program'', an industry-wide effort supported by over 170 companies and 
associations to perform research, educate the public and reach out to 
new potential pilots. I also serve as Vice Chairman of the General 
Aviation Manufacturers Association, which represents over 50 companies 
involved in the manufacture of general aviation aircraft, engines, 
avionics, pilot supplies and component parts.
    We very much appreciate the fact that you are holding this hearing 
today. The Senate Aviation Subcommittee held hearings just ten years 
ago when Senators McCain, Ford and Glenn expressed concern about the 
supply and training of civilian and military pilots. This led to the 
establishment of a Blue Ribbon Panel, which predicted a possible 
shortage of pilots and aviation maintenance technicians with the skills 
and experience to provide the industry with sufficient numbers of well-
qualified personnel.
    Unfortunately, some of the pilot shortages projected by this Blue 
Ribbon Panel have already been exceeded today. According to AIR, an 
extremely knowledgeable source on pilot hiring, 14,413 new airline 
pilots were hired in 1998, an all-time record. The rate of hiring in 
1999 continues to be strong with approximately 14,500 new pilot jobs 
expected. In addition, the rate of hiring in business and corporate 
aviation and other professional piloting jobs is increasing. Keep in 
mind, the Blue Ribbon Panel had predicted hiring at these levels would 
not occur until 2004.
    Today, I would like to recap what is being done to address this 
problem and to increase our nation's pilot supply. I would also like to 
suggest how we can work together to resolve the issue of pilot 
shortages.
               general aviation revitalization act (gara)
    Just five years ago, on August 17, 1994, the President signed the 
General Aviation Revitalization Act (GARA). We appreciate the efforts 
of this Committee and the Congress in achieving passage of this 
important legislation. As you will recall the legislation was intended 
to breathe life into an industry which had experienced a 95 percent 
decline in production and a loss of over 100,000 jobs.
    You will be pleased to know that GARA has proven to be a huge 
success. The stated goals of this legislation have been met. Production 
lines have reopened and over 25,000 new jobs have been created. 
Aircraft production is up over 100 percent. The United States has 
regained its world leadership in general aviation manufacturing. Our 
industry is again contributing positively to our balance of trade with 
exports that are almost double previous levels. New aircraft and new 
products have been introduced and investment is again being made in the 
industry.
    Following the passage of GARA, all segments of the aviation 
community came together to form the Piston-Engine Aircraft 
Revitalization Committee (PEARC) to determine how to best realize the 
potential of the new legislation. Working for nearly 12 months, the 
PEARC conducted research and utilized new thinking as to how to reverse 
the decline of general aviation in the United States. We were 
encouraged by the research that showed over 1.2 million Americans, 
including an increasing percentage of women, were interested in 
learning to fly. While a number of recommendations emerged from the 
PEARC report, the key conclusion was straightforward. The most 
important thing that could be done to fully take advantage of GARA was 
to increase the number of general aviation pilots and new students.
                           be a pilot program
    To implement the basic recommendations of the PEARC report, a new 
nonprofit entity was established. I was elected Chairman of GA Team 
2000 and Phil Boyer, President of the Aircraft Owners and Pilots 
Association, was elected President of GA Team 2000. Our 15 member Board 
of Directors is representative of all facets of the aviation community 
including the manufacturers, publications, flight training suppliers, 
pilot associations and the airlines. Significantly, over 170 companies 
and associations have pledged financial support.
    Although the corporate entity is still called GA Team 2000, last 
year our name was changed to Be A Pilot because it better reflects our 
goal of attracting new student pilots. We seek to attract new pilots 
whether for career opportunities with the airlines or in business 
aviation or for personal or recreational purposes. The theme "Stop 
Dreaming. Start Flying." is a call for action and appears on the 
informational materials.
    Through research, Be A Pilot has identified the target audience of 
people who have an interest in becoming pilots and their reasons for 
wanting to learn to fly. While many of these people have been attracted 
to the romantic aspects of flying, many recognize the practical 
advantages of holding a pilot license. They often get the urge to fly 
at a young age and are interested in scientific/technical and outdoor 
activities. They have traits of being adventurous, take-charge, 
competent individuals.
    We try to reach this target audience through an educational 
campaign by offering a $35 Introductory Flight at a local flight 
school. We have used shows on cable television such as the Discovery 
and Learning Channels to reach our audience. We have heavily promoted 
our website, www.beapilot.com, where potential pilots can receive 
information about becoming a pilot and receive the Introductory Flight 
coupon.
    Over 1600 flight schools are participating in the program. A Flight 
School Advisory Committee has been established and a new Flight School 
Success Manual has just been published. A bimonthly newsletter 
containing helpful information about attracting and teaching student 
pilots is sent to all participating flight schools.
    I am pleased to report that the program is working. In response to 
the television campaign, we are receiving as high as 2000 requests per 
week for the Introductory Flight coupon. Through the first six months 
of this year, student starts are up over ten percent from last year and 
the 20-year decline of new people learning to fly has been reversed.
                   the united states pilot population
    According to FAA statistics, in 1980 there were 827,000 active 
pilots in the United States. In 1997, this number had declined to 
616,342. In 1998, the number of active pilots experienced a favorable 
turnaround and increased slightly to 618,298. This significant decrease 
over the past 20 years in the U.S. pilot population is cause for alarm.
    The decrease is closely tied to the number of new student pilots. 
In 1996, fewer people began learning to fly than anytime since the 
Korean War. Only 56,563 people received their student licenses. There 
are a number of reasons for this decline. In part, it was fallout from 
the product liability crisis when manufacturers of training aircraft 
stopped manufacturing airplanes and as a result, they stopped promoting 
flight training. Companies and individuals for the large part stopped 
investing in piston aircraft and this portion of the industry came to a 
halt.
    Thanks to GARA, a healthy economy and the Be A Pilot program, we 
have been able to reverse a 20-year downward trend and the U.S. pilot 
population is again growing. However, it is clear that we still need to 
expand our nation's pilot base and the number of new student pilots if 
there is to be a healthy industry and if we are to maintain a supply of 
qualified military and civilian pilots.
               general aviation's role in pilot training
    The best way to understand general aviation's role in pilot 
training is to visualize a pyramid. General aviation is at the base of 
the pyramid. Pilots learn to fly in general aviation aircraft. After 
mastering the less complex aircraft, pilots have the opportunity to 
move up the pyramid. Frequently, professional pilots will begin their 
career by flying for a charter company or in the flight department of a 
corporation. After building their hours they may move onto the 
commercial airline jobs, the smallest part of the pyramid.
    Robert Baker, Executive Vice President for Operations at American 
Airlines recently said, ``The commercial airline industry draws the 
majority of its pilots from general aviation. We need a healthy general 
aviation industry producing pilots.'' He couldn't be more right. With 
declines in military pilot training, general aviation is becoming an 
even more important source of pilots for the major and regional 
airlines.
    Oftentimes, when the general aviation industry comes before you we 
talk about the importance of maintaining a strong general aviation 
infrastructure. We talk about the economic development that general 
aviation brings to small communities and rural areas without commercial 
air service. We also talk about the harm that would come to general 
aviation if user fees were instituted for the FAA, which would 
substantially increase the cost of flying and learning to fly.
    Given that general aviation is the primary training ground for the 
nation's commercial airlines, it is easy to understand why we must 
ensure that various legislative and regulatory proposals do not cause 
undue harm to this important industry.
                         the current challenges
    Today a number of segments of aviation face personnel shortages. 
The military has serious challenges in maintaining and retaining its 
pilot base. In his statement before the Senate Armed Services Committee 
earlier this year, General Michael Ryan, Chief of Staff of the U.S. Air 
Force said, "Today we are over 700 pilots short of our requirement and 
that number is steadily growing. If pilot retention remains as it is 
today, we will be short 2000 pilots by 2002. That will be 15 percent 
fewer than needed for Air Force requirements."
    A number of flight training institutions are facing challenges in 
recruiting and keeping flight instructors. At Embry Riddle Aeronautical 
University, which employs about 180 flight instructors at its two 
residential campuses, there has been almost 100 percent turnover of 
flight instructors during the past year as instructors continue to move 
up the "food chain" into the pilot seats of regional airlines. The 
challenge of keeping flight instructors is being faced at practically 
ever training school, both large and small, throughout the United 
States and may be the most critical pilot shortage facing the industry.
    Similarly, a number of regional airlines have been seriously 
impacted as their pilots are hired by larger airlines. With some 
regional airlines, this has resulted in schedule disruptions and 
cancellations as they accommodate these shortages. All too often, these 
impacts may be felt in reduced service to less populated and rural 
areas.
    At the same time, new opportunities are opening up in general 
aviation. The rapidly growing fractional ownership companies are 
projected to hire about 500 pilots a year for the next five years. 
These companies have created a completely new demand for pilots, which 
was not really present just a decade ago.
                    government must also play a role
    FAA plays a very important role in establishing the regulatory 
framework for pilot qualifications and training. FAA training 
requirements must be updated to reflect new technologies and to 
incorporate new training techniques. For example, companies have 
recently introduced computer-based training for new pilots and these 
new programs are being well received in the field. New programs have 
also been developed for computer-based training so pilots can update 
their skills at home.
    FAA must also work with industry in a partnership to evaluate how 
well programs are working and on the distribution of information. Over 
the years, lists of new and current pilots have been made available to 
the industry. These lists have been used for the mailing of safety and 
product information. Last year, access to these lists was denied due to 
privacy concerns. Legislative language is included in the House FAA 
Reauthorization bill to make these lists available subject to an opt-
out provision for those who do not want to receive these mailings. We 
ask that this Subcommittee accept this provision of the House bill.
    Another area in which the government could play a role is through 
federal financial aid programs to finance flight training. Outside an 
existing VA program, current law does not permit students to pay for 
flight training with federal student loans. Instead, students must 
apply for loans from private sources, considerably raising the costs of 
learning to fly. Expanding eligibility of federal student loans to 
include flight training could help to increase the number of student 
pilots and help to alleviate the current shortage facing the industry.
                                summary
    The nation's pilot base is an important national resource. 
Similarly, the nation's flight school structure, composed of colleges 
and universities and independent flight schools located at airports 
throughout the nation, is a valuable resource.
    The student pilot is at the base of our future pilot supply. It is 
imperative that our future pilots be well trained and qualified, 
whatever their career ambition or personal goals might be. 
Significantly, after many years of decline, both the student pilot 
population and the entire pilot population again appear to be growing.
    Today, severe shortages are occurring in some areas. It is 
imperative that government and industry work together to provide the 
regulatory environment and infrastructure to maintain a high level of 
safety and encourage people to ``Stop Dreaming. Start Flying.''

    Senator Burns. Thank you very much; we appreciate that.
    I was just sitting here thinking, for many, many years, 
general aviation and scheduled airlines have been the 
recipients of the best trained pilots in the world, compliments 
of the American taxpayer. The military trained them, the 
biggest share of them. Now that era seems to be coming to a 
close. I think, these pilots are going to have to come from 
somewhere else.
    Robert, I want to remind you that when Lynch Flying Service 
was first getting started over at Bozeman, Montana, they taught 
pilots to fly for World War II. We have a colleague in the 
Senate who learned how to fly there. From there he went and 
flew the Hump. Everybody knows him as Chairman of the 
Appropriations Committee, Ted Stevens. Did you know that?
    Mr. Palmersheim. No.
    Senator Burns. He went through that program in Bozeman, 
Montana.
    Mr. Palmersheim. Good to know.
    Senator Burns. In fact, he tells me he almost married the 
daughter of the president of Montana Power when he was there. I 
suppose that's another one of those adventures we'll hear a lot 
more of over a little more Merlot.
    Mr. DeVany, we set this up intentionally so that you could 
hear all that these people have to say. You being with the 
Essential Air Service Domestic Analysis Division of Department 
of Transportation, you could hear them. That's the way I 
structure my hearings, because I think it's important that you 
not only have something to say but you also hear from the 
industry, and in a public forum, the challenges that we face. 
We thank you for coming out today, and we appreciate your 
presence and look forward to your testimony.

STATEMENT OF DENNIS J. DeVANY, CHIEF, ESSENTIAL AIR SERVICE AND 
 DOMESTIC ANALYSIS DIVISION, U.S. DEPARTMENT OF TRANSPORTATION

    Mr. DeVany. Thank you very much, Senator. Although I must 
say I talk to Craig Denney and Doug Voss probably almost on a 
daily or at least weekly basis.
    But in any event, my name is Dennis DeVany. I've worked in 
the Essential Air Service program since 1978, since its 
inception. I'm the last one that was hired, and the last few 
years I've been running the show. So I guess that tells you if 
you hang around long enough, you end up running it.
    In all seriousness, I do want to take this opportunity to 
share a few observations from our perspective.
    A little background on the kind of orders of magnitude. 
When the program first started in 1978, as you well know, it 
was set up to guarantee that communities that had air service, 
when airline deregulation was passed, would continue it. They 
wouldn't lose it overnight. At that time, we were subsidizing 
carriers over a hundred million dollars a year to serve about 
300 communities. There's been a lot of evolution since then. 
Infrequent large-jet service has been replaced by more frequent 
commuter-type service that Big Sky and Great Lakes and other 
regionals provide.
    Today, our budget is 50 million dollars a year. We 
subsidize air service at 27 communities in Alaska and 76 in the 
rest of the country.
    Here in Montana, Big Sky provides essential--subsidized 
Essential Air Service at seven communities in the eastern part 
of the state; Havre, Lewistown, Glasgow, Wolf Point, Sidney, 
Miles City, and Glendive. I think I got them all. Generally, 
two round trips a day to Billings. We pay Big Sky Airlines 
about 4.7, 4.8 million dollars per year for that whole seven-
city package. About 21,000 passengers a year use that service 
to get much-needed connections to the national air 
transportation system that they otherwise would not have.
    A couple of observations. For reasons that other folks have 
mentioned here, carriers' operating costs have been rising 
rapidly, for a number of reasons. That translates directly into 
increased subsidy costs. I don't want to get into the mechanics 
too much but, essentially, the subsidy pays for the difference 
between anticipated expenses and the anticipated revenues. Then 
there's a small profit element. So if expenses go up, the 
subsidy goes up. If passenger revenues go up and everything 
else stays the same, subsidies go down.
    Many of the commuter airlines--and the 19-seat airplanes 
that Great Lakes and Big Sky operate are the workhorse of the 
Essential Air Service program--are getting out of the 19-seat 
aircraft business, for a number of reasons. The cost of it is 
going up as part of the commuter safety rule that raised the 
cost. They're graduating to larger aircraft, some to 30-
seaters, some even to regional jets. Obviously, carriers' 
choice of aircraft is a matter beyond our control, but it is a 
problem we're facing in trying to run the Essential Air Service 
program.
    Another factor which we mentioned is the cost of Denver 
International Airport which opened in 1995. Because of the 
nature of the demographics of the country, a lot of the 
subsidized EAS points are in the midwest, the Dakotas, Wyoming, 
Montana, so on. The logical hub is Denver. As the cost of that-
-of operating into DIA--are a lot higher than they were in 
Stapleton, those are legitimate costs of doing business and 
those costs, again, get passed onto the EAS program. There's a 
little--on the other side of the ledger--I think there's a 
little bright side there, as I understand it. I'm certainly not 
a technical expert, but DIA is operationally a very good 
airport and there are fewer delays and so on. So there is 
probably a higher quality of service product to the customer.
    In addition to increases in carrier costs, as you well 
know, we suffered a bit of a setback in 1995 when there was a 
major budget reduction. In the past, when we were on a budget 
rollercoaster, we were given the discretion to eliminate 
service at certain communities in their entirety, based 
generally on if they were fairly close or a reasonably close 
drive to other air service. In the 1995 cuts, we were not 
allowed to do that and had to do across-the-board cuts. The 
idea was to kind of spread the pain. Although, my analogy was 
we kind of built half a bridge for everybody rather than a 
whole bridge for some and none of a bridge for others. That had 
a bad effect on traffic, which I'm sure Craig Denney and Doug 
Voss would agree with.
    Then in 1998, the program took a turn--an upward turn. The 
sunset date which had been September 30th, 1998 was removed. We 
received a 50 million dollar budget that was authorized. 
Essentially what we did was to try and restore service to the 
precut levels or, as I say, put Humpty Dumpty back together the 
way he was before the major cut in 1995.
    In the case of Montana, we did that. We restored the same 
service levels, but we also took the opportunity to work with 
officials from Big Sky and used that opportunity to upgrade 
their fleet which had been 15-seat Metro II aircraft, which 
were fairly old and not as reliable as they could have been, to 
the more modern 19-seat Metro IIIs, which they're operating now 
and I think more reliably, and giving a better product to the 
customers in Montana. We increased the subsidy rate from $3.1 
million a year to $4.8 million.
    People have talked about stability in the program. I, for 
one, think that's probably the most important feature we need 
in the EAS program. It's been on a budgetary rollercoaster. 
It's been zeroed out and, put back. It's very difficult for 
carriers to make a long-term commitment to the EAS program, 
when it's hard to know from 1 year to the next whether it's 
going to be around. Certainly I appreciate that 19-seaters, 
that cost over four million dollars apiece, I think. You just 
don't go out and spend that kind of money when you don't know 
from 1 year to the next whether there's going to be a program. 
So there's fewer and fewer carriers willing to participate in 
the program. We operate under a competitive bidding system. 
Obviously the more competitors you have, the more service 
options you have available. We just don't have that nearly to 
the extent we had early on.
    Another development--which kind of ties into that--is that, 
carriers have come to dominate hubs, major carriers. As a 
result of that, their regional affiliates tend to dominate the 
outlying regions for feeder service. And that also kind of 
limits the number of players, the number of carriers willing to 
participate in the EAS program. The majors, with some 
exceptions, tend not to put a high priority on Essential Air 
Service. I mean, there are some majors that just will tell 
their code-share affiliates just don't do it, period. I don't 
know how you fix that, necessarily, but it's an issue we have 
to be facing. As an example of the concentration, I think Big 
Sky and Great Lakes provide over half the EAS nationwide, right 
here.
    Senator, you mentioned earlier about a bolt of common 
sense. I don't remember the exact context you said it in now. 
But--and Doug touched on it as well--I think the EAS program, 
generally, does a pretty good job. It provides a much-needed 
service. It's a lifeline to a number of communities. But like 
any program, government or any other, it probably could be 
improved. I think maybe it could use a good bolt of common 
sense--and I don't want to get into too much specifics, but, 
you know, where there are situations where we are subsidizing 
two communities that are very close to each other, just because 
they were listed--or they received air service on October 24th 
1978. Whether it makes any sense or not isn't relevant under 
today's rules. The eligibility criterion is whether the 
community received service on October 24th.
    Senator Burns. Is that the situation like Champaign/Urbana?
    Mr. DeVany. Those are not subsidized, Senator.
    Senator Burns. I know they're not subsidized, but is it 
situations like that?
    Mr. DeVany. Yes, Senator.
    Senator Burns. Because I can remember old Ozark used to 
say--I started working for Ozark, a long time ago when we were 
still flying DC2s.
    Mr. DeVany. You kind of get a double whammy. Because it's 
at least theoretically possible, if you had an airport between 
A and B, and consolidated the load, maybe there would be enough 
critical mass to make it work. But if you subsidize A, then you 
pull away from B. So you're just diverting passengers from 
yourself.
    Senator Burns. Tell me, you mentioned in this situation 
where maybe some of the rules--this rule change that's been 
proposed and--do you folks who work in the--in your department 
that deals with EAS, do you also work with the offices that 
review and set the regs?
    Mr. DeVany. No, Senator. We're not in FAA. Senator Burns: I 
know; but do they ever call upon you and say how would this 
affect you if we----
    Mr. DeVany. I heard about it from Doug.
    Senator Burns. That's what I thought.
    Mr. DeVany. I don't know if I should have said that. I knew 
nothing about it. Maybe people above me did; I don't know.
    Senator Burns. That's what I'm wondering, if sometimes--we 
don't communicate in Washington very good.
    Mr. DeVany. I don't disagree with that.
    Senator Burns. We just don't do it. We just haul off--we 
think we're an entity ourselves, and we change the rule. I 
don't think the Ag Department ever talks to the Interior 
Department. I just don't think they do. They say they do. 
Within the Interior or the FAA or DOT. Now, you're all under 
DOT.
    Mr. DeVany. Yes we are.
    Senator Burns. --and all effect each other. In your 
estimation, do you think that a review of those regulations are 
in store to see how they affect the subsidization of the EAS? 
Do you think those rules and regulations should be reviewed?
    Mr. DeVany. Senator, I can't answer it. I'm not qualified.
    Senator Burns. Is that a pay rate above you?
    Mr. DeVany. I know things happen that have sometimes the 
intended effect and sometimes unintended. I don't know. I'm 
just not qualified to know whether this is a good idea or bad 
idea.
    Senator Burns. OK; I just got a couple of questions here. 
Chime in if you've got an opinion on this thing, because that's 
the way I run hearings. If you can comment on that question, I 
want you to do so.
    Mr. DeVany. I just want to finish by thanking you for 
giving me the opportunity to come here. I have a 10-year-old 
and twelve-year-old, and they know more about computers and 
everything else than I do, so I'm not used to being asked my 
opinion about things, but I hope I have contributed to the 
discussion.
    [The prepared statement of Mr. DeVany follows:]
 Prepared Statement of Dennis J. DeVany, Chief, Essential Air Service 
   and Domestic Analysis Division, U.S. Department of Transportation
        The State of Scheduled Air Service at Small Communities
    Good morning. I'm very pleased to be here today. My name is Dennis 
DeVany, and I work in the Essential Air Service Program, or EAS as many 
of you know it. I was originally hired by Pat Murphy, whom many of you 
know and who just retired last week, back in 1978 and I've been working 
in EAS since then, and for the last several years as head of the 
program.
    I'd like to use this hearing as an opportunity to share with you a 
few observations and some of the major issues facing the EAS program 
based on my perspective of 20+ years in the EAS program. But first a 
little background. Under the program, the Department guarantees that 
eligible small communities receive a least a minimum level of air 
service, typically two or three round trips a day to a major airport. 
Where service is otherwise uneconomic, we pay subsidy to carriers that 
are willing to provide that service. At one time, in the early 1980's, 
we spent over $100 million subsidizing scheduled service program-wide 
for over 300 eligible communities. Today, with a $50 million annual 
budget, we subsidize service at 27 communities in Alaska and 76 in the 
rest of the U.S. For example, in Montana the Department supports 
subsidized service by Big Sky Airlines at seven communities in the 
eastern part of the state: Havre, Lewistown, Glasgow, Wolf Point, 
Sidney, Glendive and Miles City. Service is generally two round trips a 
day to Billings. The total subsidy amount we pay to Big Sky is about 
$4.8 million. Approximately 21,000 passengers per year use this service 
to gain much needed access to the national air transportation system.
    Now a few observations. First, carriers' operating costs have been 
rising rapidly for a number of reasons, and that translates directly 
into increased subsidy costs as our subsidy makes up the difference 
between expenses and revenues, plus a small profit margin. To begin 
with, many commuter carriers have been replacing their 19-seat aircraft 
with 30-seaters. This trend began about a decade ago, but has really 
begun to snowball within the last couple of years. There are now fewer 
and fewer 19-seaters in operation as many commuters upgrade to 30-
seaters, and even regional jets in some cases. The carriers' choice of 
aircraft is, of course, a matter beyond our control.
    Another development affecting the EAS program has been the 
upgrading of commuter services from FAA Part 135 to Part 121 standards 
within the last couple of years. As with the introduction of larger 
aircraft, the higher costs that commuter carriers encounter in meeting 
Part 121 standards are passed on to the program.
    In addition, the high costs of operating at Denver International 
Airport, which opened in 1995, are well known. As it happens, a large 
number of the communities that we subsidize are located in a region 
that makes the Denver hub their most logical link to the national air 
transportation network. In fact, 20 of the 76 subsidized communities, 
not counting Alaska, receive subsidized service to DIA. The relatively 
higher costs that commuter carriers face in operating subsidized routes 
into DIA are, again, passed on to the EAS program. On the other side of 
the ledger, there is some good news to report. DIA is operationally 
better than Stapleton and this has resulted in more reliable and a 
higher quality of service.
    Beyond increasing costs, the program suffered a major setback in 
1995, when Congress prohibited us from meeting a major budget reduction 
by eliminating some communities while maintaining viable service levels 
at the rest. Instead, we had no choice but to reduce subsidy at all 
communities--reductions from 18 to 10 round trips a week were typical. 
Needless to say, the service reductions had a severely deleterious 
effect on traffic levels.
    In fiscal year 1998, the program's sunset date was removed and a 
$50 million annual budget was authorized. We used that increased 
funding level generally to restore service to the pre-1995 reduction 
levels. Of course in the case of Montana we took that opportunity to 
work with Big Sky Airlines not only to restore previous service levels, 
but also to enable the carrier to upgrade its fleet from the older, 15-
seat Metro II aircraft to the more modern, 19-seat Metro III's. For 
those service and aircraft upgrades, we increased the amount of Big 
Sky's subsidy rate from $3.1 to $4.8 million a year. I am convinced 
that nothing is more important to a responsibly and efficiently run 
program than stability in order to attract and maintain carrier 
interest in the program. The current pilot-shortage problem that 
commuters are struggling with, which affects the carriers' ability to 
provide reliable service, is obviously another cause of instability.
    Another development that has been hampering the program is the 
dwindling number of interested carriers. As major carriers have come to 
dominate various hubs, their commuter affiliates have come to dominate 
regions surrounding those hubs. Unfortunately, the majors are, at best, 
reluctant to have their commuter code-share partners involved in the 
program, and it is very difficult for prospective new entrants, without 
code-share affiliations, to gain a toehold in the market. Because a 
vital element of the program has been the competitive bidding process, 
the dearth of participating carriers has undoubtedly resulted in our 
paying higher subsidies than might otherwise be necessary. Today only 
three carriers account for service at 58 of the 76 subsidized EAS 
communities in the 48 states and Hawaii.
    I appreciate this opportunity to bring you up-to-date on the 
challenges we're facing, and look forward to working with you to meet 
those challenges. I'll now be happy to answer any questions you might 
have.

    Senator Burns. I thought opinions were kind of like navels; 
everybody's got one.
    OK. I want to throw that question out for the panel. If and 
when these rules and regulations are enforced, do you think 
it's time that we review the regs and under a different forum 
than they've been reviewed thus far?
    Mr. Voss. Well, there's no question there's a lot of 
disconnect. We just, a week ago, saw an interesting situation 
occur where the FAA contacted our flight standards office in 
Des Moines. They had noticed, having read in the Aviation 
Daily, one of the scandal sheets of the industry, commentary 
that had been placed in our financial statements. They were 
concerned over the financial status of the company. Well, DOT 
has a staff of people that follow--do the fitness 
determinations for economic eligibility certification. Instead 
of FAA calling over to the fitness department to ask the status 
of the fitness reviews, they called Des Moines and asked for a 
lengthy report regarding financial aspects of the company that 
the Des Moines office never has and it's not under their 
responsibility to review. But when you see things like that 
going on, it's a great example of how they're not on the same 
page.
    In many cases, I think there's been transition within the 
management ranks of the FAA, and I think to a little lesser 
extent, even DOT where you see turnover of people and they 
don't even now how the departments interface with each other. 
The structure is really lacking on communications connect. I 
mean, we could cite several examples. But that one in 
particular was pretty surprising, that they didn't realize that 
we submit financial statements almost constantly into the 
fitness group. Every time we add an airplane we submit a form 
that tells DOT that we've just made another investment in 
equipment. It's an interesting disconnect.
    Senator Burns. I want to ask Mr. Stimpson a question along 
those lines. You mentioned there has been some work on R & D 
and how we teach people to fly airplanes. Do you think that the 
improved technology has turned out better pilots from the get-
go to where they learn faster and can begin flying?
    Mr. Stimpson. No question, Senator. I think what we've seen 
in technology, in simulation and other developments, whether 
it's a 777 simulator or whether it's even down to the line 
where a pilot is working at home on his home computer on a 
simulator. I think what technology has done has made a better 
pilot, it's improved safety, it's helped improved the time it 
takes to learn to fly. I think, again, you know, more is 
coming. This isn't to say that we haven't trained pilots well 
in the past. But we even are doing work with NASA now at Embry 
Riddle and new training standards and how we might get more 
instrument training for more pilots in a more efficient manner. 
So technology has played a very important role.
    You always have the human factor, that's the No. 1. But we 
can use technology to help produce better pilots in the future 
and improve training times.
    Senator Burns. Tell me your thoughts on what's going on 
down at (NASA's) Langley Space Center. We have some new 
technology we're using down there for zero zero landings and 
takeoffs and this type thing. Have you visited Langley lately?
    Mr. Stimpson. Not in the last year. But I have seen some 
new technology, and it's pretty exciting what's going on and 
trying to--again, some of the things they're doing with their 
total air traffic management program. How do we do a lot of 
things to improve the efficiency of the air space system, 
whether separation standards or night landing or zero zero 
you're talking about.
    I hope that, again, gets back to where some of these 
programs will continue to be funded in a lot of the budgetary 
stuff that's going on now. Some of these aren't a great deal of 
money, but they're very important. I'm glad you asked about 
that, because some of those programs are very--have a lot of 
potential for the future.
    Senator Burns. You mentioned some figures and I missed a 
figure, that now we have 616,000 pilots in the United States 
compared to--what year was that when we had over what 9,000?
    Mr. Stimpson. Well, in 1980 we had 827,000 pilots. This is 
commercial pilots, ATC, private pilots, student pilots. This 
number in 1997 dropped down to 616,000 total pilots. We're up 
slightly from last year to 618,000. It's up 2,000. But, again, 
we were up in student pilots last year, we were up in private 
pilots.
    Again, that's the point I was also going to make is the 
importance of the student pilot here. You have to have somebody 
coming in. You have everybody going out, whether it's age sixty 
rules or getting too old to fly their own airplane or whatever 
it may be, or tired of flying, we need to keep generating the 
seed core down here, keep the people coming up. I think the 
most dangerous number I told you was the 1996 number. That's 
fewer people learned to fly in this country than anytime since 
the Korean War.
    Senator Burns. Mr. Voss, you mentioned the fact, and I was 
going right back to this now, this last rule change with regard 
to rest and on duty times. Did you say that these rules were 
just put in the Federal Register without comment or----
    Mr. Voss. It was not a rules change. It's an 
interpretations change.
    Senator Burns. Oh, I see.
    Mr. Voss. It's a ruling on how FAA viewed internally how 
they perceive what the intent of their written rule is. The 
thing--it does a number of things. But, for example, if you're 
an on-reserve pilot that's carrying a pager or beeper or cell 
phone and you're out in the backyard mowing your lawn, the time 
where you historically had not been accrued as company time, 
that type of time now is going to be charged against your 
availability on a going-forward basis. It affects the 
accessibility of the pilot in the--within the system.
    It's something that there was clearly a lot of outside 
pressure. Unions, in particular, were pushing for this. FAA 
came out with a written ruling that said, Hey, we're going to 
change this procedure, and we'll follow the thought process 
that says that if this guy is on call or considered ready 
reserve or hot reserve, that he is accruing duty time during 
that period, even though he's not doing any productive flying 
or any actual onsite in an airplane flying.
    Mr. Palmersheim. There was no public comment available on 
that particular interpretation either.
    Senator Burns. Is there usually?
    Mr. Palmersheim. Yeah, I think so.
    Mr. Voss. A procedure change or an interpretation change of 
this significance would have normally been discussed at length 
in a more open forum. This particular situation was really 
fostered by events from three or 4 years ago where FAA went 
back to the air carriers and said, we are having an issue 
brought to us by the unions. Will you, the air carriers, 
address this situation or are you going to force us to deal 
with it at a later date? And in this particular case, the 
formal exchange that was occurring between the carriers and the 
FAA was very limited. And for whatever reason, the timing--I 
can't speak to what warnings or what notice that might have 
been conveyed. I know in our particular case, we were not 
contacted regarding the impact on our operations of the rule 
change. Due to the way we schedule pilots, there's a very 
limited impact on how we utilize our crews. But certain major 
carriers, U.S. Air in particular, we're aware, is going to have 
to do a significant staffing increase just because this 
interpretations change took place.
    Senator Burns. That just about wraps up the questions I 
have. Robert, tell me again, and make me clear on this thing. 
If this rule--if this interpretation, let's put it that way--if 
this interpretation will be allowed to stand, what do you mean 
by, ``We got to get out of the business to stay in the 
business.''
    Mr. Palmersheim. We got to stay out of the business?
    Senator Burns. ``We got to get out of the business to stay 
in the business.''
    Mr. Palmersheim. Well, we've got to get out of the way 
we've been historically doing business. Under the flight and 
duty time requirements in the past, there's always been a 
distinction between on-demand 135 carriers as compared to the 
scheduled carriers. Most of the physical principal operation 
inspectors have agreed that the 135 on-demand operators were in 
compliance with the duty and rest requirement. But with this 
new interpretation, it's thrown a whole different ballgame at 
us.
    Senator Burns. OK. Well, along with your testimony this 
morning, I think you've pretty well laid it out on what you 
think we should do to change some of this.
    I would say that all your comments will be made part of the 
record.
    Anybody else want to add anything to this, other than what 
they've heard from other witnesses this morning?
    Mr. Denney. Yes, sir. I failed to mention a couple facts. 
First, for Big Sky Airlines, in the last 90 days of our 
approximately 80 pilots that we have, we've lost about 20. So 
that's about 25 percent. We figure at least $6,000 per pilot 
for training costs.
    Mr. Palmersheim. They took 20 of them from Lynch and they 
didn't keep them very long.
    Mr. Denney. So of that 20 that we just recently had to hire 
replacements for, you figure the average training cost of about 
$6,000. So 120,000. Of that 120,000, when you look at what our 
profit margin is of being an EAS operator in the bulk of our 
cities consumes a great deal of our profit margin.
    So at a time when the FAA is mandating more pilots because 
of their crew duty time/rest, we have no other way of 
increasing our subsidy amount, short of giving termination 
notice to Dennis and his staff. We don't want to do that.
    So that's another aspect of this whole picture. It is--
there's very few EAS operators like Great Lakes and Big Sky, 
and we want to stay in that business. But when you're mandated 
on one side to increase staffing, and there's no method or 
formula to increase your cost during the duration of your 2-
year contract, and you have to absorb those additional training 
costs, it cuts down on your profit, it might even eliminate the 
profit, for the remaining term of your contract. So perhaps 
that should be something to be looked at. That's all I have; 
thank you.
    Mr. Stimpson. Just one other comment, Mr. Chairman, on the 
future of pilot population. A lot of the research shows that 
people who become pilots get an urge at very young ages often. 
As they grow older they become interested in scientific and 
technical matters and outdoor activities. They're sort of take-
charge, competent-type people. At some point in time, you know, 
some will go on to be an airline pilot. Some maybe just want to 
fly for fun, some may be a corporate pilot. So as you build 
this base up, the person today who starts his flying lessons 
may not have the particular ambition to be an airline pilot or 
commuter pilot or regional pilot, but they may go for that 
career. Other young people, boy, from day one they want to be 
an airline pilot.
    So as you build this base--and this is why we call this 
program Be A Pilot. Be a pilot for whatever reason. There are 
so many different directions you can take as you go up through 
the career pattern or your own lifestyle pattern. So that's 
what we're all trying to do, is get this basic standard so it 
will help the airlines, help corporate aviation, business 
aviation and whatever. And flight instructors. If you take the 
No. 1 area where there's probably really a shortage that we 
touched on today, the flight instructor area, because they're 
going up so fast right now.
    Senator Burns. Are we short of instructors in Montana, 
Mike?
    Mr. Ferguson. I'd say we are, yes, sir.
    Mr. Palmersheim. I think Mike's comments on that age sixty 
rule with the airlines really needs to be addressed. Nowadays, 
with some testimony in Washington, D.C. before Congress with 
the medical experts, you know, sixty years old--I never thought 
I'd get that old, but that's not----
    Senator Burns. I didn't either.
    Mr. Palmersheim. That's not very old, compared to the 
equipment that they're flying. They're on auto pilot half the 
time anyway. And if they're physically fit and they've got, you 
know, the 20,000 hours of experience and they pass all of the 
medical tests, there shouldn't be any reason why they shouldn't 
be able to maintain their employment with the airline.
    Mr. Ferguson. That's why I mentioned the foreign countries 
allow them to do that, and they come into our country with 
sixty-five-year-old pilots. Let's build a fence. Keep them out, 
too, if it's really unsafe.
    Mr. Palmersheim. Well, it would stop the vacuum a little 
bit, if they were still there.
    Senator Burns. This age thing, I will pass along a little 
story as we close here today.
    The other day we had a birthday party, the eightieth 
birthday party for a man that works in the Senate library. He's 
worked there his entire working career. Now he just volunteers 
because of his institutional knowledge of the organization. 
Strom Thurmond came down to his birthday party and said, ``Oh, 
to be eighty again,'' which I thought was a great statement.
    Mr. Stimpson, I appreciate your comments this morning. I 
understand you've been nominated to be a representative to the 
International Civil Aviation Organization. And your expertise--
and just to let everybody know that we have a person here that 
has many, many years in aviation and is well respected, and we 
appreciate you being a part of this panel this morning.
    Mr. Stimpson. Thank you.
    Senator Burns. Most appreciative, in fact, and your words. 
I would say if you could help me carry the message back to the 
rest of the Commerce Committee, I think this needs a full 
hearing in Washington, D.C. before the full Commerce Committee, 
not just the Aviation Subcommittee. I want to see if I can't 
talk to the Chairman, the distinguished Chairman of this 
subcommittee in working with Senator McCain. I think this has 
to be addressed at a little higher level than--but you've got 
to get it started somewhere. I think we've gotten that done 
here today in the purpose of this hearing.
    So with that, I would say that other members of the 
Aviation Committee, should they direct questions to you, if you 
could respond to them and to the Committee, we would appreciate 
that.
    The record will remain open for the next 2 weeks, and I'll 
be working with each and every one of you with a hearing in 
Washington, D.C. where I think this particular subject needs 
to--needs further airing, to be right honest with you.
    So with that, I appreciate you coming this morning, and 
this ends this hearing. Thank you for coming.
    [Hearing concluded at 10:50 a.m.]
                            A P P E N D I X

      Electronic Correspondence of Gib Bissell to Hon. Conrad Burns

                                                 September 13, 1999
Senator Burns,

    Thank you for having this Transportation/Pilot Shortage hearing in 
Kalispell, it was really interesting to listen to your panel. I had a 
few thoughts during the testimony that I wanted to pass on from a 
pilot's perspective (I flew 9 years as an Air Force Pilot, 2 years as a 
civilian instructor and air freight pilot and 10 years as a 737 Captain 
with Continental Airlines).
    First, age 60 rule. Mr. Ferguson is absolutely correct in his 
testimony. Commercial pilots take a thorough physical every 3-6 months. 
Most pilots (with a few exceptions) pride themselves in their good 
physical shape and work hard to maintain their good health. After all, 
their livelihood depends on it. There are some 40 year old pilots that 
probably shouldn't be flying and some 70 year olds that are perfectly 
fit to fly. The value of experience as it relates to safety can not be 
overstated. Whether you are talking about pilots, mechanics, air 
traffic controllers or flight attendants, we absolutely must do 
whatever it takes to keep experienced people on the job.
    Slot controls in busy airports--I flew daily into Newark, Chicago, 
Denver etc... On most days these airports flowed beautifully. 
Occasionally however due to weather, radar or computer problems or God 
knows what, things come grinding to a halt and thousands of travelers 
become upset. This is unavoidable and will continue to happen as long 
as Murphy's Law is in existence. Slot allocations by the FAA I feel are 
a means to lighten their workload not assure safety or prevent ATC 
delays. Most facilities can handle the volume.
    Pilot shortages, I know of several private pilots that would love 
to fly commercially but can't afford the advanced licenses. I feel that 
the government should provide low interest student loans for pilot 
training. Also I think that the commuter airlines should provide 
training for low time pilots with the understanding that that pilot has 
incurred a 5-7 year commitment. Perhaps the government could then 
provide tax incentives to offset the cost to airlines for this 
training.
    Military pilot retention let pilots fly! Most pilots leave the 
military because they aren't flying enough and are being asked to do 
non flying duties to advance their career would rather fly an F-l5 for 
$60,000/year than a B-737 for $130,000 per year but usually at the 9 
year point the military expects pilots to ``career broaden''. A 
military pilot should be able to progress through the ranks solely 
based on his flying skills and professionalism.
    If I can be of any assistance, please feel free to contact me. 
Thanks again.

    Gib Bissell
                                 ______
                                 
                                                  September 9, 1999
Senator Burns,
Pilot shortage conference
Kalispell, Montana

    For the record I am Walter L. McNutt. I am a Montana State Senator, 
a member of the Governor's Essential Air Service Task Force, and reside 
in Sidney, Montana. Sidney along with six other communities are served 
by Big Sky Airlines as a part of the essential air service program.
    Our service in and out of Sidney has deteriorated over the last 
year. Upon investigation, I found that a serious pilot shortage at Big 
Sky is one of the primary causes of this deterioration. The end result 
has been many delayed and canceled flights. This is having a dramatic 
impact on the traveling public. Sidney does not have any other 
transportation system, such as rail or bus service. We rely entirely on 
our air service carrier to provide the vital link with the rest of the 
world.
    I was just informed the schedule for Sidney's flights will be 
changes on the 13th of September as a result of pilot shortages. This 
change will further impact the traveling public's ability to make 
connections with the major air carriers. I believe there needs to be 
some corrective action taken and soon.
    It appears that there is fierce competition for pilots through out 
the industry. It also appears that the mandatory requirement, that 
pilots retire at age 60, may be having a dramatic impact on this 
problem. A part of the solution maybe to allow our best and longest 
trained pilots to continue to fly a few more years. This would slow the 
upward migration of pilots and give the industry time to catch up and 
get more trained pilots. I understand solutions are not simple, but 
doing nothing will only serve to complicate the problem.

Sincerely,

Walter L. McNutt

                                
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