[Senate Hearing 108-988]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 108-988
 

                         AIR SERVICE TO SMALL
                         AND RURAL COMMUNITIES

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

                             FIELD HEARING

                               before the

                        SUBCOMMITTEE ON AVIATION

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 27, 2004

                               __________

    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 EIGHTH CONGRESS

                             SECOND SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South
CONRAD BURNS, Montana                    Carolina, Ranking
TRENT LOTT, Mississippi              DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas          JOHN D. ROCKEFELLER IV, West
OLYMPIA J. SNOWE, Maine                  Virginia
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              JOHN B. BREAUX, Louisiana
PETER G. FITZGERALD, Illinois        BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  RON WYDEN, Oregon
GEORGE ALLEN, Virginia               BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
                                     MARIA CANTWELL, Washington
                                     FRANK R. LAUTENBERG, New Jersey
      Jeanne Bumpus, Republican Staff Director and General Counsel
             Robert W. Chamberlin, Republican Chief Counsel
      Kevin D. Kayes, Democratic Staff Director and Chief Counsel
                Gregg Elias, Democratic General Counsel
                                 ------

                        SUBCOMMITTEE ON AVIATION

                   TRENT LOTT, Mississippi, Chairman
TED STEVENS, Alaska                  JOHN D. ROCKEFELLER IV, West
CONRAD BURNS, Montana                    Virginia, Ranking
KAY BAILEY HUTCHISON, Texas          ERNEST F. HOLLINGS, South Carolina
OLYMPIA J. SNOWE, Maine              DANIEL K. INOUYE, Hawaii
SAM BROWNBACK, Kansas                JOHN B. BREAUX, Louisiana
GORDON H. SMITH, Oregon              BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois        RON WYDEN, Oregon
JOHN ENSIGN, Nevada                  BILL NELSON, Florida
GEORGE ALLEN, Virginia               BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
                                     FRANK R. LAUTENBERG, New Jersey


                            C O N T E N T S

                              ----------
                                                                   Page
Hearing held on July 27, 2004....................................     1
Statement of Senator Lott........................................     1

                               Witnesses

Allee, Don, Executive Director, Mississippi State Port Authority.    21
    Prepared statement...........................................    23
Donaldson, Thomas Q., RDML U.S. Navy, (Ret.), Director, John C.
  Stennis Space Center, National Aeronautics and Space
  Administration.................................................    14
    Prepared statement...........................................    17
Frallic, AAE, Bruce A., Executive Director, Gulfport-Biloxi
  International Airport..........................................    26
    Prepared statement...........................................    29
Shane, Jeffrey N., Under Secretary for Policy, U.S. Department of
  Transportation; accompanied by Michael O'Malley and Mike Wascom     5
    Prepared statement...........................................     7
Williams, Tom, President, Meridian Airport Authority.............    36
    Prepared statement...........................................    40

                                Appendix

Delta Air Lines, Inc., prepared statement........................    49

 
                         AIR SERVICE TO SMALL
                         AND RURAL COMMUNITIES

                              ----------


                         TUESDAY, JULY 27, 2004

                               U.S. Senate,
                          Subcommittee on Aviation,
        Committee on Commerce, Science, and Transportation,
                                                      Gulfport, MS.
    The Committee met, pursuant to notice, at 10 a.m., at The
Great Southern Club, Fifteenth Floor, Hancock Bank Building,
Gulfport, Mississippi, Hon. Trent Lott, Chairman of the
Subcommittee, presiding.

             OPENING STATEMENT OF HON. TRENT LOTT,
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Lott. If you would, let's come to order. I am
really honored to be in Gulfport, Mississippi today for this
Aviation Subcommittee hearing on airline service to small and
rural communities. As we like to do in Washington now, I'm not
quite sure why, maybe it's just a lack of anything else to say,
if you have a cell phone on, please turn your cell phones off,
so we won't have too many phones going off. Look at everybody
on the panel grabbing their phones.
    I really have been looking forward to this because I think
we've got some good things happening in Mississippi with small
and rural aviation airport activities. I'm delighted that we've
got representatives from the legislature here, and we were just
talking about the fact that aviation, tourism, economic
development, they're all interrelated and supportive of each
other, and if you don't have good aviation services, it's going
to be very hard to bring in the tourists you'd like to have,
and it also affects economic development.
    So while I've concentrated in this area as a Member of the
Commerce Committee for a good while and for the past 2 years as
Chairman of the Aviation Subcommittee, I think it's important
that you are always looking over the horizon, trying to figure
out what you need to do next to make sure that you understand
what is happening with aviation in this state and in other
states with airports similar to the ones we have, what we have
done that's been positive, and what we can do to build on it,
and so that's the purpose of our hearing here today.
    I'm delighted to have with me here today staff Members from
the Commerce Committee, the Subcommittee on Aviation. On my own
staff working with me on the aviation areas is Beth Spivey.
Beth, where are you?
    Ms. Spivey. Right here.
    Senator Lott. She didn't want me to introduce her because I
told her that I would get y'all to call her if you have any
complaints about this event or about aviation. Beth is from
Brandon, Mississippi, and she is my liaison for my Senate staff
to the Committee staff.
    From the Committee staff working under the chairmanship of
Senator John McCain, Rob Chamberlin here on my left, your
right. Rob has recently changed his hair style. I call him Nero
now, but he thinks he is going to stay on the Coast for a
couple of extra days.
    Chris Bertram is actually our Counsel on the Aviation
Subcommittee, and to show you the balance we have with us today
is Gael Sullivan, who is on the Democratic staff of Senator
Fritz Hollings of South Carolina. His first name is G-a-e-l,
but it's not Gail. Gael and I think they really are enjoying
being on the Mississippi Gulf Coast.
    I stayed at the Gulfport Holiday Inn last night. They, on
the other hand, stayed at the Beau Rivage. What's wrong with
this picture? But I wanted to introduce them because they do a
really good job for the Commerce Committee, for the Aviation
Subcommittee, and they spent a lot of time working with FAA,
the Department of Transportation, working on the legislation
that we have passed over the past 2 years to help the aviation
industry, so I wanted to make sure that we did get a chance to
introduce them.
    Now, we have a distinguished panel this morning, and we're
going to call on each one of them to make a statement, and then
I'll have some questions for them. If any members here in the
audience as we go along have a particular question that you'd
like to have addressed to this panel, we will have a time to do
that, too, but in that connection, I just asked Beth Spivey, of
my staff, to be prepared to circulate out. If you want to write
down a question, to make sure that we ask the right things of
this panel, we'll be glad to do that.
    First, we are honored to have the Under Secretary for
Policy at the U.S. Department of Transportation, Jeff Shane,
here on my left, your right. The Secretary of Transportation,
Norm Mineta, is out of the country this week, actually last
week and this week. He's in Bali and I believe is trying to
sign an aviation agreement with Indonesia, if that's correct.
Maybe Mr. Shane will explain that to us.
    Admiral Tom Donaldson, Center Director, NASA, John Stennis
Space Center. Admiral Donaldson has a little familiarity with
the facilities there at Stennis Space Center. We are glad that
he is the Director, and one of the things I'm looking forward
to hearing is how we can better provide the transportation
aviation needs for the people at the Stennis Space Center
because I think maybe they've been drifting in the wrong
direction, and we want to pull them back to Gulfport-Biloxi.
    Don Allee, who is Executive Director of the Mississippi
State Port Authority. Bruce Frallic, Executive Director of
Gulfport-Biloxi International Airport. I have worked with Bruce
for a long time, and I appreciate the job that he has done, and
we've got improvements that have been accomplished, more
improvements on the way, and more service that's being
announced with every passing week hopefully.
    Tom Williams, who is President and CEO of the Meridian
Airport Authority. I appreciate Tom coming down from Meridian.
Meridian has been one of those innovative smaller airports that
has taken advantage of special legislation to allow small
communities to develop innovative programs with Federal
assistance to provide service. The community has to develop a
plan, they have to put up their own money. Meridian was the
only city in Mississippi that did take advantage of the first
FAA authorization. It worked well. Now Tupelo, I believe, is
participating in it. So we've had two in Mississippi that
participated in this program. We'll get a chance to hear more
about that in a moment.
    I do want to recognize--I want to make sure I don't see any
other legislators. I know we have got city officials here,
members of the Airport Authority. I know that Mayor Ken Combs
is here--Ken, there you are--and former Mayor Danny Guice. You
still get introduced as former Mayor, don't you?
    Mr. Guice. Yes, sir. I'm proud of it.
    Senator Lott. And we do have the Chairman of the--I don't
know the official title, but the Airport Committee, the state
legislature and House of Representative, Billy Broomfield from
Moss Point is here. What's the actual name of your committee,
Billy?
    Mr. Broomfield. Ports, Harbors and Airports.
    Senator Lott. Oh. You have got ports, too?
    Mr. Broomfield. Yes.
    Senator Lott. Oh, good. Well, we'll talk to you about that
a little bit while you're here, too. And Diane Peranich, who is
from Pass Christian, in the legislature and serves on the--
Chairman of the Tourism Committee. So it's appropriate that
they both be here.
    Now, if you will bear with me, let me make an opening
statement. Two years ago when I had an opportunity to move in
to the chairmanship of the Aviation Subcommittee, I had a very
close friend of mine, a personal friend ask me why in the world
would I want to chair that subcommittee. It was an industry
that was having major problems, going down, not up, and it
would be working with an industry that didn't have a very
bright future, and I told him that that's exactly why I wanted
to do it, that I thought aviation was such a critical part of
our economy, that it had been hit hard by changes in flight--
people flying and how they flew, where they flew, when they
flew, that it had been hit by 9/11, it had been hit by recently
higher gas prices.
    We have been working with the deregulation of the industry.
We've had the spoke and hub system. Now we're getting more
point to point flights, but generally a lot of problems, and I
thought that it was important that we work in Washington to try
to be helpful to the industry because in America aviation is an
important part of our psyche. We're mobile. We move around a
lot. We move to different places to live. We fly back and
forth. And so it's critical that we pay attention to their
needs, their weaknesses, and their strengths.
    Over the past 2 years, we have done a number of things to
try to help the industry. We did provide a pretty significant
amount of funds in the aftermath or leading up to and right
after the Iraq war, several billions of dollars to help the
industry get through that period. We passed what we call AIR
Vision, which is the FAA reauthorization bill, a major bill we
passed last year, and we pushed very hard to get it through
last year.
    Senator McCain was very helpful in that because I knew that
this year, a Presidential election year, would be a tough time
to try to get legislation like this through, and the evidence
of that is we have a highway bill now that is still sitting in
conference, and it's not clear whether we're going to get a
major highway bill done this year, and we also passed a
legislation given the airlines some pension relief. So we've
had three major bills for the aviation industry over the past 2
years, and they are still wrestling with a lot of problems
obviously. The big ones, the Legacy Airlines in particular, are
still struggling with some of their contracts, and they've been
losing money, and they've still got a ways to go, but I believe
that they are beginning to turn a corner, at least there's good
news with some of them.
    The point to point airlines are doing very well, and I do
think that now there are probably more problems in the big
airports than some of the smaller regional or even rural
airports. We have made good progress, particularly in
Mississippi, with our smaller airports and our rural airports.
    Just a few years ago, I guess about 10 years ago actually,
we were down to just very limited jet service into Mississippi
at all. Jackson had some, Gulfport-Biloxi had a little, and
that was a real problem. As you know with the gaming industry,
we even had a problem getting the jet service into the Gulf
Coast, wound up--they made a commitment of money to bring in
charters. We've come a long way since then with really good jet
service into Gulfport-Biloxi, Meridian, Jackson, Golden
Triangle, and Tupelo, and all of them now are getting improved
service and are doing a very good job with the assistance that
they have been given from the Federal Government.
    Now, I'm sure we're going to hear today that we need more.
One of the problems has been the security demands. A lot of
money that was supposed to go into the Airport Improvement
Program, AIP, about half a billion dollars was diverted into
security costs, and that was necessary, but we had to find a
way to supply the security needs of these airports,
particularly the smaller ones, without taking away their
development funds. We have made that possible also through the
AIR Vision legislation we passed, but the purpose here today is
to talk more about where we are and where we want to go and
what can we do to provide even better service. We're working in
Mississippi to help the airports that have commercial service,
but we also are trying to improve our general aviation
facilities with a tower at the Stennis International Field in
Hancock County, tower going into the Trent Lott International
Airport in Jackson County, a tower in Olive Branch. FAA has
been being very helpful to us, Mr. Shane, and we appreciate
that, and we want that to continue. All we want is more than
our fair share because we have not gotten our fair share for a
long time, and we're making up for lost time. Many of you have
heard me say that.
    Again, looking at the Mississippi--in particular, before I
go to their testimony, as we look to the future, obviously
jobs, education, transportation got to be right at the top of
the list of things we want to focus on, but you're not going to
get jobs unless you have good transportation, and by that I
mean roads, rails and runways, the whole package, and then, of
course, we've got to work to improve education, but if you
don't have a plan of how you're going to do those things, you
won't reach your goal, and so I hope that coming out of this we
will develop some new ideas, some specific things we want to
plan on for the future.
    I don't know how long I'll stay as Chairman of the Aviation
Subcommittee, so I keep working furiously just in case somebody
tries to bump me this next year. I want to make sure we've
gotten all we can possibly get. Don't tell Senator McCain I
said any of this. It makes John nervous when I talk about
getting funds for Mississippi. He describes it different than
funds, but I just remind him that Mississippi is a poor state
and we're trying to move up and become a wealthier state with
opportunities for our people.
    In the aviation area, of course there are a number of
things we need to look at, runways, taxiways, aprons, pavement,
land purchase, safety, and obviously security is going to be an
ever present problem that we're going to have to provide funds
for, and through FAA, we are provided funds for the
reconfiguration of the passenger check points. We're trying to
get modern screening, in-line baggage screening technology. I
believe Gulfport-Biloxi is scheduled to get that done. Is that
under way now?
    Mr. Allee. Hopefully soon.
    Senator Lott. OK. And we're of course going to continue to
provide funds through AIP. I'd like to hear the testimony and
then get on into the discussion that we can have after that,
and so Mr. Shane why don't we turn to you, and thank you,
again, for being in Gulfport, Mississippi. Just after all, you
could be in Washington, New York, or Boston today, and you're
better off down here. You notice I said New York and Boston. Go
ahead.

         STATEMENT OF JEFFREY N. SHANE, UNDER SECRETARY

         FOR POLICY, U.S. DEPARTMENT OF TRANSPORTATION;

        ACCOMPANIED BY MICHAEL O'MALLEY AND MIKE WASCOM

    Mr. Shane. Thank you very much, Mr. Chairman. It's a
delight to be here in Gulfport today, and I can't imagine being
anywhere else, particularly with a hearing like this going on.
I want the record to reflect, Mr. Chairman, that my colleagues
and I from the Department of Transportation stayed last night
at the Comfort Inn, nowhere else. The colleagues that I brought
with me, if I could just introduce them for a moment, to my
right, Michael O'Malley in my immediate office, and Mike Wascom
from our Office of Government Affairs, both from the Department
of Transportation. We're all delighted to be with you.
    We appreciate very much the opportunity we have today to
talk with you and with your constituents about air
transportation generally, and in particular about air
transportation to small and rural communities and the Federal
Government's role in helping to facilitate that service where
it isn't available.
    As you know, Mr. Chairman, as well as anyone, there have
been a great many changes in the airline industry over the last
few years. To be sure, some of these changes occurred in
response to the 9/11 attacks, but many were in the works even
before 9/11 and have intensified in the nearly 3 years since.
The full effects of airport deregulation initiated some 25
years ago are now being felt, and more and more low-fare
service is becoming available in markets across the country. Of
course, this increased competition is everywhere in hundreds of
markets around the country, and has forced more traditional hub
and spoke airlines to be far more cost effective than they have
been.
    The upside of these changes, of course, is that many
communities are now getting attractive, new low-fare service.
In 1997, for example, Southwest began providing service from
Jackson to several major U.S. cities, and 2 years later,
AirTran began direct service from Gulfport-Biloxi to its hub in
Atlanta. As a result, travellers in this region have improved
and more affordable access to hundreds of destinations all
across the globe. These developments have resulted in lower
fares and phenomenal traffic growth, helping a great many
Mississippians to take full advantage of the economic
opportunities that convenient and affordable air service can
provide. This process has been repeated, it seems, all across
the country.
    While these developments have certainly been beneficial for
a great many communities, they can also result in new
challenges for others, notably for small and rural communities
trying to retain or improve direct air service. Quite frankly,
many passengers are willing to drive a bit further to access
low-fare service in places like Jackson and Gulfport bypassing
the direct flights that may be available from their own home
towns. It's hard enough, Mr. Chairman, to attract service to
some of the smaller communities that we have in the country,
but when low-fare service is available an hour's drive away, it
becomes even more difficult to make that service economical.
    Unfortunately, the main Federal program that's designed to
help communities, smaller communities like that, the Essential
Air Service Program, or the EAS Program as we call it, remains
largely unchanged since it was created back in 1978, and that
makes it difficult for us to respond effectively to this fast-
changing marketplace.
    At DOT in Washington, Mr. Chairman, we share your desire to
ensure that our Federal programs help us respond to market
developments while giving communities much more freedom to
tailor transportation services to their specific needs.
    We took a small but very important step in that direction
in the Century of Aviation-Vision 100, aviation legislation
that you mentioned, approved by Congress and signed by
President Bush last December. The statute includes two new
pilot programs that we just launched at DOT that will give EAS
communities new options to improve service to their
communities.
    The original bill also gave up to ten communities the
chance to take a direct stake and gain greater control over
their air service by providing a 10 percent match for Federal
subsidies. As you know, Mr. Chairman, we were not able to get
that particular provision done, but we will continue working
closely with you and others to hopefully make that change a
reality so that the EAS Program can take advantage of the
Federal, state local partnership that has characterized our
other very successful transportation programs in this country
for highways, for transit, and for airport infrastructure.
    Before I conclude, Mr. Chairman, I should also say a few
words about our Small Community Air Service Development Program
which was created 4 years ago to give grants to small and rural
communities that help either to improve their air service or to
help them find creative ways to bring down airfares. Unlike the
Essential Air Service Program, this program provides funds
directly to communities, not to airlines, and gives them a
great deal of flexibility on how those funds can be expended.
Two communities here in Mississippi, Meridian and Tupelo, have
received grants under this program and are using these funds
for service to Atlanta's Hartsfield Airport.
    In conclusion, I would like to thank you very much, Mr.
Chairman, for calling this hearing to talk about these critical
issues. They affect not only consumers' ability to travel, but
also the economic well-being of small and rural communities all
across America.
    Mr. Chairman, Secretary Mineta sends his greetings through
me. He is indeed in Asia. He was last week in China, and he
signed a very liberal agreement with the Chinese bringing far
more competition to the U.S.-China air services market, and
this week he is signing an open-skies agreement with Indonesia.
So within a 2-week trip, he's managed to bring something like
1.6 billion souls under a far more liberal aviation regime.
It's an important trip and will bring enormous benefits to the
United States as a result.
    We look forward to continuing to work with you on all of
these issues, Mr. Chairman, and, of course, I'd be very happy
to answer any questions you may have. I should also say, Mr.
Chairman, that there is a longer statement that we have
submitted for the record, and I'd ask that----
    Senator Lott. We'll make that statement a part of the
record.
    [The prepared statement of Mr. Shane follows:]

  Prepared Statement of Jeffrey N. Shane, Under Secretary for Policy,
                   U.S. Department of Transportation
    Mr. Chairman, thank you for inviting me to this hearing. I
appreciate the opportunity to discuss with you the important issue of
air service to small communities, and the two programs administered by
the Department of Transportation, the Essential Air Service (EAS)
program and the Small Community Air Service Development Program, which
deal specifically with that service. I can assure you that the
Department is committed to serving the needs of small communities and
to helping them meet the challenges that they face in obtaining and
retaining air service.
    It is clear that air service in this country has changed
dramatically over the past several years. Many of these changes have
been very positive. The growth of low-fare carriers for example has
made air transportation available to millions of people across the
country and Mississippi has benefited from this phenomenon. Jackson has
received service from Southwest, a major low-fare carrier, since 1997,
with service to Baltimore, Chicago, Houston, and Orlando. You may
recall that fares from Jackson to these cities declined rather
dramatically, and indeed, remain much lower even eight years later. As
often happens when Southwest enters a market, the number of air
travelers expanded dramatically, as hundreds of passengers every day
took advantage of the low fares that became available. Air travel
between Jackson and Houston has increased six-fold. AirTran extended
low-fare air service to Gulfport-Biloxi in 1999 and continues to
provide service to its Atlanta hub, as well as to Fort Lauderdale and
Tampa. By connecting Gulfport-Biloxi to its Atlanta hub, AirTran opened
the door to low-fare service up and down the East Coast. Similar to
Southwest's entry at Jackson, AirTran's entry at Gulfport-Biloxi
resulted in much lower fares and truly phenomenal traffic growth.
    While this is a good development overall for consumers, we
recognize that it can create new challenges for some small communities.
With a greater number of service choices available, particularly those
involving lower fares, many consumers are willing to drive to places
with more air service, making it more difficult for some individual
airports to sustain their own traffic levels. Another challenge is the
change in aircraft used by carriers that serve small communities. Many
commuter carriers have been replacing their 19-seat aircraft with 30-
seat aircraft, due to the increased costs of operating the smaller
planes and larger carriers' reluctance to offer code sharing on 19-
seaters. This trend began about 10 years ago and has continued. There
are now fewer and fewer 19-seat aircraft in operation as many commuters
have upgauged to 30-seat aircraft, and, in some cases, even regional
jets. As a result, many small communities that cannot support this
larger size of aircraft are being left with no air service. Finally,
some changes have occurred in response to the terrorist attacks of
September 11, 2001. Many consumers, leisure and business, have changed
their travel patterns and carriers have altered the structure of their
airline services to both the large and smaller communities that they
have served.
    The challenge for us all is how to blend this mix of developments
into a system that can provide benefit to all. Mr. Chairman, I do not
use the word ``challenge'' lightly. All of us--the Federal Government
that manages programs affecting service at small communities, as well
as the states and the communities themselves--need to reexamine the way
we approach small community air service to ensure that travelers
throughout the Nation have access to the widest variety of air
transportation services and the economic benefits that such
transportation offers.
    We at the Department of Transportation have recognized for a while
now that the way the Federal Government helps small communities has not
kept pace with the changes in the industry and the way service is now
provided in this country. For that reason, we have initiated some
important reevaluations of the programs that we manage. I want to share
with you today what we have done and are doing to address this issue.
    As you know, the Department administers two programs dealing with
service at small communities. The BAS program provides subsidy to air
carriers to provide air service at certain statutorily mandated
communities. The Small Community Air Service Development Program, which
was established by Congress in 2000 under the AIR-21 legislation,
provides Federal grants-in-aid to help small communities deal with
their air service and airfare issues. While initially established as an
experimental program, it was reauthorized through FY 2008 in Vision
100.
Essential Air Service Program
    Let me first address the EAS program. The laws governing our
administration of the EAS program have not changed significantly since
its inception more than 25 years ago notwithstanding the dramatic
changes that have taken place in the airline industry. With this in
mind, the Administration proposed very fundamental and substantial
changes to the program in its last FAA reauthorization proposal. Those
changes were based on our extensive experience dealing with the
communities and the carriers involved with the program, recommendations
from both of these constituencies, as well as studies by the General
Accounting Office that were geared toward finding ``the answer'' to
successful service at small communities. Two major themes came through
repeatedly--the need for greater participation by communities in
addressing their air service issues, and the desire for greater
flexibility in doing so.
    Congress made some significant changes in the reauthorization bill,
Vision 100, to address these considerations. We are currently in the
process of implementing two of those provisions. The first is called
the Community Flexibility Pilot Program. It allows up to ten
communities to receive a grant equal to two years' worth of subsidy in
exchange for forgoing their EAS for ten years. The funds would have to
be used for a project on the airport property or to improve the
facilities for general aviation.
    The second program is called the Alternate Essential Air Service
Program. The thrust of this program is that, instead of paying an air
carrier to serve a community as we typically do, communities could
apply to receive the funds directly provided that they have a plan as
to exactly how they would use the funds to the benefit of the
communities' access to air service.
    The law gives great flexibility in that regard: for example, funds
may be used for smaller aircraft but more frequent service, for on-
demand air taxi service, for on-demand surface transportation, for
regionalized service, or to purchase an aircraft to be used to serve
the community. The Department just last week issued orders establishing
those programs and allowing for communities to apply.
    Although these new programs are a step in the right direction, the
Administration has proposed further revisions to the EAS program for
Fiscal Year 2005 that would, for the first time since the program was
established in 1978, require communities to be stakeholders in the air
service they will receive and thus have a vested interest in its
success. With our proposed reforms, the Department would also ensure
that the neediest small communities would be able to maintain access to
the national air transportation system.
    In the past, a community's eligibility for inclusion in the EAS
program has been based only on whether it was listed on a carrier's
certificate on the date the program was enacted--October 24, 1978. Once
subsidized service was established, there was little incentive for
active community involvement to help ensure that the service being
subsidized would ultimately be successful. I can tell you anecdotally
that many EAS communities do not even display their subsidized EAS
flights on their homepages, but do show the availability of air service
at nearby hubs, especially if it is low-fare service. As a result, BAS-
subsidized flights are frequently not well patronized and our funds are
not being used as efficiently or effectively as possible.
    Under the Administration's proposal, communities are asked to
become partners in the financing of their air services, but in exchange
are given a much bigger role in determining the nature of that service.
As a result, currently eligible communities would remain eligible, but
would have an array of new transportation options available to them for
access to the national air transportation system. In addition to the
traditional EAS of two or three round trips a day to a hub, the
communities would have the alternatives of charter flights, air taxi
service, or ground transportation links. Regionalized air service might
also be possible, where several communities could be served through one
airport, but with larger aircraft or more frequent flights. These
options would be similar to the flexibility available to communities on
a more limited basis under the Alternate EAS Program that I described a
moment ago.
    Under the Department's proposal, community participation would be
determined by the degree of its isolation from access to the national
transportation system. The most remote communities (those greater than
210 miles from the nearest large or medium hub airport) would be
required to provide only 10 percent of the total EAS subsidy costs.
Communities that are within a close drive of major airports would not
qualify for subsidized air service, but would receive subsidies
constituting 50 percent of the total costs for providing surface
transportation links to that service. Specifically, communities within:
(a) 100 driving miles of a large or medium hub airport, (b) 75 miles of
a small hub, or (c) 50 miles of a non-hub with jet service would not
qualify for subsidy for air service. All other EAS communities would
have to cover 25 percent of the subsidy costs attributable to the
provision of air service.
    The proposed small-hub and non-hub criteria are important. Under
today's law, communities located within 70 miles of a large or medium
hub are not eligible for subsidized air service because they have
nearby, attractive alternatives. Given the growth of air services in
this country over the past 25 years, our proposal simply recognizes
that the same principle should apply for communities located near small
hubs and non hubs offering jet service.
    We believe that this approach would allow the Department to provide
the most isolated communities with air service that is tailored to
their individual needs. Importantly, it provides communities in the
program greater participation, control, and flexibility over how to
meet their air service needs, and a far greater incentive to promote
the success of those services.
    Finally, we recently sent letters to the civic officials of all140
communities currently receiving subsidized EAS seeking their views as
to how the program can be improved. We look forward to reviewing those
comments as they come in.
Small Community Air Service Development Program
    The Department is now in its third year of administering the Small
Community Air Service Development Program. Under the law, the
Department can make a maximum of 40 grants in each fiscal year to
address air service and airfare issues, although no more than four
grants each year can be to any one state. Congress has provided $20
million in each of the past three years for this program.
    Our experience to date with this program demonstrates the great
interest and desire of communities to tackle their air service
challenges head on and to contribute substantially to meeting those
challenges. In the first year, FY 2002, the Department received 180
applications seeking over $140 million. In FY 2003, we received 170
applications seeking over $105 million. The Department made 40 grant
awards in 2002 to communities in 38 states and 36 grant awards in 2003
to communities in 38 states and one U.S. territory, allocating all of
the available grant funds.
    We made awards to communities throughout the country and authorized
many different types of projects in order to address as many problems
as we could and to test the communities' proposed solutions. Some of
these projects include a new business model to provide ground handling
for carriers at the airport to reduce station costs, seed money for a
new airline to provide regional service, expansion of low-fare
services, a ground service transportation alternative for access to the
Nation's air transportation system, aggressive marketing and
promotional campaigns to increase ridership at the airport, and revenue
guarantees to reduce the risk to airlines for initiating or expanding
service at a community. For the most part, these projects extend over a
period of two to three years.
    This program differs from what had been the traditional EAS program
in a number of respects. First, the funds go to the communities rather
than directly to an airline serving the community. Second, the
financial assistance is not limited to air carrier subsidy, but can be
used for a number of other efforts to enhance a community's service,
including advertising and promotional activities, studies, and ground
service initiatives. Third, communities design their own solutions to
their air service and airfare problems and seek financial assistance
under the program to help them implement their plans. In fact, the
Alternate EAS program under Vision 100 was patterned in many respects
on these aspects of the Small Community Program.
    Communities have been very successful in implementing their
authorized grant projects. In 2002 90 percent of the grant recipients
implemented their projects and we expect a similar success story for
2003. Communities in Mississippi are among those that have implemented
their plans. Meridian received a grant in 2002 to help upgrade its
Atlanta service to all regional jets by Delta, a project that our
reports indicate so far has been successful. Tupelo received a grant in
2003 to secure additional air service to Atlanta and is working very
effectively toward that goal in partnership with us.
    Several others have also benefited from the grant awards, with new
services inaugurated at Daytona Beach, Florida; Augusta, Georgia;
Abilene, Texas; Lake Charles, Louisiana; Rapid City, South Dakota;
Charleston, West Virginia; Rhinelander, Wisconsin; and Scottsbluff,
Nebraska. New services have or will also begin in Gainesville, Florida;
Bakersfield, California; Shreveport, Louisiana; and Aguadilla, Puerto
Rico. We are monitoring the progress of all of the communities as they
proceed with the implementation of their projects.
    The true test of success will be if the improvements achieved are
sustained when the grant projects have concluded. As the 2002 and 2003
grant awards come to their conclusions, we want to review the results
of these grants to determine if they can offer greater insight into
helping smaller communities with their air service challenges. An
important goal of the Small Community Program is to find solutions to
air service and airfare problems that could serve as models for other
small communities.
    We are in the process of reviewing the grant applications for the
FY 2004 awards and hope to make our grant selection decisions next
month. This year the Department received 108 applications, again many
more than can be satisfied under the statute. As this proceeding is
currently before the Department, I am sure that you understand that I
cannot comment on this proceeding or any particular community
applications.
    The Federal Government, however, is only one piece of the equation.
States and communities will also need to review their air service in
the context of the changed industry structure and service to seek
fresh, new solutions to maximizing their air service potential,
including regional and intermodal approaches and expansion of public/
private partnerships to meet these challenges.
    In closing, Mr. Chairman, let me reaffirm the Department's
commitment to small community air service. We look forward to working
with you and the members of this subcommittee and the full committee as
we continue to work toward these objectives. Thank you again. This
concludes my prepared statement. I will be happy to answer any of your
questions.

    Senator Lott. Also, I want to note that the head of the
Federal Aviation Administration and the Department of
Transportation is Marion Blakey, who is a native of Tupelo,
Mississippi, and has been doing an excellent job in that role.
She does acknowledge that while she was born there, she moved
away pretty quickly, but I said that doesn't matter, if you
were born in Mississippi, we've got hooks in you for the rest
of your life. She's a real asset for FAA and for the Department
of Transportation and has been very helpful to the State of
Mississippi.
    Let me ask just a couple of questions, before we move on to
the other witnesses. You did mention, of course, the Essential
Air Service Program. You had said to me earlier privately that
there are some anomalies, I think you used the word, working
into the system causing some problems. Enlarge on that a little
bit. What can we do to make the Essential Air Program work
better?
    Mr. Shane. Well, I think the most important thing we can do
is to make sure that communities have a far more important
stake in the program than they do today. This is a----
    Senator Lott. By that do you mean matching?
    Mr. Shane. Well, matching would be one way of helping, yes.
The other would be to really tweak some of the rules. Right now
it's a one size fits all program. It was created in 1978. We
never have changed a hair on the head of the program in the
last 25 years. It was meant to provide scheduled air service to
any community that had scheduled air service on the day we
deregulated the industry.
    Senator Lott. 1978.
    Mr. Shane. October 24, 1978. The rules haven't changed
since that time. My favorite example, if I can go elsewhere
just to cite this one anecdote, is Utica, New York. In Utica,
New York, we used to have something like 24,000 enplanements a
year coming out of Utica. Southwest Airlines started up service
in Albany. Jet Blue went to Utica. Both of these communities
are less than an hour away from Utica. Did I say Utica? I meant
Syracuse. Jet Blue is in Syracuse. Albany has Southwest.
    The net result of those two new low-fare services is that
from 24,000 enplanements prior to those services coming in,
Utica dropped to 3,500 enplanements a year, 24,000 to 3,500.
Suddenly Utica's service became subsidized under the Essential
Air Service Program. Suddenly because of the program we ended
up having to subsidize Utica to the tune of about $1,000,000 a
year to provide a couple of 19-seat airplanes flying back and
forth to place where people were actually more interested in
driving because they wanted to pick up the low-fare service.
    Utica needed more flexibility than the ability through the
Essential Air Service Program to get two nineteen-seat
aircrafts coming in and out. There were more pilots flying in
and out of Utica than there were passengers, and the net result
is that because of the inflexibility of the program, we cannot
work with communities effectively to try to figure out what are
the kind of creative things they can do in order to attract air
service more effectively. The Small Community Air Service Pilot
Program, or Development Program as we now call it, has been a
real success story. I think it's brought----
    Senator Lott. Are they duplicative?
    Mr. Shane. No.
    Senator Lott. The Essential Air Service and the Small
Community Air Service Development Program, I know they're
different.
    Mr. Shane. They are different. The Small Community Pilot
Program was designed to actually try alternatives to the
Essential Air----
    Senator Lott. Which Meridian did and did a very good job.
    Mr. Shane. They have, and Tupelo as well. The point being
that the money that comes from the Federal Government, rather
than going directly to an airline to operate small aircraft, is
going to the community, usually in conjunction with a local
match, such that the community can do things with the money
that make sense----
    Senator Lott. What is the match there? Is it flexible, too?
    Mr. Shane. It's flexible. We only have the wherewithal I
think to fund forty communities a year, and there are a whole
variety of different programs.
    Senator Lott. We extended that in FAA----
    Mr. Shane. That's correct.
    Mr. Shane. It has been extended a number of years, and we
think that it might now be time to mainstream this program,
that is to say meld it together with the Essential Air Service
program.
    We've got some other ideas that the President has proposed
in the context of the 2005 Budget which would recognize that if
in fact we are going to keep expanding the community, Essential
Air Services communities by the 1978 definition just because of
this low-fare phenomenon that I was describing, then we're not
going to have enough money in the program--we'll never have
enough money in the program to actually take care of the most
isolated communities.
    So what we're trying to do through the President's proposal
for 2005 is ensure that the bulk of the money goes to those
communities that really are genuinely isolated, that
communities aren't getting money simply because they satisfy
some 1978 definition, even though----
    Senator Lott. Well, you know, when we were reauthorizing
the FAA, Federal Aviation Administration, and working on these
different programs, we tried to make some changes in Essential
Air Service and got a significant pushback because there are a
lot of senators, as well as Congressmen, that have these rural
areas that were covered under the original definition of
essential air service, and they're afraid to change it at all.
Plus, there was a discussion about increasing the match, and
that didn't work out either.
    In a state like mine, in Mississippi, it is hard for some
of these airports that might be eligible to come up with a
higher match. And what are you talking about in terms of the
match? Any particular amount?
    Mr. Shane. Yes. Well, for the--in terms of the President's
proposal for the 2005 Budget, for the most isolated, we're
talking about a 10 percent contribution, 90 percent Federal and
10 percent local. For communities that are less isolated, it
would be a 25 percent match, and we're talking about different
mileages that would be the cutoff, and those are all obviously
subject to discussion.
    For communities that are really not isolated any longer,
but perhaps not getting the quality of service they would like,
an option we think is very sensible, particularly where there
is proximity to a small hub or a medium hub or any other
airport that has jet service would be to subsidize or help
subsidize surface transportation. It would be far more
sensible----
    Senator Lott. Do you have that flexibility now?
    Mr. Shane. No, we don't. We can't use Essential Air Service
money for surface transportation. We can use it in the context
of the Small Community Air Service Development Program, the
Pilot Program, but we can't use it in the mainstream EAS
Program, and that's a mistake. It would be far more sensible to
have nine or ten shuttles going back and forth to a nearby
medium hub airport, for example, than to have two nineteen-seat
flights a day.
    Senator Lott. In the President's budget and in the
appropriations bill that's going through in Congress now for
transportation, I believe the House passed their bill last week
or at least it was done at committee level--committee level I
believe it was. What is the funding level? Do you happen to
know right off hand for the Essential Air Service Program?
    Mr. Shane. I think it's fifty million.\1\
---------------------------------------------------------------------------
    \1\ The House Appropriations Committee, Transportation and Treasury
Subcommittee, approved EAS Funding of $101.7M in its FY05 bill. The
mark-up occurred on July 22, 2004.
---------------------------------------------------------------------------
    Senator Lott. Fifty million. And what do you think we
really need in that area?
    Mr. Shane. Well, I think that is the--that's the level that
the President has asked for, and that's not a bad number, given
a sensible approach to the rules. If we can build some
additional flexibility into the program and make sure that that
money is being spent on the communities that really most need
it, we think fifty million could easily cover the subsidies
that are actually needed out there.
    Senator Lott. Just two other questions and we'll move
along. When you look at the security costs and what the
airports are having to deal with now, it has been a real
problem for all of our airport authorities, including smaller
ones, which have had their very small lobbies completely
gobbled up in instances, and of course we went through a period
there where people were actually lined up outside the
buildings. How are we doing in that security area? I know we're
going to hear from some of the other panel members perhaps on
that. Are we doing what we need to do, or are we going to more
modern equipment? Are we addressing the costs that are being
increased by security necessities?
    Mr. Shane. Well, from my perspective, that is to say a
Washington perspective, my answer would be yes. I think there
has been an enormous amount of improvement. The equipment is
out there. Secretary Mineta made it an absolute imperative that
we meet every one of the 30 deadlines that were imposed in the
original legislation after 9/11. We did that. The quality of
screening I think everybody who flies in the system would agree
has improved dramatically since we created the Transportation
Security Administration, and under its new management of the
Department of Homeland Security it's improved even more. It's
got a culture of user friendliness and efficiency, and it's
really trying to make the system function effectively, again
notwithstanding having ramped up security, quality system
security dramatically, but like you, Mr. Chairman, I look
forward to hearing from your other witnesses because it's
really where the rubber meets the road, as we say, that we
really find out whether or not the system is working as well as
we hope.
    Senator Lott. We have here today, as I noted, state
officials, local officials, as well as Federal officials and
committee staff members. If you had any one area that you want
to focus on where you thought state and local involvement could
be improved, what would that be?
    Mr. Shane. I don't look at it in terms of improving state
and local--well, I would like to enhance local involvement, as
I said, in the context of Essential Air Service. I think it's
much too much a Federal top down cookie cutter program, and we
really need the creativity with airport managers involved in
the Essential Air Service Program, and that's really the
motivation behind some of the changes that we are proposing.
    Beyond that, I think a lot of the improvements that we're
looking for I have to say come out of the Federal Government.
There are in my judgment far too many rigorous paperwork
requirements connected with the Airport Improvement Program,
the kinds of application forms required in order to do a
passenger facility charge, to enhance competition--we're taking
a very hard look at all of these requirements to see how they
can be reduced to something a little more sensible, more user
friendly. If I can just be blunt, I think we're driving our
airport managers crazy with some of these paperwork
requirements, and it's really high time that they be revisited.
They were all put in place for a good reason. Some of them are
statutory, and we'll come back----
    Senator Lott. A lot of them could be done administratively.
We always--we've heard for 30 years, in fact all of my career,
we're going to cut down on paperwork, and it grows
exponentially every year.
    Mr. Shane. Yes, sir. You're talking to an administrator,
and I'll tell you we can do a lot of mischief as
administrators, and so the question is really how do we reduce
even the administrative part. The statute probably needs some
tweaking, but what we do through the administration of the
program probably needs a revisiting as well, and we're taking
that pretty seriously.
    Senator Lott. Well, stay tuned, and let's see what these
fellows have to say that they want you to do.
    Admiral Donaldson, thank you again for being here, thank
you for a very important role that you have there at the
Stennis Space Center, and perhaps you can talk to us some about
the air service that you get for your employees and people
that--and visitors that come into the Stennis Space Center.
Maybe you can talk a little bit about the importance of
aviation in the development of a center like that and the
economic development and job creation in general. So we're glad
to have you here.

       STATEMENT OF THOMAS Q. DONALDSON, RDML U.S. NAVY,

        (RET.), DIRECTOR, JOHN C. STENNIS SPACE CENTER,

         NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

    Admiral Donaldson. Thank you, Mr. Chairman. It's my
pleasure to be here and represent Stennis, and I'm thrilled
that the administrators of the world have a lock on mischief
and not the directors, and so with that I'd like to get
started.
    Mr. Chairman and Representatives of the Subcommittee,
again, thank you for inviting me to be a part of this panel. As
director of the John C. Stennis Space Center, I can assure the
Subcommittee that access to a variety of air service options is
vital to NASA and the other agencies resident at Stennis Space
Center in the accomplishment of our various missions. And in
the interest of time and with your permission, I'd like to
submit my written testimony and then just focus really on the
economic aspects of today's topic----
    Senator Lott. We'll make all of your full statements a part
of the record so it can be reviewed by Subcommittee Members and
others as we look to the future service that we're trying to
provide.
    Admiral Donaldson. And the focus really is not only
enabling the agencies on Stennis to do their missions, but
really it's a subject of access to the Coast. And so as a
reference point, I'd just like to remind the Subcommittee that
I represent a workforce of a little over 4,500 personnel.
Nearly 40 percent of that workforce is scientific and technical
and engineering in nature, and while the center of expertise is
on Stennis, we're really connected with the rest of the country
in the conduct of the missions.
    Department of Defense is the largest employer at Stennis
with a little over 2,000 uniform and civilian contracted
personnel, and then NASA workforce follows closely behind. We
also, of course, have the Special Boat Team 22, a unique
riverine warfare capability unit, and I'll get back to that
because their capability really ties to the Stennis
International, work close to Stennis.
    You had mentioned that it appears that we use other
airports, and I'd like to explain why, and unfortunately right
now the numbers confirm that, and really commercial air service
to Stennis falls primarily in two airports, the Gulfport-Biloxi
Regional Airport and the New Orleans Armstrong International
Airport, and I think you'll see why the numbers fall out the
way they do, because if it was up to the employees, based on
convenience, the numbers would be reversed as to what I'm going
to share with you. The Gulfport-Biloxi Airport is really only
35 miles east of Stennis with a driving time of 40 to 45
minutes, and the New Orleans airport is 55 miles west with
really a driving time with the traffic and all of about 90
minutes. So it really takes twice the time of an employee--for
an employee on Stennis to fly out of New Orleans than it does
Gulfport-Biloxi.
    The airport locations utilized by the main agencies on
Stennis are largely budget driven. Because they are Federal
agencies, government travel regulations require those agencies
to use the GSA city pair contract services when available, and
I'd like to share with you the results of that Federal
requirement. I'd like to focus really on just the two largest
employers on Stennis, and we'll start with NASA.
    Last year, we had a little over 800 NASA flights, airline
tickets for a cost of $240,000, and approximately 73 of the
NASA travellers were out of New Orleans, leaving about 27
percent out of Gulfport-Biloxi. The three primary locations for
NASA employees last year are, number one, Washington, D.C.;
number two, Orlando, Florida; number three, Houston, Texas.
That's where our sister center--NASA centers are, Johnson and
Kennedy, but number one location is Washington, D.C., because
of headquarters.
    If you take a look at the Navy travellers, there were over
4,400 tickets last year at a total cost of about $2.6 million.
Again, approximately 70 percent of those travellers used New
Orleans, 20 percent were out of Gulfport-Biloxi, and 10 percent
out of other locations.
    The three primary destinations for the Navy customers on
Stennis are San Diego, number one; Norfolk and Virginia Beach,
Virginia, number two; and Washington, D.C. was the third
location. And when you look at where their headquarters, the
Navy headquarters for Small Boat Team 22 and special forces
that makes sense, it's San Diego, Norfolk primarily, then
Washington, D.C. .
    If I could add to the written testimony, I asked my travel
folks to focus on just Washington, D.C., since it was the
number one location for NASA and the number three location for
Navy, and we have a little over 1,000 travellers last year to
Washington, D.C.
    As I mentioned, we also have access to the General Aviation
Airport operated by Hancock County Port and Harbor Commission,
it's the Stennis International Airport located only seven miles
east of Stennis with driving time of less than 20 minutes. When
I am fortunate enough to catch a ride on a NASA plane going
east or west, of course they land at Stennis, also a corporate-
owned or chartered aircraft land there, and the primary reason
or connection I would like to make with the Stennis Airport is
the Small Boat Team 22. It offers easy, quick access for
deployment of that unit, and that I think is important, not
only for Stennis but for the Nation.
    We did a recent cost study as we were trying to hustle for
business for the Shared Service Center, and it was focused on
pursuing a charter service with weekly flights to the
Washington, D.C. area, to serve the travel needs of Stennis,
and we found with just a little over 1,000 travellers to
Washington, D.C., we did not meet the customer requirements to
make it feasible for a charter service for three flights a
week, but Stennis is growing, and really the primary focus of
my testimony from a business perspective is a focus on a non-
stop service to Washington, D.C.
    For the past 4 years, that's where I've travelled mostly as
the Navy Commander and now in my Stennis Director role, and
when you fight for budgets or you need to go work issues, the
convenience is really the right word, to be able to get on a
plane and go directly to Washington, D.C., do business and get
back the same day. I think it's not only a quality of life but
a business aspect, and I just have a sense that if Stennis can
support 1,000 flights from the Gulf Coast and we partner with
the other Federal agencies at Gulfport-Biloxi and Pascagoula--
in fact, I'd like to really suggest we look from Slidell to the
west and to Pascagoula to the east--my sense is we, we as a
community, Federal agencies and business should be able to
support a non-stop flight to Washington, D.C. Right now it's
only a gut feeling on my part, but I can back it up with 1,000
flights from Stennis agencies.
    I would like to take a side note here and mention that NASA
in a separate focus has been working with the FAA on a
particular project called the Small Aircraft Transportation
System or SATS, and it's really to develop a near all-weather
operations for new generations of aircraft to help them land at
virtually any small airport in the nation, and I have further
information if you're interested on that particular project.
    So in summary, for those that work at Stennis Space Center
and live in the surrounding counties and parishes, we really
appreciate the quality of air service that is currently
available in this region, not only for business purposes but
for personal travel as well.
    We are actively involved with the economic development
organization and other members of the community to fully
exploit the taxpayers' investment in Stennis Space Center by
increasing the number of jobs and resident agencies there at
the center. We support the examination of this committee and
the time and effort to look at any options that would improve
the variety available--the availability of the air services in
order to support the growth at Stennis and the entire region.
Thank you again for the opportunity.
    [The prepared statement of Admiral Donaldson follows:]

  Prepared Statement of Thomas Q. Donaldson, RDML U.S. Navy, (Ret.),
Director, John C. Stennis Space Center, National Aeronautics and Space
                             Administration
    Mr. Chairman and Members of the Subcommittee, thank you for
inviting me to be a part of this panel to discuss the benefits of air
service to the employers and workforce of the Mississippi Gulf Coast
area. As Director of the John C. Stennis Space Center (SSC), I can
assure the Subcommittee that access to a variety of air service options
is vital to NASA and the other agencies resident at SSC in the
accomplishment of our various missions.
    NASA's mission is to understand and protect our home planet, to
explore the universe and search for life, and to inspire the next
generation of explorers, as only NASA can. This undertaking has been
augmented by the Vision for Space Exploration, announced in January,
which calls for a sustained and affordable human and robotic program to
explore the solar system and beyond.
    The John C. Stennis Space Center has key roles to play in making
the Vision for Space Exploration a reality. It is NASA's primary center
for testing and certifying rocket propulsion systems for the Space
Shuttle and future generations of space vehicles. Because of its
important role in engine testing for four decades, Stennis Space Center
is NASA's program manager for rocket propulsion testing with
responsibility for conducting and/or managing all NASA large scale
propulsion test programs.
    In addition to rocket propulsion, the Earth Science Applications
Directorate at SSC is an important element of the NASA Vision for Space
Exploration. The Directorate performs an important function within the
Agency's Earth Science Enterprise by matching NASA's scientific and
technical knowledge with issues of national concern. Through
partnerships with federal, state, local, academic and non-profit
organizations, public and private sector decision makers learn how to
apply new technologies to critical environmental, resource management,
community growth and disaster management issues. Perhaps most relevant
to the purpose of this hearing is SSC's unique structure. Stennis began
``reinventing government'' years ago, after NASA completed testing
Saturn V engines for the Apollo program in the early 1970s. Since that
time, SSC has evolved into a unique Federal and commercial city that is
home to more than 30 federal, state, academic and private organizations
and numerous technology-based companies. NASA serves as the host
agency, and all resident agencies share in the cost of common
infrastructure, services and capabilities--producing a synergy that
makes Stennis a national model of teamwork and government cost
effectiveness.
    SSC is a significant source of employment and income in the local
area. In 2003, the SSC workforce totaled 4,524, with 38 percent
dedicated to scientific and engineering fields. The Department of
Defense is the largest employer at SSC, with more than 2,000 uniformed,
civilian and contractor personnel. The U.S. Navy's presence at SSC
includes the Naval Oceanography and Meteorology Command, the Naval
Oceanographic Office, the Naval Research Laboratory, the Naval Small
Craft Instruction and Technical Training School and Special Boat Team
22.
    With an average annual salary of $76,000, including fringe
benefits, SSC's direct global economic impact in 2003 was $755 million,
with a $533 million direct economic impact on the 50-miles radius
surrounding the Center. With your permission, Mr. Chairman, I am
enclosing as part of my written testimony additional Information on
SSC's economic impact for 2003 and a listing of SSC resident agencies.
    Considering the critical missions of its resident agencies and size
of its workforce, SSC relies upon the availability, frequency and
affordability of direct (non-stop) or one-stop flights between nearby
airports and national and international destinations in the performance
of these missions. Commercial air service is currently available to SSC
employees at two airports, the Gulfport-Biloxi Regional Airport and New
Orleans' Louis Armstrong International Airport. The Gulfport-Biloxi
Airport is located about 35 miles east of SSC, with a driving time of
less than 45 minutes. The New Orleans airport is located about 55 miles
west of SSC with a driving time of approximately 90 minutes.
    Statistics for official business flights by Stennis employees
during Fiscal Year 2003 indicate that a majority of flights originate
from the New Orleans airport, although the number of flights from
Gulfport-Biloxi is increasing. The airport locations utilized by
Stennis agencies are largely budget driven, and government travel
regulations require Federal agencies to use GSA ``city pair'' contracts
when available. Although statistics are not available for all SSC
agencies, I will summarize the official airline travel statistics for
NASA and Navy employees at SSC.
    Official business travel by NASA/Stennis employees in Fiscal Year
2003 amounted to 805 airline tickets at a total cost of $240,000.
Approximately 73 percent of the NASA business flights were out of New
Orleans and approximately 27 percent out of Gulfport-Biloxi. These
figures represent an increase over previous years in the use of
Gulfport-Biloxi airport, as additional government seating has become
available. In addition, round-trip airfare from Gulfport to Washington,
D.C. is currently lower than the rate from New Orleans. The top three
destinations for NASA/Stennis travelers in FY 2003, in terms of
frequency, were (1) Washington, D.C.; (2) Orlando, FL and (3) Houston,
TX.
    Official business travel by Navy/Stennis personnel amounted to 4409
tickets in Fiscal Year 2003 at a total cost of $2.6 million.
Approximately 70 percent of the Navy business flights were out of New
Orleans, 20 percent were out of Gulfport-Biloxi, and 10 percent out of
other cities. Because a large percentage of Navy personnel travel to
international destinations, the New Orleans airport currently offers
more options. The top three domestic destinations for Navy/Stennis
travelers in FY 2003, in terms of frequency, were (1) San Diego, CA,
(2) Norfolk/Virginia Beach, VA and (3) Washington, D.C.
    The Stennis workforce also has access to a general aviation airport
operated by the Hancock County Port and Harbor Commission. Stennis
International Airport is located 7 miles east of SSC, with a driving
time of less than 20 minutes. Because of its close proximity to SSC,
this airport is the preferred venue for Government- and corporate-owned
or chartered aircraft carrying SSC visitors or employees. On occasion,
Lakefront Airport located in east New Orleans is used as an alternative
landing site for such aircraft. The Stennis International Airport also
accommodates large cargo aircraft that are often required for defense
or industrial missions of SSC resident agencies.
    When approached by organizations considering Stennis as a possible
location for their activities, it is NASA's responsibility, as host
agency, to determine whether the Center can satisfy their occupancy
requirements. In nearly every instance, one of the primary
considerations of a potential resident agency--beyond the Center's
ability to accommodate its needs--is the accessibility and availability
of air service, whether for passenger or cargo purposes. One example is
Lockheed Martin's Mississippi Space and Technology Center, a commercial
operation that the company opened in 2002 at SSC, through a partnership
with the State of Mississippi. Lockheed Martin uses this facility to
design and produce propulsion and thermal control systems for its
commercial satellite program and to perform metrology, calibration and
other technical services for its customers. For this activity, Lockheed
Martin required access to an airport capable of accommodating large
cargo aircraft, and the Stennis International Airport effectively
satisfied that requirement.
    Another recent example involves NASA's decision to consolidate its
business operations at one location. Early this year, NASA field
centers were invited to submit proposals to become the site for the
NASA Shared Services Center (NSSC), where all transactional elements of
NASA's procurement, financial management, information technology and
human resources functions would be performed. NASA identified the
availability and accessibility of round-trip flight services as one of
the scored factors that would be considered in siting the NSSC.
Specifically, the proposal guidance stated that the ``frequency and
cost of direct (non-stop) or one-stop flights between the airport (near
the NSSC site) and other NASA locations are crucial to maintain and
improve service responsiveness of the NSSC.'' NASA requested that all
NSSC site proposals include supporting data such as the number of
direct and one-stop flights per week to each NASA Center and the cost
and estimated travel times to each NASA Center. Although NASA's site
selection decision for the NSSC has not yet been made, I am pleased to
report that Stennis submitted a proposal which reflected the excellent
air service options available at Gulfport-Biloxi, New Orleans, and
Stennis International to satisfy the NSSC accessibility requirements.
    A recent cost study conducted by SSC's Executive Committee on the
feasibility of pursuing a charter service with weekly flights to the
Washington, D.C. area to serve the travel needs of SSC employees to
that location indicated that the current level of SSC flight
requirements do not justify the cost of such service. However, any
sizeable increase in the SSC population could result in a different
conclusion.
    I would like to note that NASA's Aeronautics Enterprise is
performing research that will improve accessibility to our Nation's
airports, big and small. The Airspace Systems program is developing
technologies for revolutionary improvements to, and modernization of,
the National Airspace System, as well as the introduction of new
systems for vehicles whose operation can take advantage of the
improved, modern air transportation system. The customers for this
technology are the Federal Aviation Administration, state and local
airport authorities, personal aviation operators and the aircraft
developers. The primary objectives are to maximize operational
throughput, predictability, efficiency, flexibility, and access into
the airspace system while maintaining safety and environmental
protection. The resultant benefit to the user will be reduced flight
delays and trip durations. The goal of one project, called the Small
Aircraft Transportation System, or SATS, is to develop key flight deck
and flight path technologies that enable the demonstration of the
technical and operational feasibility of the capabilities for precision
guidance and improved reliability of small aircraft. SATS will enable
near all-weather operations by new generations of aircraft at virtually
any landing facility in the Nation. Hopefully, with the incorporation
of these technologies in the National Airspace System, all types of air
transportation servicing SSC and the surrounding region would benefit.
    In summary, those of us who work at Stennis Space Center and live
in the surrounding counties and parishes appreciate the quality of air
service that is currently available in this region, not only for
official business travel but for personal travel as well. At the same
time, we are actively involved with economic development organizations
and other members of the community to fully exploit the taxpayers'
investments in Stennis Space Center by increasing the number of jobs
and resident agencies at the Center. We, therefore, support the
examination of any options that would improve the variety and
availability of air services in order to support growth at Stennis
Space Center and the entire region.

    Senator Lott. First, with regard to Stennis International,
we are continuing to try to upgrade that facility and get other
programs in there. We've got funds coming now for a tower
there. It does provide access for NASA officials when they come
in and out of there directly, and, of course, as you mentioned
the Small Boat 22 Unit, they can get lifted right out of there,
right close to their site where they train. We're working now--
when we get the tower in there, we hope that the Keesler Air
Force C-130J's can do their drop training there.
    What else is going on there, and do we have the facilities
we need for that type of activity that's already going on?
    Admiral Donaldson. Well, there are plans, Mr. Chairman, on
when the funds are made available, and it's my understanding
they are in the budget to pave Texas Flat Road to a capability
that would allow----
    Senator Lott. Thank goodness.
    Admiral Donaldson. I agree. Well, my intentions are when
that 16 miles of road are paved to open up a third entrance to
Stennis which would allow the employment of the Special Boat
Team 22 units in 10 minutes rather than twenty. You would just
go out the northeast gate and you're at the airport, and that
type of accessibility to that airport I think will draw more
business. The U.S. Coast Guard Reserve unit of 150 that deploy
for port security are interested in that type of capability.
    Senator Lott. Do you hear any information that New Orleans
might want to move their commercial service, all of it to
Stennis International?
    Admiral Donaldson. I have not. I'm open to that suggestion.
    Senator Lott. I don't know if anybody is here from New
Orleans, but I thought I'd make them a little nervous by
throwing that out there.
    Let me ask you about some of things you pointed out. Now,
you said something about a city pair arrangement. What is that?
    Admiral Donaldson. Well, it's my understanding that on an
annual basis, the air carriers make bids for city pairs, two
locations, and then the government guarantees the numbers of
seats and low fares for those city pairs, and it is that
arrangement that is locked in by the government that
establishes the airfares available and----
    Senator Lott. Does that work, then, as an inducement for
your employees there at Stennis Center to go to New Orleans? Is
that what you're telling me?
    Admiral Donaldson. It's not an inducement. They really have
to.
    Senator Lott. How does this work? Are you the agency that
has that responsibility?
    Mr. Shane. No, sir. It's the General Services
Administration that runs the program for all agencies in the
Federal Government. What it is these are contract fares, as Mr.
Donaldson says. The airlines bid on the ability to be the
carrier of choice for the Federal Government, but as I
understand it, those bids cover transportation for everywhere.
They're not--they're not airport specific, so that there should
be a contract fare from any airport that a passenger wishes to
fly from.
    Senator Lott. Do we have any of those arrangements, Mr.
Frallic?
    Mr. Frallic. We do have some contract fares, and that is a
glitch in the system.
    Senator Lott. OK. Well, I don't know a lot about that, but
that's something we'll check into. I want to see how GSA makes
those determinations and how we can maybe find a way to help
Gulfport with that.
    Admiral Donaldson. Mr. Chairman, if I can just add, the
importance of that, when a government employee at least on
Stennis needs to make a trip, they go to their travel section,
and it's through that process the contract fares are
identified, and so the government employee has no choice but to
go with the lesser fare, and when it pops up out of New
Orleans, then they have to make the drive and do their
commuting. So they really don't have a choice.
    Senator Lott. Now, you did look, you say, at the
possibility of a charter arrangement direct to Washington, and
you didn't have enough usage to justify that from the Stennis
Center alone, but you suggested that maybe if we looked at it
in a broader sense, coast wide, Mississippi coast wide, that
might be possible or more attractive at any rate?
    Admiral Donaldson. We were looking specifically for the
Stennis Airport because of the NASA Shared Service Center to be
located on Stennis, and we're still--that decision has been
made. We're hopeful that that will come to pass. So we were
just looking at the Stennis Airport.
    This is a personal comment, when I looked at the Gulf
Coast, Gulfport-Biloxi is ideally located between the major
entities on the Coast, and one concern I would have is to
really--if we had a charter service out of Stennis, while it
would be more convenient to the Stennis employees, I really am
concerned that it may impact on the transportation options here
at Gulfport-Biloxi, but what we found was that--as I mentioned,
between 1,000 and 1,300 trips were made to Washington, D.C.,
and that was viewed as not economically feasible for a 3-day
charter service. If my memory serves me correctly, they stated
they needed about 3,000 counted-on trips per year to justify a
charter service coming and flying.
    Senator Lott. Well, we're working all the time trying to
get better service in Mississippi airports, including direct
service to Washington. Right now that's just out of Jackson.
Southwest goes to BWI--Baltimore-Washington International,
which still beats connections through anyplace, and then
Delta--I believe we have Delta representatives here. Delta has
applied for a slot out of Reagan that would be direct to
Jackson, which is really great because that's where I have two
grandchildren, and I would love to be able to fly direct non-
stop into Jackson.
    Of course, here in Gulfport, we've got--Northwest goes
Memphis, Washington, and Delta Atlanta, Washington, and you've
just announced that you've got increased jet service from
Delta, Comair I believe will be coming in. Is that correct?
    Mr. Frallic. Yes, ASA Delta. We also have AirTran.
    Senator Lott. And now it goes Atlanta right into Reagan?
    Mr. Frallic. That's correct. Same plane service.
    Senator Lott. And, of course, Meridian now has Meridian jet
service Atlanta, Washington. But we're a little bit away I
guess from direct non-stop service Gulfport-Biloxi to Reagan
National, right?
    Mr. Frallic. Little bit.
    Senator Lott. That's our next goal, I guess.
    Mr. Frallic. Yes, it is.
    Senator Lott. OK. That would be good. Let's see here. For
now, Admiral, thank you very much for your testimony. Let me go
on through the rest of the panel, and maybe there will be some
other questions for you. Maybe some people in the audience
would have a question they would like to address to you, also.
    Mr. Allee.

 STATEMENT OF DON ALLEE, EXECUTIVE DIRECTOR, MISSISSIPPI STATE
                         PORT AUTHORITY

    Mr. Allee. Senator Lott, thank you for letting me be party
to the field hearing. Welcome to the Committee Reps that are
here. For the record, I'm Don Allee. I'm the Executive Director
of the Mississippi State Port Authority at Gulfport. We are the
state port of the great State of Mississippi. A lot of people
in the room are probably wondering why is a water guy here, and
let me just say I've submitted a written record for my
testimony today, and I will try to demonstrate why I think
there is a very close relationship between waterborne activity,
waterborne commerce and the success of our airport.
    The majority of air cargo is very high in value. It's very
sensitive to time. It has to have a rapid delivery, and those
requirements are pretty stringent. Most ocean freight is lesser
in value and can live with longer delivery times. It would seem
that the airports and the seaports would have little in common
when developing new business. The Mississippi State Port
Authority and the Gulfport-Biloxi Regional Airport have been
working in concert for years in an effort to bring more
international business to this area. Foreign waterborne
commerce and airborne commerce creates jobs and has a dynamic
economic impact, not just throughout Mississippi, but
throughout this region. There are many, many times where the
Port of Gulfport is also the Port of Memphis, Tennessee, the
Port of Chicago, Illinois. Waterborne commerce international
trade has a tremendous effect on the jobs in this region.
    I would just like to give an example because in talking to
Beth Spivey prior to this field hearing, there are many, many
things I can say about the relationship that the seaport and
the airport have, but I think the best situation that I can
describe is an actual commercial event that took place just
last year and got quite of bit of attention.
    While focusing on trade opportunities in the North/South
Axis--and when I refer to the North/South Axis, that's Latin
America and South America and the Caribbean--the Regional
Airport included the Port of Gulfport in a piece of export
business that was being developed at the time. A customer in
the Caribbean was looking to buy a significant volume of live
cattle and have the animals delivered originally by air from
this area.
    The transport of the cattle by air is actually a rather
common practice. Though that's expensive when the head count is
not too large, it makes a lot of sense, especially if the final
designation is relatively nearby. Since the new buyer did have
limits on their budget, the airport representatives included
the seaport during the transportation cost analysis phase while
looking at this piece of business to make sure of a couple of
things: Number one, that every angle had been looked at in the
transportation of live cattle, and probably more importantly,
to make certain that this business opportunity didn't slip away
to a competitor, perhaps to the east, Port of New Orleans, Port
of Baton Rouge, one of the other competing ports was probably
sniffing around for this type of business.
    During this process and while the customers were in town,
the volume of cattle to be purchased went up significantly, and
call it a little bit of right place right time, but more
importantly cooperation, the air transit of the cattle sort of
took second--took a back-seat approach to the ocean
transportation of the cattle, and as it turns out, thanks to
the help of the airport, the seaport got to move 139 head of
hybrid cattle to the Caribbean customer.
    Now, I know that Bruce wasn't happy about that, but that
wasn't the original intent. The original intent was to combine
forces and give a professional transportation cost analysis to
the buyer. Well, that's not always going to happen. We have a
great relationship. The Port of Gulfport got tremendous public
attention by doing this. The opportunity is going to occur
again.
    So I just want to--I use that simple example because this
just happened within the last year. It is a situation where
working together was to the benefit of this area, and it is
important to have a strong airport. Because of the business I'm
in, commercial waterborne commerce, I've got to have the
ability to have these customers. There are ships out here today
their owners and their operators like to come to town sometime
and see, you know, what kind of job are you doing, how are you
handling my cargo, how are you handling my ship. They don't do
that by rubber tire. They do that by air. I don't know if it's
an accident or by coincidence, but successful seaports all have
success airports, and I would like to stress that relationship,
and that is the relationship that our port certainly has from
this airport.
    I would also like to stress that there are some other
commercial opportunities, the Foreign Trade Zone. Bruce and I
happen to sit on the Foreign Trade Zone Committee together. We
work very closely in looking for Foreign Trade Zone
opportunities, and I'd like to say that that's a success story
as well. It's an occasion where the airport and the seaport do
beneficially take advantage of our Foreign Trade Zone program,
and that's an ongoing process. It's a daily process. We just
had our meeting a few days ago.
    Also, I would like--I'd be remiss if I didn't mention the
tourism side of things. A lot of people think the Port of
Gulfport is the third busiest container port in the Gulf of
Mexico, and that's a fact. We're very proud of that, but we are
also, once again by accident in some occasions, we're known as
the alternative load center for cruise vessels when New Orleans
can't deliver, and we've done that, and I can tell you through
our experiences in the last year, we would not have been able
to be as successful as we were on a short-term basis with the
cruise industry had it not been for our airport.
    When we--and when I say when, it's going to occur. When we
fully develop our participation in the cruise industry, it's
going to absolutely be because of the strength of our airport.
Seaports are nothing more than a facility, but the passengers
have to have a way to get in here, they have to have a reliable
infrastructure in place, and I think that the cooperation that
I've seen in the short time I've been at the Port of Gulfport
between ourselves and the airport, we've got a head start on
all our competitors.
    So for what value my comments are, being the seaport, I
hope you entertain them and know from the bottom of my heart
that our success is directly tied to the airport's success, and
I would like to think in some occasions that's vice versa. I
think the value of my remarks really come from the Q and A, and
I'd be delighted to answer any questions you may have.
    [The prepared statement of Mr. Allee follows:]

         Prepared Statement of Don Allee, Executive Director,
                    Mississippi State Port Authority
    The majority of air cargo is very high in value and very sensitive
to rapid delivery requirements. Most ocean freight is lesser in value
and can live with the longer transit times. It would seem that airports
and seaports would have little in common when developing new business.
    The MSPA at Gulfport and the Gulfport-Biloxi Regional Airport have
been working in concert for years in an effort to bring more
international business to the area. Foreign waterborne and airborne
commerce creates jobs and has a dynamic economic impact, not just
throughout Mississippi, but throughout surrounding states as well.
    While focusing on trade opportunities in the North/South Axis,
(Latin America and the Caribbean) the Regional Airport recently
included the Port of Gulfport in a piece of export business that was
being developed. A customer in the Caribbean was looking to buy a
significant volume of live cattle and have the animals delivered by
air. The Transport of cattle by air is actually a rather common
practice, though expensive when compared to other transportation modes.
Since the new buyer did have limits on its transportation budget,
airport representatives made it possible for the Port of Gulfport to
assist in the transportation cost analysis to make certain the customer
was professionally assisted with every phase of the delivery process.
We so wanted to be sure that this piece business did not slip away to a
competitor's facilities.
    As it turned out, the volume of cattle to be purchased went up
dramatically. By working jointly with the airport, we collectively
covered every base. Export by water-carrier became the most economical
method. The airport and seaport representatives sat down with the
export broker and buyer's representative and presented a plan that
would serve the needs of the cargo by air or by sea.
    Another area where the seaport and regional airport work together
is in the promotion of the Foreign Trade Zone (FTZ No. 92). The
Mississippi Coast Foreign Trade Zone has 5,000 acres of secured sites
at airports, seaports and industrial parks within three coastal
Mississippi counties. FTZ's save importers and exporters money that
would normally be devoted to duties or excise taxes. At the same time,
FTZ's create jobs and generates revenue the region.
    Some of the FTZ opportunities represent active use of air and
marine transport.

    Senator Lott. Let me ask a little bit more about the cruise
ship corporation. When you did have the cruise ship docked
here, I understand that it had been diverted from New Orleans,
that you did have to work with the airport to accommodate the
passengers. Tell me just a little bit more about how that
worked or how that would work if we got into a permanent
arrangement for cruise ships.
    Mr. Allee. Well, the way--I'll start with how it worked
last year. We had very little notice. We had about 72 hours to
make a lot of serious decisions. The problem occurred when the
cruise vessel was not going to be able to discharge passengers
in New Orleans or take on new passengers and became apparent
that the vessel was coming to the Port of Gulfport.
    There were a lot of people even 48 hours before sailing in
other parts of the United States that had to make rapid
decisions about, well, what happens when I fly into New Orleans
and my ship is not there. Bruce can probably be a little more
specific on what the head count really was, really and truly
was, but a lot of people at the time simply said, well, wait a
minute, I see here where there is an airport served by several
carriers right there in Gulfport, let's go to Gulfport, why fly
to New Orleans.
    So from a transportation challenge, a lot of people were
able to on short notice and with relative ease fly into
Gulfport and take a 10-minute cab ride and be on the ship, so
that's how it did work last year. We're in the midst of a
cruise study right now that a great bit of focus is going to be
on air travel, and we----
    Senator Lott. Is this a state-funded study?
    Mr. Allee. This is actually--the MDA has contributed a
little bit to this study, and primarily the Port Authority is--
the Port of Gulfport is paying for the study, and it is
Mississippi Coast specific. It's aimed at--well, I don't want
to give too much away to my competitors, but we are taking a
serious look at the infrastructure requirements, security
requirements, the airport infrastructure is going to play a big
part of that, but I can actually foresee having a cruise
reception desk at the airport in the Gulfport-Biloxi Regional
Airport when passengers step off of a plane, have a seamless
delivery of passenger and luggage right to the vessel or to
partake of the entertainment or the restaurants in the area.
Those types of cooperations are going to go a long way to not
just making a successful cruise adventure out of the Port of
Gulfport, but also economic development and tourism in general
for the great Coast of Mississippi.
    So those are some of the things that are relative to our
ability to develop cruise and tourism, if you will.
    Senator Lott. Years ago, Gulfport Port and Harrison County
was one of the first Foreign Trade Zones that was approved. I
think it was like fifth in the Nation or something like that.
We've heard about it for years. What does that really mean? How
does it give us an advantage in how it relates to both your
service but also the airport?
    Mr. Allee. Well, the Foreign Trade Zone is actually a
program that's been around for many, many years, and I really
don't know the history right here, but I know the history of
Foreign Trade Zones, it was sort of an under-utilized feature
until perhaps the last couple of decades. Actually--and the
best definition I can give you is that goods can come into the
United States, enter into a Foreign Trade Zone duty free. This
frees up whoever the port of record of the United States might
be, frees up their capital for other things, if they don't have
to pay duties and things of that nature.
    Goods come in, go into the Foreign Trade Zone, and they can
be manipulated, they can have value added to them, they can be
expanded on, and it's as if they're not even in the United
States. Now, you say, OK, what does all of that mean. Well,
when those value added features are taking place, that creates
jobs, that stimulates the economy, that----
    Senator Lott. Do most ports and airports have that feature?
    Mr. Allee. Not really, no, sir. A lot of times--I'll tell
you what, my acquaintance with Foreign Trade Zone has been more
with the seaports, but I can tell you from the Mississippi
Coast perspective, this airport has been more aggressive, more
active, more involved in promoting the Foreign Trade Zone than
perhaps any I've ever seen.
    Senator Lott. Well, we try to take advantage of every
little opportunity we have, so maybe----
    Mr. Allee. I'm comparing this situation to some 500-pound
gorillas throughout the Unites States, and, as I say, it's very
aggressive and very involved, and I think we're taking
advantage of every angle that's out there for us.
    Senator Lott. Well, thank you very much. Mr. Frallic, let's
move on to you, and we'll continue to go back and forth asking
the questions.
    We appreciate the job that you do at the Gulfport-Biloxi
Airport. You've got an outstanding Board with you, and you
might want to recognize them as you get into your statement,
too.

         STATEMENT OF BRUCE A. FRALLIC, AAE, EXECUTIVE
        DIRECTOR, GULFPORT-BILOXI INTERNATIONAL AIRPORT

    Mr. Frallic. Well, let me start with that, the first thing
is first, as they say, as they write the checks. I'd like to
introduce our Chairman Ron Werby, our Vice Chairman, Frank
Genzer, and also our Secretary-Treasure Travis Lott, and
they're joining me today.
    Senator Lott. Another Lott I've tried to claim kin to and
have nothing to do with.
    Mr. Frallic. I'd like to thank you, Senator Lott, and all
the distinguished panel members for choosing Gulfport for this
location for this hearing. This is a tremendous day for us.
    Some have characterized the growth of Gulfport-Biloxi as a
rocket ride over the last 10 years. A 400 percent increase in
the number of passengers over a period is a lot of growth, but
what's caused it? And I think this is the story of airports
generally. Our growth has been driven by $3.3 billion
investment in resorts, 16,000 new direct jobs, record growth in
personal income and retail sales, but most important, the
investment by the casino resorts has fueled the growth of our
rooms, the hotel rooms from 5,400 in 1992 to over 17,000 today.
In other words, our growth has come from the creation of an
entirely new industry and from the business activity that's
related to that, and without an airport, it could not have been
so successful.
    The economic achievements of the Mississippi Gulf Coast,
like every other small community, occur in proportion to the
transportation infrastructure generally, and specifically, in
the case of Gulfport-Biloxi and in the case of the gaming
industry, the airport's ability to expand, to move more people,
more goods, and to provide more services.
    There's little question, then, that the quality and the
quantity of air service is inseparable from the community's
opportunity for prosperity. Our economic development agencies
tell us that one of the first questions that any Fortune 500
company asks or, for that matter, any company or person that
has a long-term vision of success, tell us about your airport,
tell us about your air service, and can you grow.
    Well, our facility answer today, as in the past, is we can
grow double digit for 50 consecutive years, never run out of
room, as long as we can attract capital. Although I must tell
you that for the period 1994 through 2000, when the Airport
Improvement Program was cut desperately, we still had to find
$10,000,000 for our expansion, and we managed to find it, and
this year based on the expected demand that I'm going to
describe a little bit later, we sold a $38,000,000 bond issue
again to double the size of our terminal, and because we
believe that the airport is a tool for economic development, it
should never be a bottleneck.
    I think the other question is has airline capacity kept up
with growth. Clearly capacity is down since 9/11 across the
Nation and here in Gulfport-Biloxi to some extent. With load
factors very high here at Gulfport-Biloxi and demands stronger
than ever, we're actually spilling 34 percent of our passengers
to New Orleans. That's about a 100,000 passengers a year based
on the size of our market. In short, we're starving for seats.
Please, keep that thought. I'd like to return to that a little
bit later, but first let me talk about economic impact and the
importance of this airport to our community.
    Literally every company, agency, military or government
activity is positively affected by Gulfport-Biloxi and its air
service. With respect to economic impact, a simple comparison
will tell the story. In the 1980s, Gulfport-Biloxi served
180,000 passengers on an annual basis generally. Our scheduled
service consisted of 3 non-stop cities, 12 daily flights, no
jets, and $100,000,000 annual economic impact.
    Senator Lott. Give me the dates again.
    Mr. Frallic. Back in the 1980s, all the way through. We
averaged 180,000 annual passengers, that's in and out, 3 non-
stop cities, 12 daily flights, and $100,000,000 economic
impact, which was substantial at the time. We thought we were
doing pretty well, but today, during the first part of the
2000s, Gulfport-Biloxi has served as many as 949,000 passengers
per year, scheduled service has grown to 5 non-stop cities, 21
daily flights, nearly all jets, and over $600,000,000 annual
economic impact. That is unprecedented value added to the
Mississippi Coast, and we all know access to the national air
transportation system is everything, for our business and
industry, for our military and government, for our tourism, and
for the new businesses that will be coming, like the cruise
ship for Gulfport.
    None of these opportunities can continue without air
service, and all of them will prosper because of it. Simply
stated, the benefits of Small Community Air Service here at
Gulfport-Biloxi are represented by a 500 percent increase in
economic impact.
    Ten years ago, it was really hard to fly from Gulfport-
Biloxi. Prices were high. We had a fraction of the seats,
cities, and airlines that we have today. The Coast business and
industry that's pushed the airport to this present record level
is the casino resort industry, and the market driver
principally is the first-class hotel rooms and condos. By
example, 1,000 new first-class hotel rooms translates to
150,000 new annual passengers. Now, in Las Vegas, it's double
that, and the reason is they are a much more mature air market.
    Right now, more than 1,000 hotel rooms and 1,500 condos are
planned to open in the next 36 months here on the Mississippi
Coast. That equates to 375,000 new annual passengers, but the
element that's often lost is that 60 percent of those
passengers that are created will be business oriented,
employees, investors, vendors, suppliers and conventioneers.
These are nickel-ninety-eight customers for the airlines. They
pay a good fare.
    On the other hand, the leisure travellers who generally do
fly on a lower fare run about 40 percent of those--of that
growth that we're expecting. So those 2,500 new rooms and
condos represent a $300,000,000 private investment in new
facilities here on the Mississippi Coast. We like to say at
Gulfport-Biloxi Airport, When they break ground, we break
ground, and if we don't, we're not ready. We've done that in
each case, in each growth spurt.
    However, we have entered a whole new phase of airport
growth. While the casino resorts have pushed the Gulfport-
Biloxi market to the new level of passenger demand by
constructing thousands of new first-class hotel rooms and
bringing low-fare air carrier--AirTran to the market, it will
be Coast business and industry and airlines that are here today
that will pull our passenger market to the next level. It's a
very tough airline market for small communities. Airlines
operate on a razor's edge. Fuel costs are out of sight. There
is great uncertainty in the market. As you mentioned, the
Legacy carriers are struggling. The airlines today won't take
the risk in this climate to add new flights and cities alone.
With our competitor New Orleans so close, and many communities
offering airlines cash, it's a real challenge for Gulfport-
Biloxi to take the next step to that critical mass of seats
which we need.
    And that returns me to the subject of airline capacity.
Like most small communities, demand for seats here exceeds
supply. This has very powerful economic implications for our
area. One thing is convenience. The other thing is economic
impact. The passenger leakage that we have to New Orleans, that
34 percent or 100,000 passengers a year, is a costly drain.
We're not just spilling passengers, we're sending our dollars
to New Orleans.
    For those 100,000 passengers each year, airline revenues of
$25,000,000 are lost, credit for AIP funding of $550,000 is
foregone, PFC revenue of $450,000 are collected elsewhere, we
never see $30,000,000 in spending by passengers in the
community, local and state taxes of $2,000,000 are not
realized, and airport revenue is approaching $500,000 for six
flights a day, which is what it would take to move those
100,000 passengers, goes to New Orleans.
    This $58,500,000 economic impact belongs to the Mississippi
Gulf Coast. Our Small Community Air Service application that's
in place now with the Department of Transportation for Dallas
and Orlando as new non-stop cities can swing the pendulum back
our way. The Small Community Air Service Program is a jump
start for the airport, the airlines, and the community. It's
about providing needed capacity and more options for Coast
passengers. It's about competition in keeping our earned money
here. It's an investment in the most basic element of airport
infrastructure, the airport seat.
    The Small Community Air Service Program is vital,
especially today, and we recommend full funding at the maximum
possible extent because it is a sign of the times that airport
communities step up and express value in their airlines. Just
like finding the money to build, when there was no hope to find
it, we're putting up lots of money to sell when times are
really tight. Gulfport-Biloxi already invests more than
$500,000 a year marketing our airlines and this destination.
Beau Rivage and Grand Casinos have a revenue guarantee
agreement with AirTran. Tourism here on the Mississippi Gulf
Coast invests millions of dollars every year in promoting the
destination.
    So, in closing, the Mississippi Gulf Coast is again putting
its money where its mouth is. Our consortium of airline
marketing partners including the airport, the Harrison County
Development Commission, the Harrison County Tourism Commission,
and the private sector casino resorts are pledging at least
$760,000 in cash and in kind to get that Small Community Air
Service grant. Remember that the pay back will be 20 times that
within a year. We need this program. We need your support. And
I'll be more than happy to answer any questions.
    [The prepared statement of Mr. Frallic follows:]

   Prepared Statement of Bruce A. Frallic, AAE, Executive Director,
                 Gulfport-Biloxi International Airport
Importance of Air Service to Small Community Economic Development
    Senator Lott and distinguished panel members, my name is Bruce
Frallic, Executive Director of the Gulfport-Biloxi International
Airport. Thank you for scheduling this Field Hearing of the Senate
Aviation Subcommittee today in Gulfport, MS.
    Some have characterized the growth of Gulfport-Biloxi as a ``rocket
ride'' over the last decade. A 400 percent increase in the number of
passengers over the period is a lot of growth. What's caused it? Our
growth has been driven by $3.3 billion investment in resorts, 16,000
new direct jobs, and record personal income and retail sales growth.
But most important, the investment in casino resorts has fueled hotel
room growth from 5,400 rooms in 1992 to over 17,000 today. In other
words, our growth has come from creation of an entirely new industry,
and from the business activity related to it, and without an Airport it
could not have been so successful.
    The economic achievements of the Mississippi Gulf Coast, like every
other small community, occur in proportion to the transportation
infrastructure generally, and specifically, in the case of the gaming
industry, the Airport's ability to expand, to move more people and
goods, and provide more services.
    There is little question, then, that the quantity and quality of
air service is inseparable from a small community's opportunity for
prosperity. Our economic development agencies tell us, one of the first
questions asked by any Fortune 500 company, or for that matter, any
company or person who plans long-term business success is, ``tell us
about your airport and air service and can you grow?''
    Our facility answer today, as in the past is, we can grow double
digit for 50 years as long as we can attract the capital. Although I
must tell you that Gulfport-Biloxi had a very difficult time from 1994
to 2000 when Airport Improvement Program (AIP) funding was cut, yet we
had to find $10,000,000 to expand. This year, based on expected demand,
we've sold a $38,000,000 revenue bond to again double the size of our
terminal. We believe the Airport is a tool for economic development . .
. it must never be a bottleneck.
    The other question is, ``Has airline capacity kept up with
growth?'' Clearly, capacity has been down since 9/11.

   With load factors high, and demand stronger than ever,
        Gulfport-Biloxi spills 34 percent of its passengers to New
        Orleans (100,000 passengers per year).

   In short, we are starving for seats.

    Please keep that thought. I'd like to come back to how we plan to
increase airline capacity a little later.
    But first let me talk about the economic importance of our Airport.
Every company, agency, military or government activity is positively
affected by Gulfport-Biloxi and its air service. With respect to
economic impact, a simple comparison will tell this story.

   In the 1980s Gulfport-Biloxi served 180,000 passengers per
        year. Our scheduled airline service consisted of 3 non-stop
        cities, 12 daily flights, no jets and a $100,000,000 economic
        impact.

   Today, in the first part of the 2000s, Gulfport-Biloxi has
        served as many as 949,000 passengers per year and scheduled
        service has grown to 5 non-stop cities, 21 daily flights,
        nearly all jest and over $600,000,000 annual economic impact.

   That is unprecedented value added to the Mississippi Gulf
        Coast and access to the national air transportation system is
        everything for our:

     Business and Industry

     Military and Government

     Tourism, and

     New Businesses like a cruise ship for Gulfport.

    None of these opportunities can continue without air service, and
all of them prosper because of it. Simply stated, the benefits of Small
Community Air Service at Gulfport-Biloxi are represented by a 500
percent increase in Airport economic impact.
    Ten years ago it was really hard to fly from Gulfport-Biloxi.
Prices were high and we had a fraction of the seats, cities and
airlines we have today. The Coast business and industry sector that has
``pushed'' the Airport to its present record level is the casino resort
industry, and the market driver is principally:

   First class hotel rooms and condos. By example, 1,000 new
        rooms create 150,000 new annual passengers. (In Las Vegas, a
        more mature market, the room effect is double that.)

   Right now more than 1,000 hotel rooms and 1,500 condos are
        planned to open in the next 36 months. That equates to 375,000
        new annual passengers. (60 percent of the passengers created
        will be business oriented employees, investors, vendors,
        suppliers and conventioneers. 40 percent will be visitors and
        tourists.)

   Those 2,500 rooms and condos represent an additional
        $300,000,000 private investment.

   From a facility standpoint, then, when they break ground . .
        . we must also break ground. And we've done that.

    However, we have entered a new phase of Airport growth. While the
casino resorts ``pushed'' the Gulfport-Biloxi market to a new level of
passenger demand by constructing thousands of first class hotel rooms
and bringing low fare carrier AirTran to the market, it will be
existing Coast business, industry and airlines that will ``pull'' our
passenger market to the next level.
    It's a very tough airline market for small communities. Airlines
operate on a razor's edge. Fuel costs are out of sight . . . there is
great uncertainty . . . and legacy carriers are struggling. The
airlines won't take the risk, in this climate, to add new flights and
cities alone. With our competitor New Orleans so close, and many
communities offering airlines cash, it's a real challenge for Gulfport-
Biloxi to take the next step to that ``critical mass'' of seats.
    And that returns us to the subject of airline capacity. Like most
small communities, demand for seats here exceeds the supply. This has
very powerful economic implications for our area. Passenger leakage
from Gulfport-Biloxi to New Orleans (34 percent or 100,000 passengers)
is a costly drain. We are not just spilling passengers, we are sending
our dollars to New Orleans. For these 100,000 passengers, each year . .
 

   Airline revenues of $25,000,000 are lost

   Credit for AIP funding of $550,000 is foregone

   PFC revenue of $450,000 are collected elsewhere

   We never see $30,000,000 local spending by passengers

   Local and State taxes of $2,000,000 are not realized, and

   Airport revenues approaching $500,000 for six daily flights
        go to New Orleans.

    This $58,500,000 in economic impact belongs to the Mississippi Gulf
Coast. Our SCAS application for Dallas-Ft. Worth and Orlando as new
non-stop cities can swing the pendulum back our way.

   It is the ``jump start'' the Airport, airlines and community
        need.

   It's about providing needed capacity and more options for
        Coast passengers.

   It's about competition and keeping our earned money here.

   It's an investment in the most basic element of airport
        infrastructure, the airline ``seat''.

    The SCAS program is vital, especially today and we recommend
funding it to the maximum possible extent because it is a sign of the
times that airport communities step up and express value in their
airlines. Just like finding the money to build, we're putting up lots
of money to sell.

   Gulfport-Biloxi already invests more than $500,000 per year
        marketing our airlines and this destination

   Beau Rivage and Grand Casinos have a revenue guarantee
        agreement with AirTran

   Tourism invests several million.

    In closing, the Gulfport-Biloxi Regional Airport Authority is again
putting its money where its mouth is. Our consortium of airline
marketing partners including the Airport, Harrison County Development
Commission, Harrison County Tourism Commission and the private sector
casino resorts are pledging at least $760,000 in cash and in kind to
get a $1,000,000 SCAS grant. Our consortium of airline marketing
partners would not be able to establish marketing funds without the
continued support of Harrison County and the Cities of Gulfport and
Biloxi. The payback will be 20 times that amount within one year. We
need this program and we need your support.
    Thank you for allowing me the opportunity to speak before the
Subcommittee. I'll be happy to answer your questions.

    Senator Lott. Mr. Shane, did you hear his application? I'm
sure you heard that part.
    So your growth rate over the last 20 years has been
dramatic, up 500 percent, did you say?
    Mr. Frallic. The growth rate in the last 10 years roughly
has been 400 percent.
    Senator Lott. What are your major airlines serving
Gulfport-Biloxi now? And give me some idea of their major
destinations and where they're going to.
    Mr. Frallic. Continental one of the largest airlines in
the--I only begin with that because they popped into my head
first--to Houston, we have five daily jets. We have a mixture
of 737 and regional jet service to Houston. They connect to the
world. A tremendous airline, very, very attractive fares,
generally speaking. The issue there is they're running about an
80 percent plus load factor, and so there aren't any more seats
available for growth.
    Northwest to Memphis hub three times a day, we have two DC-
9s in the market today, along with a regional jet, and, of
course, we need more seats there, too. Their load factors are
up exceeding 80 percent.
    Senator Lott. Didn't they cut their--some of their service
back recently?
    Mr. Frallic. Yes, sir. About a year ago, they went from
four banks of service in Memphis to three banks of service, and
we were relegated to regional aircraft small 50-passenger jets,
but they realized that money could be made at Gulfport-Biloxi,
so they restored one of the DC-9s, and now another one is back,
but we still have one regional jet in the market, but there is
a real short fall of seats on the Northwest service.
    Coming around the clock, so to speak, to Atlanta, Atlanta
we have more service than any other city. We have a combination
there of ASA, the Delta connection, with about eight flights a
day. Right now we have three turboprop aircraft operating in
the market, but they just recently--Delta just recently
announced that they're going to replace those at the end of the
year with regional jet equipment.
    Delta has expanded schedule, and they've also announced
recently that over the months of September, October, November
they're going to increase the size of three regional jets in
the market, which will be a nice addition of about a hundred
and something seats a day, and that's good. In that market, we
also have AirTran Airways. AirTran is our low-fare carrier.
They've done an extraordinary job in the market, stimulating
the market, and also----
    Senator Lott. They recently announced they would have the
service from Reagan through Atlanta into Gulfport without
having to change in Atlanta, right?
    Mr. Frallic. That's correct. They offer basically two
connections going and one coming back, and they have same-plane
service. That is the same plane leaves Gulfport-Biloxi, stops
in Atlanta, and continues on to Reagan, and then it leaves
Reagan at a different time, and then comes back through Atlanta
same plane to Gulfport-Biloxi. We're finding that that flight
is catching on very well.
    Now, also, to complete AirTran's service, we also have non-
stop service to Tampa and non-stop service to Fort Lauderdale
on a daily basis.
    Senator Lott. Who provides that?
    Mr. Frallic. AirTran Airways. So we have four major
carriers in the market serving and doing one heck of a job.
We're very proud of our carriers. We also have Southeast that
serves charter markets, principally in Florida, and we expect
that to be expanding out into the Carolinas again and up into
the Ohio Valley in the next several months.
    Fortunately for us, in the last several years, especially
since AirTran entered the market, we have been able to do very
well on airfares, and as long as AirTran is in the market, I
think we'll be there. So we certainly urge everybody to utilize
the airlines at Gulfport-Biloxi.
    Senator Lott. You referred of course to seats that we lose
to New Orleans, but what about to Mobile? I mean, from my home
town of Pascagoula, it's about the same time or distance to the
Gulfport-Biloxi or to Mobile. How much leakage do we have going
that way? I'm sure you've looked at that.
    Mr. Frallic. If I would divide it up, I would say that
something on the order of 90 percent of our leakage is to New
Orleans, 10 percent is to Mobile. It didn't used to be that
way, but 10 years ago, it was probably 20, 25 percent to
Mobile, but with the actual introduction of low-fares service
here by AirTran, that has actually reversed the numbers a
little bit. I say 10 percent is leaking from perhaps Jackson
County, when in fact we can--we are attracting people because
of our low fares from Mobile and also from Slidell and the
North Shore of New Orleans.
    Senator Lott. You talk a lot about seats versus passengers,
that you need more seats to get more passengers, but it's
almost--isn't it a little bit like chicken and egg, if we had
more passengers, we'd have more seats, or are you arguing we
have more passengers than we now have seats?
    Mr. Frallic. Yes, sir.
    Senator Lott. Do the airlines know that?
    Mr. Frallic. Well, hopefully our Delta representative here
today will listen and hear us, but----
    Senator Lott. Well, you've got a couple here from Delta,
and we do have statements that's going to be submitted for the
record for this hearing from Delta and Northwest and
Continental. I believe we have a Continental representative
here, too. Go ahead.
    Mr. Frallic. We do have a shortage of seats. Let me go back
and just go over a couple of numbers, so we can have them in
our minds. The latent demand at Gulfport, is the way I like to
look at it, you've got 100,000 passengers on the highway to New
Orleans which you identified, and Admiral Donaldson has
indicated that's a real strong concern of his. It is of ours
also.
    We have roughly 2,500 new rooms and condos coming on line
in the next 3 years. That can generate 375,000. If the Port
Authority is successful in getting this cruise ship, that's
another 70,000. That's 545,000 total passengers that we could
be looking at as new demand, I mean additional demand, and
unless the airlines puts the seats in the market, we'll never
get those customers.
    Senator Lott. Well, let me ask you what you have been doing
in terms of improvements at the airport, in terms of runways,
aprons and terminal, I'm familiar with most of that, but, also,
what's your next target or your next goal? Knowing full well
I'm going to hear about that anyway, so.
    Mr. Frallic. Well, of course, from a facility standpoint or
from an air service standpoint? Would you like me to take one
or the other or both?
    Senator Lott. Both, briefly.
    Mr. Frallic. Let me talk about air service first. Of
course, the Small Community Air Service Program is essential.
If we get Dallas and Orlando, some really good things are going
to happen, and that will clue us then to go after that it
really does work, and we can go after Washington, D.C., and
that's an exciting opportunity.
    We are undergoing a major terminal expansion right now,
altogether about $26,000,000 in construction, a total project
of about $50,000,000. We're going to be in that construction
mode for the next couple of years, but when we complete it,
we're going to be able to grow from where we are, which is
about 900,000 passengers to 2.4 million passengers without
really making any major additions to the terminal.
    The other thing about the terminal project, it sets us up
for growth in the future. We won't have to spend as much money
to expand ticket counters and baggage claim in the future, and
also we're introducing some limited international opportunities
for Gulfport-Biloxi in that project.
    Other than that, you mentioned the noise program. We've got
two major projects over the next few years to do sound
attenuation, mainly off the south end of the airport to help
with the noise impacts. We have a very close relationship with
Keesler Air Force Base. They're now utilizing Gulfport-Biloxi
for a lot of their bounce pattern training, which helps our
total operations, because we need to get our operations up to
160,000, so we can extend runway 1836 out to 7000B.
    Senator Lott. I should note right here, of course, we've
got--the Seabees use your facilities, and I see Colonel
Spraggins back there. I call him Jessie James because of all
the Federal money he's been able to come up with as a result of
low-volume wind. But, I mean, that's a significant part of our
airport activities here, right?
    Mr. Frallic. Military accounts for 30 percent of our
operations. We've got a wonderful relationship with the Air
National Guard, with the Army, with the Seabees, and with the
Coast Guard unit. They all utilize Gulfport-Biloxi as a jump-
off point. So 30 percent of our operations come from there, 16
percent of our operations are from commercial airlines, and 54
percent of our operations come from general aviation, and
that's another major project we've got coming. We are in the
midst of it now, which is the relocation of general aviation
from the Hewes Avenue side of airport, or the east side, to the
west side. A significant project. We've got about $5,000,000
invested in it now. We're investing another $5,000,000 in
infrastructure, but the payoff to the community there is going
to be tremendous.
    First of all, we'll be able to quadruple the number of
aircraft and activities that are associated with general
aviation within 10 years. The private investment will approach
something in the area of $30,000,000 over that same timeframe.
So that's a very exciting program, and when we're moved, we
will release property on the east ramp to Colonel Spraggins and
the Guard to take on other missions which helps balance the
base.
    Senator Lott. In that connection, first of all, you're very
fortunate to have the Airport Board, the Port Authority that
you have. These three gentlemen have really been very
supportive and very aggressive in trying to continue to find
ways to improve our airport, and we have tried for years, both
the Port Authority and also in Jackson, as well as the airport
here in Gulfport-Biloxi, to pry open the cargo can that should
be a great opportunity for us in terms of bringing in cargo
from Central and South America, and you've been working at
that.
    It's been one area where I've been disappointed. I just
think we need to get into that. There's no reason why these
ships and planes should be going into Miami. They might as well
be in South America, as a matter of fact, because they've got
so far to go once they land here, but they've got their agents
convinced that--or since they all live in Miami that's where
they have to go. How are we doing on that particular effort?
    Mr. Frallic. Well, I think we're doing fairly well. We've
identified a number of very interesting opportunities,
primarily in the perishables area. We have recently come back
from a trip to Peru, along with the State, joining them, and
we've been with the Port to their various development
functions, also, but----
    Senator Lott. You went to Ecuador, too, didn't you?
    Mr. Frallic.--Ecuador, Peru, Chile all offer great promise,
and if you can think about that South American opportunity and
then compare that to Central America, we're already one of the
major trading partners for Central America, but proximity wise,
most of that is coming by ocean, but on the other hand, if you
think about the distance involved, Chile, Peru, and the other
countries of South America, Ecuador, everything of consequence
flies out of there, so that opens up an opportunity for us.
    And thanks to your guidance, assistance, we have made some
very, very good connections in South America, as well as
Central America, and we're continuing to work those. We feel
confident--like what Don Allee said before--we're
collaborating--we managed to bring the cattle to the Coast and
put them on a ship, but maybe the next opportunity would be for
Don to bring some asparagus to the airport or whatever. So it's
a great opportunity----
    Senator Lott. I'd like to fly cattle to South America and
then fly flowers back.
    Mr. Frallic. I want the aircraft cleaning concession. But
we do have a good niche, and the thing that we continually get
in response to our inquiries in Central and South America is
that we don't have a congested airport, we do have a dramatic
cost advantage, and then once the goods get here, we are 14 to
18 hours closer to market. So that is a powerful selling tool.
    Senator Lott. You need to make note of that Mr. Shane and
keep that in mind.
    Let me switch to one other area. After 9/11, we had the
aviation legislation we passed, we set up the Transportation
Security Administration, TSA, and we had additional security
efforts, we moved screening to TSA from private companies, we
put a lot of money into it out of AIP, and then of course we
stopped that, and we created a $500,000,000 fund, I believe,
for security in the FAA Reauthorization Bill.
    It has, you know, caused a lot of disruptions and
challenges for airports all over the country, but I think the
airports, the passengers, and TSA did an incredible job in a
short period of time. You have to give everybody credit for
that. I think the American people have been understanding of a
lot of things that we had to go through to work through the
additional security requirements. Some of them don't make
sense, still don't, and I'm still struggling with TSA, you
know, getting young kids to be checked and elderly ladies on
walkers to have their shoes taken off. I mean, they're still
not using common sense, but having said that, how has it worked
at Gulfport-Biloxi? Is TSA--do you have the number of people
there that you need? I've looked briefly of course, been
through there, looked at your facilities. It was pretty crowded
there for a while, but in your addition, you'll be able to
accommodate that. Just kind of sum up how you think that has
gone and how it's doing and what problems do we still need to
address.
    Mr. Frallic. Well, I have to give credit where credit is
due, and that's to our Federal Security Director Pat Baroco. I
think you had an opportunity to meet him. He's first-class, and
he really knows how to run the shop. He's got a great
background.
    The whole issue of screening is really a capacity challenge
because if you don't have enough screeners, you slow everything
down, and therefore, the through-put of passengers drops off,
and the inconvenience to customers drops off, and all of the
sudden, you've got people on the highway again because they
can't get through your facility.
    We have had enough screeners at Gulfport-Biloxi to do the
job in spite of lots of things. Right now we're just a little
below 60 total, and, of course, that sounds like a lot of
people, but keep in mind that they're open for business from
4:30 in the morning until 8:30 at night, that's two-and-a-half
shifts, eighteen hours.
    Also, they're not just at one location, they're at four
different locations in the airline ticketing area and also the
screening checkpoint and then at the gate. So it takes a group
of, say, 20 people and spreads them out very thinly. And then
we have the low-tech equipment right now, we don't have the
high-tech equipment that we really need, and then we're in a
period of construction. Construction equals disruption. So it
takes a few more people sometimes to solve things.
    We need to stay right where we are. We don't need another
cut. They've tried to cut us recently, and we've argued----
    Senator Lott. You're talking about a number of screeners?
    Mr. Frallic. Number of screeners. Because it will translate
immediately to delays. Even post construction, when we do have
a better technology and we have more space available, our
bottom line is really still in that 60----
    Senator Lott. Are you going to get the LOI unit?
    Mr. Frallic. We are--the program you're referring to is the
new EDS equipment manufactured by Reveal Imagining
Technologies, that's the CT-80, and, yes, we are due to get
five of those units in, and we're excited about that. It could
happen within the next month or so, and we're ready for it
because it will help even now eliminate some of the congestion
that exists in the terminal building.
    Facilitywise, we've had an upside and--we have gotten some
Federal dollars, but we haven't got near the number of Federal
dollars that we really need. We've got----
    Senator Lott. Well, you haven't been shy of asking for
more, you and your three Board members. You're persistent.
    Mr. Frallic. I've just got to find out what genes Joe
Spraggins has got, and I've got to get an infusion here because
when he goes up----
    Senator Lott. Well, next time we have a high wind, just
send the word up with the documentation to back it up that all
your facilities were destroyed, blown down, and then you have
the documentation ready in advance, of course.
    Mr. Frallic. In conclusion, on that point, I have to tell
you that a lot of our people in the community are very
complimentary of our TSA operation at Gulfport-Biloxi, and I
think it's attributable to the quality of people that we have.
    Senator Lott. Thank you very much. Let's move on to our
final witness, and then we can maybe open it up for a couple of
other questions.
    Tom Williams, congratulations on the job you've done in
Meridian. Things looked pretty bleak in Meridian not very long
ago, but you've been innovative and aggressive and taken
advantage of the Small Communities Program. You are getting
better service coming in there now with Meridian Naval Air
Station and with economic opportunity, I think pretty bright in
that region. You've done a good job, and we're pleased to have
you here on the Coast for this hearing.

             STATEMENT OF TOM WILLIAMS, PRESIDENT,
                   MERIDIAN AIRPORT AUTHORITY

    Mr. Williams. Well, I appreciate that, and I thank you for
the opportunity. Something that's made a dig difference there
has been the Small Community Grant, and my comments will
address that, and let me move through them, and then I know
you'll have some questions.
    I've run the Meridian Regional Airport since 1986. While my
comments specifically relate to Meridian, I think our
experiences are pretty representative of small airports
nationwide. The turbulence of deregulation still affects most
of us, but the Small Community Air Service Development Grant
has helped us overcome some of these remaining effects.
    Key Field was home to the Key Brothers, who in 1935, of
course, made their record-breaking endurance flight from the
airport flying 653 hours without landing. We've also got 155
Company G Army Aviation support facility flying their Chinook
helicopters in Iraq today. The 186 Air Refueling Wing is at Key
Field. We've got 45 civilian airplanes and 3 ASA jet flights to
Atlanta a day.
    We're currently financially self sufficient. We collect
about $550,000 a year in leases, rents and fees, and we spend
this on operations and non-grant eligible capital projects. The
remaining capital program is funded through the AIP Program,
State grants and PFC. Outside of our Small Community Air
Service Grant, we've not had funds for marketing or air service
development until that grant. Our airlines service a trade area
of 11 counties, 7 in Mississippi, 4 in Alabama, with about
260,000 people.
    I think a distinction should be made between small and
rural communities. They're small communities with significant
air service who fight daily for non-stop service to, say,
Washington, D.C. or Chicago. The service to these destinations
is a very real need for them to meet their passenger demands
and to grow their airport. Many of these airports have funds
available for marketing. Then there are communities like
Meridian, communities I would consider rural, who are happy to
have any service, and do not have the luxury of being selective
about which hub or airlines provides it. Rural communities have
limited resources with little or no funds available for
marketing commercial air service.
    How important is air service to economic development in our
area? It's critical. We've had commercial air service at Key
Field for 75 years. Our business and industry grew up with it.
They selected our community based on local air service
availability, and our ability to keep this air service is
directly related to retaining existing industry, existing
military facilities and attracting new industry and new
military operations.
    The problems we experience today are directly related to
airline deregulation. There have been several distinct phases
in our air service since deregulation. The Deregulation Act of
1978 as a whole was great, airfares were down, but there have
been unanticipated negative effects that could not have been
prevented. Major airlines had the ability to redeploy their
assets on a 90-day notice, but there was no established
regional airline industry to fill the resulting gaps in small
and rural community air service. This led to a lack of air
service stability in rural communities like Meridian.
    I call Phase I instability. Between May 1979 and August
1985 in Meridian, Delta Airlines terminated service, Republic
Airlines dropped to two daily flights, Sunbelt Airlines began
service, Scheduled Skylines began service, Republic Airlines
terminated service, Sunbelt Airlines terminated service,
Scheduled Skylines terminated service, Republic Express began
service, and Atlantic Southeast Airlines began service. Is it
any wonder that rural airports lost the confidence of
passengers with a six-year lack of stability?
    Additionally, all of these carriers were small, noisy,
usually unpressurized turboprop airplanes. These airplanes were
perceived by passengers, who were accustomed to DC-9 jets, as
unsafe. Additionally, passengers didn't know who served the
airport from day to day and fled to larger airports with major
airlines, jets and stability.
    Phase II was turboprop stability. By the end of 1985, the
poorly run regional airlines had succumbed and the seeds of the
successful regionals had begun to grow. We now had ASA and
Republic Express. Both of these carriers would be in Meridian
15 years later. We successfully attracted American Eagle
service to Nashville. It was stable until American closed their
Nashville hub in 1992.
    Passengers began to recognize our airlines were stabilized,
but the habit of driving to another airport along with the
dislike of turboprop aircraft continued to hurt Meridian. Our
surveys indicated only 50 percent of our trade area passengers
used our airport, 35 percent drove to Jackson, 5 percent to
Birmingham, and others to New Orleans and Memphis, and today a
few drive to Gulfport-Biloxi, which is a point of their
success.
    My point of this history is that as of 2002, something was
still missing. We had great air service for a rural community,
but we were leaking half of our passengers. There were
obviously obstacles yet to be overcome. We needed more seats,
we needed jet service, and we needed to market our service, but
we didn't have the money to stimulate this to happen.
    Enter the Small Community Air Service Development Grant
Pilot Program, I pray there will be a shorter, easier
pronounced name to the program one day, which got us to Phase
III of airline deregulation recovery, which I call jet service
returns. The applications--prior to submitting our application,
I looked at several applications on line from other airports.
They generally fit three strategies: Analyze, subsidize, or
advertise. The applications ranged from over 450 pages to fewer
than 10. I prepared our application 2 days before the deadline
after getting a flavor of what other airports were doing. My
emphasis was on simplicity. Answer the questions, have a clear
and simple plan, and be ready to execute that plan. Our
application proposed a direct subsidy to ASA for more seats and
jet service.
    We received the grant September 2002 and began discussing
solutions with ASA. ASA was a little bit skeptical. We were the
first community with this grant to ever approach them, but our
$640,000 budget--500,000 from the grant, 140,000 local--grabbed
their attention. Early January, ASA agreed to jet service, but
rather than a cash subsidy, they wanted us to buy ground
support equipment, renovate their ticket office, and heavily
market their jet service and their air service to Meridian. I
asked the DOT for a grant amendment allowing these
expenditures, and we very quickly got it. They were very
flexible. Our marketing campaign began in March and jet service
began in May 2003.
    We look at our relationship with our airlines tenants as a
partnership. If they do well, our community does well. We
support them, they do well. ASA gave us three jet flights a day
to Atlanta. Our first flight left at 9 in the morning. Our last
arrival was at 5:15 in the afternoon. It was a terrible
schedule, and our jet service didn't really take off for about
5 months until we got a better schedule.
    By the end of June, we were begging ASA to change our
schedule to include an early morning departure and a late night
arrival. When we promised a Small Community Grant marketing
campaign to promote the new schedule, ASA listened and gave us
a proper schedule beginning October 1. Other airports with this
identical schedule problem did not get relief for another 3
months. The Small Community Grant made ASA listen and respond.
ASA was also beginning to use Meridian as an example to other
communities who wanted to change their air service, the support
they were getting from our community.
    January and February are slow months for air traffic. I
proposed a fare sale to ASA, supported by marketing from the
Small Community Grant. They put the fare sale in for February
and March. February traffic was up 50 percent----
    Senator Lott. Was this this year?
    Mr. Williams. This was this year, yes, sir. March traffic
was up 69 percent. Thanks to the grant, we've met local demands
for jet service, our passengers are filling the seats, and
again we need to add seats to our market. January through June
Meridian traffic increased 45 percent over the same months last
year. Our parking revenue, which is evidence of local support
for this jet service, is up 59 percent. The Small Community
Grant caused ASA to take Meridian seriously and has allowed us
to increase awareness in our home market, and those two
functions have changed our future.
    Today we're working on a fourth flight to Atlanta. We have
again proposed significant marketing support. ASA was listening
to us. We hope they will commit to the new service in the next
few months.
    I visited Terri Bingham and Bill Bertram in 2003, they are
two of the administrators in this program, and I was shocked to
find that deep within the DOT building, there were only about
four people who administer this program nationwide on a daily
basis. I was further shocked to find they are not stereotypical
bureaucrats. That cared about Meridian. They shared ideas from
other communities to help us be successful. They had strict
demands that our pay applications be precise and completely
documented, but when it came to asking for amendments to our
grant to allow us to change direction to achieve goals, the
changes were granted quickly. I came to feel they were cheering
for our program and all the others that they were working on
across the country.
    When Bill Bertram moved to another program, his
replacement, Grady Stone, was just a conscientious, thorough
and helpful as Bill. As a taxpayer, I'm delighted at the
efficiency of the program, and as a user, I'm equally delighted
in the function of the program.
    What will we do when our grant expires? For one thing,
we're going to apply for another grant for a new strategy. This
grant has allowed us to become competitive with jet service and
increase awareness of our service in our trade area and allowed
us to grow our market.
    The Small Community Program works. It's a laboratory for
innovation. The Administration with DOT headquarters is
efficient, responsive, and appropriate, but I would encourage a
few changes to make it more useful for more people. I think the
program should be expanded to include more communities. Each
year there are about 180 applications. Assuming not all of
these are valid, expand the program to include up to 150
communities at any one time. Remove the limit of 40 grants per
year, and also remove the limit on 4 applications per state per
year.
    I think the program should be expanded to include more
funding. 150 airports averaging $250,000, not that it should be
restricted by airport, is $37,500,000. This amount should be
appropriated annually. The trust fund stands to be reimbursed
for that expenditure with tax revenue on tickets purchased by
new travelers who now fly rather than drive because of service
improvements.
    Two years is not enough time for most efforts. Airlines
just don't move that quickly. We're at the two year point this
September and are applying for an extension now to accommodate
the market for the fourth flight.
    I think the current application process should be
continued. I think the flexible grant match and the
administration within DOT should be continued. The changes are
affordable, and they help small and rural communities across
America.
    One different issue, the problem facing rural airports
today is terminal building construction. We're building toward
a new terminal in Meridian. We've already built an airline
parking apron, and the building design is complete. Next year,
we will continue to spend our entitlement funds on access roads
and site preparation. Our dilemma is that we can not get the
FAA to give us discretionary money for a terminal building. The
rural airport entitlement funds are not enough.
    In the next 18 months, we'll have $4,000,000 dollars of
infrastructure and design but no building. Tupelo is in a
similar situation with their terminal expansion. Today the only
solution is a Congressional earmark. It's not right to require
Congressional earmark to solve a common problem at airports
nationwide.
    Simply put, there are three things that will help rural
airports in the dilemma. First and most important, require the
FAA to dedicate discretionary funding to rural airports
building new terminal buildings. We don't build terminal
buildings very often. The building I'm in now will be fifty
years old in 5 years. The building we were in before that was
thirty years old. This is a once in a lifetime or once in every
two generation issue.
    It's legal for FAA to fund terminal buildings with
discretionary grants today, but they're not a high enough
priority to ever be funded. Give each rural airport the
opportunity to build a new terminal with discretionary funds on
an infrequent basis.
    Second, allow rural airports to fund administrative space
with AIP funds. The administrative space could cost two to
three hundred thousand dollars. That's over fifty percent of
our annual budget, and we don't have that kind of money to
spare.
    Finally, rural airports make a limited amount of money on
parking. We make $25,000 a year, which is very important to us
and our small budget, but it's not enough to retire debt on a
new parking lot, and today parking lots that are paid parking
are not eligible for reimbursement.
    This concludes my remarks. Thank you for this great
opportunity. I appreciate it.
    [The prepared statement of Mr. Williams follows:]

    Prepared Statement of Tom Williams, President, Meridian Airport
                               Authority
    My name is Tom Williams and I'm the President of the Meridian
Airport Authority. I've run the Meridian Regional Airport since 1986.
    While my comments specifically relate to Meridian, I believe our
experiences are representative of small airports nationwide. The
turbulence of deregulation still affects most of us; however our Small
Community Air Service Development Grant has helped us overcome some of
these remaining effects.
    Key Field was home to the Key Brothers who, in 1935 set the world
flight endurance record from our airport by flying 653 hours without
landing. Today we are home to the 155 Company G Army Aviation support
group, presently flying their Chinook helicopters in Iraq, the 186th
Air Refueling Wing, three daily Atlantic Southeast Airlines (ASA) jet
flights to Atlanta and 45 based general aviation aircraft.
    The Meridian Regional Airport, Key Field, is financially self
sufficient. We collect some $550,000 per year from leases, rents and
fees and spend this amount on operations and non-grant eligible capital
projects. Remaining capital requirements are funded through the AIP
program with matching funds from the State of Mississippi and Passenger
Facility Charge. Outside of our Small Community Air Service Grant, we
do not have funds for marketing and air service development. The
airport is operated with four employees, two are administrative and two
are grounds and building maintenance. City of Meridian police provide
security while the Mississippi Air National Guard provides our
firefighting requirement. We have just completed the purchase of our
two fixed base operations, or fuel suppliers on the airport, increasing
our staff by 8 folks. We anticipate this new source of revenue to
relieve some financial pressure from the Authority and to fund
improvements on non-grant eligible hangars and general aviation
facilities on the airport, and one day to help our marketing efforts.
    Our airlines service a trade area of 11 counties, 7 in Mississippi
and 4 in Alabama with 260,000 people.
    A distinction should be made between small and rural communities.
There are small communities with significant air service who fight
daily for non-stop service to, say Washington DC or Chicago. Service to
these destinations is a very real need for them to meet passenger
needs. Many of these airports have some funds available for marketing.
Then there are communities like Meridian, communities I would consider
rural, who are happy to have any service and do not have the luxury of
being selective about which hub or which airline provides it. Rural
communities have limited resources with little or no funds available
for marketing commercial air service.
    How important is our air service to the economic development of our
area? It is critical. We've had commercial air service at Key Field for
75 years. Our business and industry grew up with it. They selected our
community based on local air service availability. Our ability to keep
this air service is directly related to retaining existing industry and
military facilities and attracting new industry.
    The problems we experience today are directly related to airline
deregulation. There have been several distinct phases in our air
service since deregulation.
Deregulation
    The Airline Deregulation Act of 1978 as a whole has been good, but
there have been unanticipated negative effects that, even with
hindsight, could not have been prevented. Major airlines had newfound
freedom to redeploy assets on 90 days' notice, but there was no
established regional airline industry to fill the resulting gaps in
small and rural community air service. This led to a severe lack of air
service stability in rural communities like Meridian.
Phase I: Instability
    Between May, 1979 and August, 1985 in Meridian, Delta Airlines
terminated service, Republic airlines dropped to only two daily
flights, Sunbelt Airlines began service, Scheduled Skylines began
service, Republic Airlines terminated service, Sunbelt Airlines
terminated service, Scheduled Skylines terminated service, Republic
Express began service and Atlantic Southeast Airlines (ASA) began
service. Is it any wonder rural airports lost the confidence of
passengers with this six-year lack of stability? Additionally, all of
these small carriers flew small, noisy, mostly unpressurized turboprop
airplanes. These aircraft were perceived by passengers (who were
accustomed to DC-9 jets) as unsafe. Additionally, passengers did not
know who served the airport from day to day and fled to larger airports
with major airlines and jets.
Phase II: Turboprop Stability
    By the end of 1985 the poorly run regional airlines had finally
succumbed and the seeds of the successful regional airlines had begun
to grow. We now had ASA and Republic Express. Both of these carriers
would still be in Meridian 15 years later. We successfully attracted
American Eagle service to Nashville, service that was stable until
American Airlines closed their Nashville hub in August, 1992.
Passengers began to recognize our airlines were stabilized, but the
habit of driving to another airport along with the dislike of turboprop
aircraft continued to hurt Meridian. Surveys indicated only 50 percent
of our trade area passengers used Meridian's airport. 35 percent drove
to Jackson and 5 percent to Birmingham. Others drove to New Orleans and
Memphis.
    My point of this history is that as of 2002 something was still
missing. We had great air service for a rural community, but we were
leaking half of our passengers. There were obviously obstacles yet to
be overcome. We needed more available seats, jet service and we needed
to market our service, but we didn't have the money.
    Enter the Small Community Air Service Development Grant Pilot
Program which got us to Phase III of the Airline Deregulation recovery.
Phase III: Jet Service Returns
2002 Small Community Air Service Development Grant Pilot Program
    The applications I reviewed generally seemed to fit three
strategies: analyze, subsidize or advertise. Applications ranged from
over 450 pages to fewer than 10. I prepared Meridian's application
myself two days before the deadline after getting a flavor from other
applications available online. My emphasis was on simplicity. Answer
the questions, have a clear, simple plan, and be ready to execute that
plan. Meridian's application proposed a direct subsidy to ASA for more
seats and jet service.
    We received the grant in September 2002 and began discussing
solutions with ASA. ASA was a bit skeptical because we were the first
community to come to the table with Small Community Air Service
Development Grant (Small Community Grant) funds . . . but a $640,000
budget grabbed their attention. In early January, ASA agreed to jet
service, but rather than a cash subsidy, they preferred our buying
ground support equipment for the new jet, renovating their airport
ticket office area and a heavy marketing campaign promoting the jet
service. I asked the Department of Transportation for a grant amendment
allowing these expenditures and quickly got it. Our marketing campaign
began in March and Jet service began May 4, 2003.
    We look at our relationship with our airline tenants as a
partnership. If they do well, our community does well. ASA gave us
three jet flights per day to Atlanta. Our first flight left at 9am. Our
last flight arrived at 515 pm. This was a terrible schedule and
accounts for our poor passenger boardings over the first five months of
jet service.
    By the end of June we were begging ASA to change our flight
schedule to include an early morning departure and a late night
arrival. When we promised a Small Community Grant marketing campaign to
promote the new schedule ASA listened and gave us a proper schedule
beginning October 1, 2003. Other airports with this identical schedule
problem did not get relief for another three months. The Small
Community Grant made ASA listen and respond. ASA was beginning to use
Meridian as an example to other communities who wanted changes in their
air service.
    January and February are slow months for air traffic. I proposed a
fare sale to ASA, supported by heavy marketing from the airport. The
marketing, supported by the Small Community Grant got us the fare sale
for February and March. February traffic was up 50 percent and March
traffic was up 69 percent.
    Thanks to our Small Community Grant, we have met the local demand
for jet service. Our passengers are filling the seats and again we need
to add seats to our market. January through June Meridian traffic
increased 45 percent over the same months last year. Our parking
revenue, evidence of local support for our air service, is up 59
percent. Our Small Community Grant caused ASA to take Meridian
seriously and has allowed us to increase awareness in our home market.
These two functions have changed our future.
    Today we are working on a fourth flight to Atlanta. We have again
proposed significant marketing support and ASA is listening. We hope
they will commit to this new service in the next few months.
    I visited Terri Bingham and Bill Bertram in 2003 and was shocked to
find that deep within the DOT building there were only about 4 people
who administered this program nationwide on a daily basis. I was
further shocked to find they are not stereotypical bureaucrats. They
cared about Meridian. They shared ideas from other communities to help
us be successful. Sure they had strict demands that our pay
applications be precise and completely documented. But when it came to
asking for amendments to our grant to allow us to change direction to
achieve our goals, these changes were granted quickly. I came to feel
they were cheering for our program. When Bill Bertram moved to another
program, his replacement, Grady Stone, was just as conscientious,
thorough and helpful as Bill. As a taxpayer I am delighted at the
efficiency of the program. As a user I am equally delighted with the
function of the program.
    What will we do when our grant expires? For one thing, we will
apply for another grant for a new strategy. This grant has allowed us
to become competitive with Jet service and awareness within our trade
area of our service. It has allowed us to grow our market by adding
available seats and returning jet service to Meridian. Our future
projects will be to obtain service to another hub and to decrease
fares.
    The Small Community Air Service Development Grant Pilot Program
works. It's a laboratory for innovation. Administration within the
DOT's headquarters is efficient, responsive and appropriate. I
encourage the following changes to improve the Small Community Air
Service Development Grant:

  1.  Expand the program to include more communities. Each year there
        are about 180 applications. Assuming not all of these are valid
        applications, expand the program to include up to 150
        communities at any one time. Remove the limit of 40 grants per
        year and no more than four successful applications per year per
        state.

  2.  Expand the program to include more funding. 150 airports
        averaging $250,000 per year is $37,500,000. This amount should
        be appropriated annually. The aviation trust fund stands to be
        reimbursed for this expenditure with tax revenue on ticket
        purchases by new travelers who now fly rather than drive
        because they have new or improved air service in their small or
        rural community.

  3.  Two years is not enough time for most efforts as airlines just
        don't move very quickly. I encourage this to be extended to
        three years per grant.

  4.  Continue the current application process, flexible grant match
        and administration within the DOT.

    These changes are affordable and will help small and rural
communities across America.
    Bottom line: the Small Community Air Service Development Grant has
allowed this rural community to overcome the negative effects of
deregulation, without re-regulation.
    Mr. Chairman, this concludes my prepared remarks, and I would be
happy to answer any questions that you and your colleagues have. Thank
you.
                                 ______

                              Addendum One
    A problem facing rural airports is terminal building construction.
We are building toward a new terminal in Meridian with the new airline
parking apron and building design complete. Next year we will continue
to spend our entitlement funds on access roads and site preparation.
Our dilemma is that we cannot get the FAA to give us discretionary
money for a terminal building, and rural airport entitlement funds are
not enough. In the next 18 months we'll have 4 million dollars of
infrastructure and design but no building. Tupelo is in a similar
situation with their terminal expansion. Today the only solution is a
congressional earmark. It is not right to require a congressional
earmark to solve a common problem at airports nationwide. Simply put,
there are three things that will help rural airports with this dilemma:

        First, and most important, require the FAA to dedicate
        discretionary funding to rural airports building new terminal
        buildings. It is legal for FAA to fund terminal buildings with
        discretionary grants now, but terminal buildings are not a
        high-enough priority to ever be funded. Give each rural airport
        the opportunity to build a new terminal with discretionary
        funds on an infrequent basis.

        Second, allow rural airports to fund administrative space with
        AIP funds. This administrative space could cost $200,000 in
        today's dollars, too much for a rural airport to fund.

        Finally, allow rural airports to fund paid parking with AIP
        funds. Our parking lot does not produce enough revenue to
        retire its debt, but does produce $25,000 per year to fund
        operation of the airport.

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Senator Lott. You've done a great job there at Meridian and
in your testimony here today. We appreciate it very much.
    Mr. Secretary, did you hear that part about raising it from
40 to 150 Small Community Grants, some other recommendations in
that area? Do you want to respond to any of that?
    Mr. Shane. Yes. Thank you. I enjoyed all of the testimony
here, and particularly I appreciate Mr. Williams' compliments
to our terrific staff. I'm happy to say that we do have some
heros in the Department of Transportation, not limited to the
Small Community Air Services Development Program, but they
certainly are standing tall among them.
    Mr. Williams. They are.
    Mr. Shane. The program was, as you know, Mr. Chairman,
created as a Pilot Program. It was to really try some different
ideas. This was the thrust of my testimony earlier. We really
do need different ideas. We want to take the ideas that have
been unveiled through the creativity, like that shown in
Meridian, and try to incorporate those opportunities in the
program overall.
    What we don't see is the utility of continuing what has
been a Pilot Program, and what we'd like to do is try to
mainstream that flexibility into the Essential Air Service
Program generally, to put the money that has been dedicated to
this, you know, cookie cutter program with 19-seat airplanes
flying from small airports into the kinds of opportunities that
Mr. Williams has described so eloquently. I think if we can
bring those resources to bear in a way that makes as much sense
as the Small Community Program has done, we'll be producing far
more bang for the very scarce Federal bucks that we're talking
about.
    Senator Lott. In this connection, one of the things that
struck me was the fact that you've not only used it as a
marketing tool, the grant, you actually put some infrastructure
there at your terminal at the request of the airline, which
made apparently a huge difference because they didn't want to
or couldn't afford to put that additional facilities--those
facilities in there. Is that correct?
    Mr. Williams. That's it. The ground support equipment, the
electrical power generator for the airplane when its engines
aren't running, the air start unit for the engines, they don't
have electric starters like a car and a lot of small airplanes,
but rather they're driven by blown air. Those two items alone
are about $110,000 of infrastructure that were very important
to ASA to save that money.
    Senator Lott. Do you want to continue? Let me ask you a few
questions. What do you have now in service at Meridian? Of
course you have ASA. You have four flights to----
    Mr. Williams. We have three daily flights to Atlanta, all
regional jets, working on the fourth.
    Senator Lott. What other service do you have, any other
direction?
    Mr. Williams. No, sir. We have none. We had Northwest until
just after 9/11 to Memphis.
    Senator Lott. Was that a regional jet?
    Mr. Williams. No, sir. That was a----
    Senator Lott. You don't have service to Meridian--I meant
to Memphis?
    Mr. Williams. No, sir.
    Senator Lott. Are you trying to get additional airlines in
there?
    Mr. Williams. Our first--We discussed that, do we go after
another airline, or do we try to grow what we have. ASA has
been there since 1984. They stuck with us, they stood by us,
and they supported us, and what they told us they were going to
do, they always did. We felt like the right step was let's grow
ASA because they're here and with us. Northwest had just left.
They still remember leaving, and the person that made that
decision wasn't likely to retract it.
    Senator Lott. Now, you have gotten--through that Small
Community Grant, you received $500,000, and the local community
put up $140,000, is that right?
    Mr. Williams. Yes, sir, $140,000.
    Senator Lott. So that's a total amount, $640,000?
    Mr. Williams. Yes, sir.
    Senator Lott. Got you some good jet service. One of the
problems we have is that the local communities can't afford to
or don't like the idea of having to put up money, matching
money. I have pushed frankly for the local communities, the
state to actually put up some money. It's a huge economic
benefit. I mean, what if you didn't have service there to
Meridian? I mean, there are jobs, there's service, it helps us
with our military installations there, our business services.
Otherwise, everybody would have to drive to Birmingham or
Jackson. A lot of them do, half of them do, I guess, but in
your case, you put up $140,000, and you got a huge benefit from
it. So why shouldn't communities put up some of the cost of
doing what's necessary to expand on an airport?
    Mr. Williams. Personally I think it's probably inertia. You
know, we never have. The Federal Government has always taken
care of that, and, gosh, we've got enough things to spend our
money on. We've never done it before. I think inertia is part
of the problem, of just finding a source for that revenue,
along with the other demands that are on communities. But
you're certainly right. There's a huge benefit for the
community to receive.
    Senator Lott. Now, you talk about you need money for
terminal but you're spending money on parking areas and access
roads?
    Mr. Williams. Right. We're spending our entitlement funds
because we can do--they're a high enough priority, and these
are----
    Senator Lott. You can't use--if you were not using those
funds on access roads, would you be able to use them for
terminal?
    Mr. Williams. No, sir, because we can't get enough. Our
terminal building is an $8,000,000 building, and most small
airports are going to be in that price range now.
    Senator Lott. See, I've always thought the local
communities ought to provide the access roads. You've got some
supervisors out here, and I'd get some argument about that, but
that is, you know, to me a local--sort of local jurisdiction,
that local county gets--town or county, both get a huge
benefit. If you didn't have to spend money on access roads, for
instance, you could put that money into other needs, terminal
in this for instance.
    Mr. Williams. Yes, sir. But that's really a small piece of
the pie, maybe $250,000, and, in fact, it's the road that
actually leads from the highway around the front of the
terminal back to the highway, but it's small money compared to
the big piece of the terminal building.
    Senator Lott. Mr. Frallic, how are y'all providing funds
for your terminal expansion?
    Mr. Frallic. Well, we received $4.25 million discretionary
funds, and that was targeted to only some security issues.
There was another $11,000,000 which was related to security
that we had to fund with our bond issue, and the bond issue is
$38,000,000. So most of the cost of the terminal expansion that
we're in right now is revenue bond issue.
    Senator Lott. On security, your operation is smaller than
Gulfport-Biloxi. How does it work with TSA? Are either one of
y'all considering going back to private screeners? You have
that opt-out option. You're going to stay with TSA? Mr.
Williams: I think so. It's worked well for us. We started--you
talked about how quickly TSA got up and running, and it has
been remarkable. They started with fifteen full-time screeners
at our airport, and they've shrunk now to seven, and really
seven is pretty well right size for us. They've been able to do
that without laying anybody off, it's all been through
attrition or promotion. Working with TSA has been great. I've
received zero complaints at my airport about the TSA since they
began and working with Larry Rowlett who is our Federal
Security Director has been a very pleasant experience.
    Senator Lott. Well, thank you very much. Have we got any
questions from anybody from the audience?
    Mr. Teston. Senator Lott, Chuck Teston, City of Gulfport. I
want to thank you personally for coming down here, and
especially want to thank you personally for the money that
you're giving Mayor Combs or you're getting for him and our
City, for infrastructure, because all five of these gentlemen,
they've got to understand if you don't have infrastructure in
your community and airport it's null, it's void. So they may
call it poor cut there. We've been on a low protein diet down
here, a lot of carbohydrates, and I want to thank you. I want
to recognize Clay Williams. Great guy doing great work with all
of them, and these two Executive Directors, Allee and Frallic,
Senator, they could coach a starving dog off of a meat wagon.
They are really good at what they do.
    But two quick points. I don't think we should be talking
about expanding Stennis. I think what we ought to do is try to
enhance what we already have and get Stennis to come to us with
their travellers, and if it takes Mr. Shane going to GSA and
working out something about the contract services up in New
Orleans to send them back to us, I think that's what we should
do, and I second--don't expand, keep what we have and build on
that.
    Second, when you drive, it looks like the Land of Oz when
you drive into the Gulfport-Biloxi Airport. You think you're on
that yellow brick road, it's so beautiful, Senator, but when
you're coming out and you leave that yellow brick road, it
looks like you're just going into doomsday. It is horrible.
    So I think along with the authorities and Mayor Combs and
the cities, we ought to start working on enhancing the
environment as you drive out of these airports because that's
the first thing that the tourists and the travellers looks at,
how we look outside that Oz land. So I wanted to give those two
points to you. Senator, and again, you're the greatest thing
since sliced bread. When I grow up, I won't be just like you.
Appreciate it.
    Senator Lott. Sounds like a politician to me. Anybody else
got a comment or a question for this panel? Well, you've been
very patient. Thank you for the big turnout this morning. I
think the panel did a very good job. We're going to work with
Mr. Shane and Secretary Mineta, with the Administrator Marion
Blakey. I will definitely check into this GSA pairing
arrangement because I don't think I like the sound of that.
Maybe we can affect that some.
    Again, this Aviation Subcommittee, we're looking at
aviation nationally and internationally, but unless somebody
gets on at Meridian or Gulfport-Biloxi--you know, these bigger
airports don't have nearly as much to benefit from. It does
begin at the local level. And for the State of Mississippi, I
hope that we will continue to focus on infrastructure. Every
investment we make in the port, airport, in roads and education
will pay huge dividends. In the past, we didn't always focus
enough on that, but I believe in order for us to have the kind
of economic development we want in the future, we've got to
have the whole package of transportation services, and aviation
is an important part of it. We will continue to work.
    I know we'd like to get more line items, but we're doing
pretty well state wide. If you look at the improvements we've
had in our general aviation and our commercial facilities, the
cooperation we're getting from FAA, we're going to continue to
try to improve that.
    I might just mention my colleague, Senate Cochran that I
serve with in the Senate, is Chairman of the Homeland Security
Appropriations Subcommittee and is going to be Chairman of the
Full Committee next year, assuming that the majority stays
where it is, and we'll be able to work with him in that area as
we look at the opportunity to get some funds in the future. So
we're both going to be concentrating on security and
transportation.
    Thank you all very much for being here, and I look forward
to working with you in the future. Hearing is adjourned.
    [Whereupon, at 12 p.m., the hearing was adjourned.]
                            A P P E N D I X

              Prepared Statement of Delta Air Lines, Inc.
    Mr. Chairman and members of the Subcommittee, Delta Air Lines
appreciates this opportunity to discuss the importance of air service
to small and medium-sized communities throughout the country. Mr.
Chairman, we commend you for holding this hearing in Gulfport. You have
been a strong and steadfast advocate for more air service to small and
medium-sized communities. Your efforts have highlighted the importance
of aviation to these communities and the economic partnership that
exists between carriers and communities. Together, we work to boost the
local economy, foster business development, tourism and growth to your
region. Delta's service to small and medium-sized communities has
always been a key component of Delta's air transportation network
throughout our long and proud history.
    On June 17, 1929, at 8 a.m., Delta's first passenger flight
departed from Dallas. Five hours and 427 miles later, the five-seat
Travel Air S-6000-B arrived in Jackson, after scheduled stops in
Shreveport and Monroe, Louisiana. The monoplane had wood paneling on
the inside of the cabin, woven wicker seats, hand-holds rather than
seat belts and windows that the passengers could open.
    Today, 75 years and hundreds of millions of passengers later, Delta
offers access to the world on some 4,883 flights per day. Every day,
approximately 280,000 people fly on Delta to 189 domestic and 52
worldwide destinations. At the heart of our network are small and
medium-sized cities. Delta serves more small and medium-sized cities
than any other airline in the U.S. Currently, Delta serves 161 small
and medium-sized communities (as defined by the DOT) with 1,686 daily
flights to these communities.
    Delta has had a continuous presence in the state of Mississippi
since that first flight in 1929. We are proud of our partnership with
communities across Mississippi and our 75-year history of service to
this great state. Delta is by far the largest carrier in the state with
28 flights and over 1,900 seats per day. No one services Mississippi
with more flights than Delta.
    Over the years, the number of small and medium-sized communities
with access to the Delta network has grown. In January, 2000, Delta
Connection, Inc. (DCI) was established as a wholly-owned subsidiary of
Delta Air Lines, after the acquisition of long-time partners Atlantic
Southeast Airlines (ASA) and Comair. DCI plays an instrumental role in
Delta's network by coordinating regional jet and turboprop service to
small and medium-sized communities.
    Two-thirds of Delta Connection cities have populations of less than
200,000 and the average Delta Connection flight is 400 miles. With a
focus on service to and from Delta's hubs, Delta Connection passengers
can travel to virtually anyway in the world.
    The regional jet market is the fastest growing segment of the
airline industry and Delta Connection operates the largest fleet of RJs
in the world--with more than 400 in service. RJs are the predominant
aircraft in the Delta Connection carriers' fleet. While many turboprop
planes are gradually being replaced, they still remain the right choice
for some specific cities.
    Regional jets have enabled small and medium-sized cities to reap
the consumer, economic benefits promised when the airline industry was
deregulated a quarter century ago. Many of these communities now
receive levels of competitive air service that were simply unimaginable
only two or three years ago. By fall2001, the industry's regional jets
were serving a wide array of destinations in North America, including
cities with as few as 15,000 to 20,000 year-round residents. Nearly 36
percent of all communities receiving regional jet service had
populations of fewer than 250,000 people, and more than 60 percent of
those served had 500,000 or fewer residents.\1\
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    \1\ Source: Regional Air Service Initiative
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    With this winter's schedule, Delta for the first time will offer
all-jet service to four Mississippi airports. This service level is
possible because of our regional partners' ability to fly profitably to
small and medium-sized communities with smaller jets. In addition,
Delta has applied to the Department of Transportation for service
between Jackson and Ronald Reagan Washington National Airport (DCA).
Due to the capacity/slot constraints at DCA, DOT must allocate a
limited number of service opportunities. Mr. Chairman, we appreciate
the strong support that we have received from you and others in
Mississippi for this application.
    It is therefore critical that Congress and the FAA continue to
pursue airspace modernization to ensure that small communities maintain
these levels of service. Regional Jets must continue to be granted the
same access to the Nation's airspace as larger communities and
aircraft. Future growth and constraints placed on the air traffic
control system in coming years must not be allowed to threaten our
ability to compete in small communities.
    While regional flying has experienced rapid growth, it is not
immune to the financial crisis facing the aviation industry. Today, 98
percent of regional passengers are carried as code share customers for
a major carrier. As we confront the new economic realities of our
business, we urge Congress to review the government burdens placed on
air carriers, in particular the economic impact on service to small and
medium-sized communities. In the current environment, legacy airlines
must restructure their networks to reduce costs.
Aviation Security
    Delta Air Lines is committed to working with the Congress and the
TSA to provide the highest levels of safety and security for our
customers, employees and the Nation. We work in close partnership with
TSA to continually enhance our security systems. While our number one
priority is to provide a safe, reliable and secure service, the
government must be mindful of the effects of the so-called ``hassle
factor.'' Long lines and uncertain wait times at the airport often lead
travelers to use other modes of transportation or not travel at all.
    As previously mentioned, most Delta Connection flights average 400
miles. It is in short haul markets that we have experienced the most
pronounced shift to cars or other modes of transportation when
passengers want to avoid using an airport. Such a shift threatens the
vitality of service to small and medium-sized communities. There are
also economic consequences for the local airport when Federal
entitlement dollars are reduced due to lower enplanements.
    Congress should establish a national standard for passenger
screening of no more than 10 minutes at any airport in the country. A
national standard would enable TSA to better measure performance and
establish staffing models needed at each airport.
    Congress should also examine the number of unfunded security
mandates placed on airlines. For example, the carriers have still not
been reimbursed for conducting catering security and document searches
on behalf of the TSA. These functions have been explicitly designated
as government activities. We ask that Congress again direct TSA to
provide reimbursement. These two functions alone cost Delta Air Lines
approximately $30 million annually.
Taxes and Fees
    We are also concerned about the impact that taxes and fees assessed
on a segment basis have on passengers that connect via a hub. Small
community passengers are overtaxed under the current methodology for
paying security fees. For example, the $5.00 per segment security fee
must be paid on each leg of the trip even though the passenger is only
screened at the point of origin. From that point forward, passengers
stay in a sterile area and do not require additional screening. Forcing
connecting passengers to pay the fee twice unfairly penalizes these
passengers and increases the cost to the airline and its customers to
provide the connecting service. Congress should modify the current
system to require domestic passengers to pay security fees on an origin
and destination basis.
    Mr. Chairman, once again, Delta commends you for holding this
important hearing and giving us the opportunity to submit comments for
your consideration.