[Senate Hearing 114-199]
[From the U.S. Government Publishing Office]
S. Hrg. 114-199
FAA REAUTHORIZATION: AIRPORT ISSUES
AND INFRASTRUCTURE FINANCING
=======================================================================
HEARING
before the
SUBCOMMITTEE ON AVIATION OPERATIONS, SAFETY, AND SECURITY
of the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
APRIL 23, 2015
__________
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 FOURTEENTH CONGRESS
FIRST SESSION
JOHN THUNE, South Dakota, Chairman
ROGER F. WICKER, Mississippi BILL NELSON, Florida, Ranking
ROY BLUNT, Missouri MARIA CANTWELL, Washington
MARCO RUBIO, Florida CLAIRE McCASKILL, Missouri
KELLY AYOTTE, New Hampshire AMY KLOBUCHAR, Minnesota
TED CRUZ, Texas RICHARD BLUMENTHAL, Connecticut
DEB FISCHER, Nebraska BRIAN SCHATZ, Hawaii
JERRY MORAN, Kansas EDWARD MARKEY, Massachusetts
DAN SULLIVAN, Alaska CORY BOOKER, New Jersey
RON JOHNSON, Wisconsin TOM UDALL, New Mexico
DEAN HELLER, Nevada JOE MANCHIN III, West Virginia
CORY GARDNER, Colorado GARY PETERS, Michigan
STEVE DAINES, Montana
David Schwietert, Staff Director
Nick Rossi, Deputy Staff Director
Rebecca Seidel, General Counsel
Jason Van Beek, Deputy General Counsel
Kim Lipsky, Democratic Staff Director
Chris Day, Democratic Deputy Staff Director
Clint Odom, Democratic General Counsel and Policy Director
------
SUBCOMMITTEE ON AVIATION OPERATIONS, SAFETY, AND SECURITY
KELLY AYOTTE, New Hampshire, MARIA CANTWELL, Washington,
Chairman Ranking
ROGER F. WICKER, Mississippi AMY KLOBUCHAR, Minnesota
ROY BLUNT, Missouri RICHARD BLUMENTHAL, Connecticut
MARCO RUBIO, Florida BRIAN SCHATZ, Hawaii
TED CRUZ, Texas EDWARD MARKEY, Massachusetts
DEB FISCHER, Nebraska CORY BOOKER, New Jersey
JERRY MORAN, Kansas TOM UDALL, New Mexico
DAN SULLIVAN, Alaska JOE MANCHIN III, West Virginia
RON JOHNSON, Wisconsin GARY PETERS, Michigan
DEAN HELLER, Nevada
CORY GARDNER, Colorado
(II)
C O N T E N T S
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Page
Hearing held on April 23, 2015................................... 1
Statement of Senator Ayotte...................................... 1
Statement of Senator Cantwell.................................... 3
Statement of Senator Daines...................................... 45
Statement of Senator Nelson...................................... 47
Statement of Senator Wicker...................................... 52
Statement of Senator Gardner..................................... 54
Statement of Senator Klobuchar................................... 56
Statement of Senator Booker...................................... 58
Statement of Senator Schatz...................................... 60
Statement of Senator Sullivan.................................... 62
Statement of Senator Blumenthal.................................. 66
Witnesses
Gerald L. Dillingham, Ph.D., Director of Civil Aviation Issues,
U.S. Government Accountability Office.......................... 5
Prepared statement........................................... 6
Sharon Pinkerton, Senior Vice President, Legislative and
Regulatory Affairs, Airlines for America....................... 21
Prepared statement........................................... 22
Todd Hauptli, President And CEO, American Association Of Airport
Executives..................................................... 23
Prepared statement........................................... 25
Mark M. Reis, Managing Director, Seattle-Tacoma International
Airport........................................................ 36
Prepared statement........................................... 37
Michael J. Minerva, Vice President, Government and Airport
Affairs, American Airlines..................................... 42
Prepared statement........................................... 44
FAA REAUTHORIZATION: AIRPORT ISSUES AND INFRASTRUCTURE FINANCING
----------
THURSDAY, APRIL 23, 2015
U.S. Senate,
Subcommittee on Aviation, Operations, Safety, and
Security,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:45 a.m. in
room SR-253, Russell Senate Office Building, Hon. Kelly Ayotte,
Chairman of the Subcommittee, presiding.
Present: Senators Ayotte [presiding], Wicker, Fischer,
Moran, Sullivan, Johnson, Gardner, Daines, Cantwell, Klobuchar,
Nelson, Blumenthal, Schatz, Booker, Manchin, and Peters.
OPENING STATEMENT OF HON. KELLY AYOTTE,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Ayotte. Good afternoon, and welcome. Or, good
morning, and welcome.
[Laughter.]
Senator Ayotte. Today's hearing is the second in a series
we are holding in preparation for this year's Federal Aviation
Administration's reauthorization effort. Last week, the full
committee heard from FAA Administrator Huerta on a number of
issues in relation to the FAA reauthorization. And two days
ago, we engaged with a number of stakeholders regarding the
certification process and competitiveness for the airline
industry. So, I really want to thank the witnesses who are here
with us today.
The American aviation system consists of 19,000 airports
ranging from facilities that handle tens of millions of
passengers each year down to grass landing strips. Of those
19,000 airports, 3,300 are eligible for Federal funding
assistance. Today, we will have the opportunity to discuss the
funding of those airports' capital needs through mechanisms
such as the Airport Improvement Program, Passenger Facility
Charges, bonds, and state and local sources. Additionally, we
will look at the Federal Contract Tower Program, small
community air service issues, aircraft noise, and the Airport
Disadvantaged Business Enterprise Program.
Our aviation system depends on adequate infrastructure.
Although passenger totals have fluctuated, demand is now
growing, and updating airport structure and capacity is an
important practical and policy goal.
Of note in the discussion on infrastructure demands in
funding are projections of capacity limitations at airports.
While needs go beyond the air-side components, such as gates
and runways, FAA's most recent capacity report forecasts an
overall decline in capacity investment needs through 2030, as
compared to prior projections. This measure looks at what
investments are needed for airports to operate without
significant delays. This does not mean we should stop investing
in aviation infrastructure, but it should inform our approaches
to ensuring that funding mechanisms are tailored to projected
needs.
One of the primary means of funding airport capital needs
occurs through the Airport Improvement Program, which provides
Federal grants to airports for safety and capacity projects,
with $3.35 billion set for the program in 2015. For example,
AIP helps airports build runways and improve airport safety,
such as through requiring snow removal equipment. And I can
tell you that, in New Hampshire--New Hampshire got a lot of
snow this past winter, and I always appreciate the work done,
certainly at the Manchester Airport and at others, when you
land and it is actually cleared.
Another funding source comes from the Passenger Facility
Charges, which are federally authorized local fees on each
airline passenger enplanement. The PFC cap is $4.50, with
airports seeking to collect high PFCs foregoing a portion of
their AIP funding.
There has been a lot of attention focused on the PFC rate
cap. The President's Fiscal Year 2016 budget proposal calls for
hiking the PFC cap to $8 while lowering the AIP funding to $2.9
billion. This proposal, or any related to altering the AIP/PFC
mix, has generated a lot of feedback from stakeholders. I'm
sure that we will have a lively discussion among our panelists
today about the merits and drawbacks of changing the PFC cap.
And I look forward to hearing from all of you on your thoughts
on this issue so that we can strike the right balance.
It is easy to see that the ``raise-the-PFC'' or ``keep-the-
PFC-the-same'' arguments as merely a dispute between airports
and airlines. However, it's our job on this committee to
consider policies that will strengthen our infrastructure, keep
our aviation system safe, and reduce burdens and costs on the
traveling public. So, we really do have to hear from all of you
on what the proper balance is.
We owe it to traveling Americans to ensure that we promote
efficient financing mechanisms. As a frequent traveler, I can
tell you that I value good facilities that help me get home to
my kids safely. And I know that my constituents do, as well.
This hearing is also an opportunity to discuss our smaller
airports and community needs. I look forward to hearing more
about the Federal Contract Tower Program through which FAA
contracts air traffic control services at certain airports,
including airports that are important in New Hampshire,
including my hometown of Nashua.
I believe contract towers represent a wise investment,
particularly in our resource-constrained Federal budget
environment. A DOT inspector general audit of the FAA Contract
Tower Program concluded that FAA contract towers provide cost-
effective and safe air traffic control services and operate at
a lower cost than similar FAA-operated towers.
Also, as one of our panelists notes, as we look at this
issue, the Inspector General found that contract towers, on
average, cost $1.5 million less per tower compared to FAA
towers, and about 80 percent of contract tower controllers are
veterans, and they serve our aviation system very well. I
visited the contract tower at Nashua, that I mentioned, at New
Hampshire's Boire Field, and can attest to the professionalism
and efficiency of that operation.
Finally, given aviation's unique dynamics in various parts
of our Nation, including connecting rural and urban regions, I
look forward to hearing from the panelists and my colleagues
about small-community air-service issues.
Today, we will hear from five witnesses: Dr. Gerald
Dillingham, who was just before the Committee the other day, so
we appreciate all your work and attention and time that you are
spending with us this week--he is the Director of Civil
Aviation Issues at the U.S. Government Accountability Office;
Ms. Sharon Pinkerton, Senior Vice President, Legislative and
Regulatory Affairs for the Airlines for America; Mr. Todd
Hauptli, President and CEO of American Association of Airport
Executives; Mr. Mark Reis, Managing Director of Aviation
Division, Port of Seattle--certainly my Ranking Member, coming
from the state of Washington, we appreciate his being here; Mr.
Michael J. Minerva, Vice President of Government and Airport
Affairs of American Airlines.
Thank you all.
And I'd like to turn it over to Ranking Member Cantwell.
STATEMENT OF HON. MARIA CANTWELL,
U.S. SENATOR FROM WASHINGTON
Senator Cantwell. Thank you, Madam Chair. And thank you for
holding this important hearing.
And thank you, to all the witnesses, for being here today.
Three of you are local to Washington, D.C., but, as the Chair
mentioned, Mark Reis is here from Seattle as the Managing
Director of the Seattle-Tacoma International Airport. We thank
you for traveling here and being with us today.
In 2004, over 660 million air passengers traveled in our
domestic aviation system. That means that people are spending
time in 389 of our commercial airports. And that comprises the
core of our air transportation network. These airports come in
all shapes and sizes, but each one is critical to the community
it serves, and it helps support the economy.
The impact of air service on our Nation cannot be
overstated. Just ask any community that has fought to keep
commercial service. whether connected by commercial service or
general aviation, an airport is indispensable to the elements
of a public infrastructure, just like roads and transit are
connections for our public citizens.
We're here today to discuss the current state of our
airport infrastructure and what we can do to make sure that
that infrastructure meets the needs of every community. And,
while we must consider our airports as an integrated system,
just as we do air traffic control operations, which are
inherently local, we'll have a lot of discussion about that
this morning.
Managed by public aviation authorities or local
governments, each airport has a mission to serve its community
and provide connectivity to families and friends in the global
economy. Some of our airports have kept pace with the rate of
growth, but others have fallen behind. And we constantly hear
complaints about the infrastructure needs in various parts of
our country.
Across the country, airports reflect the community they
serve. And this is important. It's a very important economic
development tool for any community. This is one of the reasons
why Congress created the Passenger Facility Charge in 1990 to
fund airport infrastructure investment. These PFCs, which may
be collected as part of an airline ticket, are locally-levied
user fees that are invested back into the airport. While the
PFC is a critical component of airport funding, it is one of
the several funding streams available to airports, which also
include the FAA's improvement program, tax-exempt bonds, and
State and local government grants. And I hope that this morning
we'll be able to get into some of the discussion about those
various revenue streams and how we move forward on moving
legislation.
As Congress debates whether to increase the PFC--so that we
can keep pace with economic growth, we must consider how
airports will invest these dollars. And as part of this
discussion, I hope we can find ways to improve the passenger
experience and keep commerce moving.
Many of the airports' experience do directly impact
passengers. And, Madam Chair, last time we did a large,
comprehensive bill, we had a Passenger's Bill of Rights that I
think was very important in reviewing the needs of the
traveling public. And I think we should get an update on that
and look at possible new issues that we need address.
But, obviously, airports have different business models
that are about helping to return economic benefit back into the
infrastructure. So, we really want to look at that as we look
at the demand on that infrastructure over the next several
decades. Some airports--and I am sure Sea-Tac will tell us
about this today--about how much growth they are trying to meet
and how do they meet that growth without some tools for
infrastructure investment.
Airports and aviation, in general, have tried to become
more efficient. And I'm sure we're going to hear about that
today, as well. I think one issue that we really want to
understand is how we all move more aggressively toward the
implementation of the Next Gen system, because there are
efficiencies there. But, airports have done everything from
providing for pre-conditioned air, to planes parked at gates,
to enabling them to save fuel off their power unit systems, to
providing electrical power to airlines to convert their airport
fleets to run on electricity, to operating its own ramp tower,
which allows controllers to efficiently guide aircraft to and
from 69 mainline aircraft gates. So, the accumulation of these
projects have resulted in a reduction of over 55,000 metric
tons of greenhouse gases, and they've resulted in annual
savings of approximately 20 million for airlines who serve Sea-
Tac. So, obviously, that's good news for both Sea-Tac and for
those airlines. And we want to think more about how we
implement Next Gen across the airport system, which is a lot of
coordination by both the airports and the airlines and the FAA.
But, there are real savings there, and we need to focus on how
we help with those savings, make investments into this
infrastructure.
Finally, I know that many members of the Committee and
Congress have concerns about the health of the Contract Tower
Program. Contract towers provide a vital layer of safety to the
national airspace system. And I look forward to hearing from
our panel about this important issue. Our airports are a
critical component of civil aviation system, and I know that
we'll have a lively discussion about this. But, again, airports
are key economic tools to any community, and we need to
continue to keep them to be robust aspects of our
transportation system.
So, thank you, Madam Chair, and I look forward to hearing
from the witnesses.
Senator Ayotte. Thank you so much, Senator Cantwell.
And we will hear, first, from Dr. Gerald Dillingham, the
Director of Civil Aviation Issues at the U.S. Government
Accountability Office.
Thank you, Doctor.
STATEMENT OF GERALD L. DILLINGHAM, Ph.D.,
DIRECTOR, CIVIL AVIATION ISSUES,
U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Dr. Dillingham. Thank you, Madam Chair. Good morning,
Ranking Member Cantwell, distinguished members of the
Subcommittee.
My statement this morning focuses on two aspects of airport
funding. First, what is known about the potential scope and
cost of planned airport development? And, second, what are the
available sources of funding to finance that development?
Regarding the scope and cost of airports' planned
development, according to FAA, overall airport capacity--that
is, the scope of infrastructure needed to help airports operate
without significant delays--has generally improved. In 2004,
FAA projected that 41 airports would be capacity-constrained by
2020 unless additional investment occurred. However, in its
2015 report, FAA projected only six airports will be capacity-
constrained by 2020. FAA's latest 5-year estimate for future
development costs is $33.5 billion, a 21 percent decline from
its previous estimate. In contrast, the Airport Association's
total estimated cost of planned development for that same 5-
year period is $72.5 billion, about a 6.2 increase from their
prior estimate, and more than twice the FAA estimate.
These estimates differ because the FAA estimate consists of
only projects eligible for Federal airport grants, while the
airports' estimate also includes projects that are not eligible
for Federal airport grants as well as projects for which
financing has already been identified.
Turning to available funding sources for airport
development. Overall, Federal funding for airport development
has decreased, while reliance on debt and alternative revenues
has grown. For example, the annual appropriations for the AIP
decreased by $150 million since 2011, and the President's 2016
budget calls for a continued reduction in AIP appropriations
from $3.4 billion to $2.9 billion, in conjunction with an
increase in the PFC cap.
Speaking of PFCs, the Federal PFC cap of $4.50 per flight
segment has not increased since 2000 and, thus, has not kept up
with inflation. As the vast majority of airports already have a
PFC, total collections have remained flat in recent years. The
President's 2016 budget and airport organizations have called
for increasing the PFC cap. When we analyzed the potential
impact of increasing the PFC, we found, obviously, that it
would substantially increase airport revenues, it could also
slightly slow the growth of passenger traffic and, therefore,
the growth of the trust fund revenues.
Partially in response to declines in Federal support for
airport development, airports have sought to increase their
non-aviation revenues. These non-aviation revenues account for
roughly $5 billion at commercial airports, which is almost as
much as these airports' aviation revenues, and far more than
PFCs collected at these airports. However, non-aviation
revenues may not be available to all airports, especially
smaller airports.
Madam Chair, Ranking Member Cantwell, and members of the
Subcommittee, in determining the best course for future Federal
investment in our national airspace system, Congress has to
weigh the interests of all aviation stakeholders, including
airports, airlines, and, most importantly, passengers, to help
ensure that we not only maintain the safest system in the
world, but also have a system capable of efficiently handling
the predicted future growth.
Thank you. This concludes my oral statement.
[The prepared statement of Dr. Dillingham follows:]
Prepared Statement of Gerald L. Dillingham, Ph.D., Director, Physical
Infrastructure Issues, United States Government Accountability Office
Airport Funding--Changes in Aviation Activity Are Reflected in Reduced
Capacity Concerns
What GAO Found
Economic factors, since 2007, have led to fewer scheduled
commercial flights, a trend more pronounced for some types of airports.
These economic factors include not just the volatile fuel prices and
the 2007 to 2009 recession but also evolving airline practices, such as
airline mergers and the adoption of business models that demonstrate
capacity management. For example, as GAO reported in June 2014, the
number of scheduled flights at medium-and small-hub airports has
declined at least 20 percent from 2007 to 2013, compared to about a 9
percent decline at large-hub airports. General Aviation (GA) has also
declined in activity, as measured by the number of GA aircraft
operations and hours flown, due to similar economic factors. In recent
years, however, passenger growth has rebounded. According to the
Federal Aviation Administration's (FAA) projections, U.S. airline
passenger growth is predicted to grow 2 percent per year through 2035--
a growth rate that is slightly lower than that of past forecasts.
According to FAA estimates, the number of airports that require
additional capacity to handle flight operations to avoid delays has
declined since 2004. Similarly, the future cost of planned airport
development has also declined in recent years. Earlier this year, FAA
projected that 6 airports will be capacity constrained in 2020 compared
to 41 in the 2004 projection. Even with this improvement, some
airports--like those in the New York City area region--will remain
capacity constrained, according to FAA. The overall improved capacity
situation is also reflected in reduced estimates of future airport-
development costs that are eligible for Federal grants. In September
2014, the FAA estimated that for the period 2015 through 2019, airports
have about $33.5 billion in planned development projects eligible for
Federal Airport Improvement Program (AIP) grants--a 21 percent
reduction from the $42.5 billion estimate for the time period 2013
through 2017. The biggest decline in planned development costs among
project categories is in capacity projects such as new runway projects.
However, an airport industry association estimated planned airport
capital project costs, both those eligible and not eligible for AIP, of
$72.5 billion for 2015 through 2019, an increase of 6.2 percent from
the association's prior 5-year estimate for 2013 through 2017.
As traditional funding sources for airport development have
generally declined, airports have increasingly relied on other sources
of financing. Specifically, Federal AIP grants and Passenger Facility
Charges (PFC) are two primary sources of federally authorized funding
for airports. The amount made available for AIP decreased from over
$3.5 billion for Fiscal Years 2007 through 2011 to less than $3.4
billion for Fiscal Year 2015. Further the President's 2016 proposed
budget calls for additional reductions in AIP, though it would be
offset with a proposed increase in the PFC cap, which is currently
$4.50 per flight segment. Airports have sought additional opportunities
to collect non-aviation revenues. As a result, according to FAA, non-
aviation revenue has increased each year from 2008 through 2014. For
example, airports have 1) partnered with the private sector to fund
airport improvements; 2) identified new business ventures on airport
property including the development of commercial retail, leisure
activities, and medical facilities; and 3) explored options for
privatization.
______
Madam Chair Ayotte, Ranking Member Cantwell, and Members of the
Subcommittee:
I am pleased to be here today to discuss airport capacity and
funding issues in light of a changing aviation industry. U.S. airports
are important contributors to our economy, providing mobility for
people and goods both domestically and internationally, and
contributing to the economic success of the communities they serve.
Aviation activity in the United States experienced a decline since
operations and passenger activity peaked in 2007, especially in the
amount of commercial aircraft operations at U.S. airports. While
passenger activity has rebounded close to 2007 levels, the total number
of operations has not, leaving many airports with reduced activity.
Even so, airport capacity--that is, the maximum number of flight
operations an airport can handle over a period of time--is still a
problem for some airports, resulting in significant delays for
passengers throughout the National Airspace System (NAS). While,
according to Federal Aviation Administration (FAA), only nine new
commercial service airports have been built in the United States over
the last three decades, billions of dollars have been invested in
expanding new capacity, such as runways, and in maintaining and
upgrading existing airports during that time.\1\ However, since 2007,
Federal financing sources for airport development have seen small
declines, especially when considering inflation. The FAA forecasts that
the NAS will need to accommodate more than 1 billion passenger
enplanements and almost 57 million aircraft operations annually by
2029--an increase from 756 million enplanements and 49 million aircraft
operations in 2014--as FAA forecasts aviation activity to grow by an
average of 2 percent per year over the next 20 years.\2\ FAA's growth
rate for 2015 through 2035 was slightly lower than in previous
years.\3\ In response to these pressures, airports have sought to
increase the statutorily-capped, airport-imposed Passenger Facility
Charge (PFC)--which are airport fees collected by the airlines on
passenger tickets and remitted to the airports--and have also worked to
develop new funding sources.\4\
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\1\ Over the last 30 years, 9 commercial airports have opened--
Denver International, Austin-Bergstrom, Northwest Arkansas Regional,
and 6 other smaller commercial airports.
\2\ See FAA, FAA Aerospace Forecast: Fiscal Years 2015-2035, OK 15-
0814, (Washington, D.C.: 2015).
\3\ See FAA, FAA Aerospace Forecast: Fiscal Years 2014-2034, OK 14-
0723, (Washington, D.C.: 2014).
\4\ 49 U.S.C. 40117.
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My statement today focuses on current trends in airport capacity
and funding for airport development. Specifically, this statement
discusses trends in (1) aviation activity at airports since 2007, (2)
airports' capacity needs and planned development costs, and (3)
financing for airport development.
This statement draws from our body of work completed from June 2007
through December 2014 examining airport and aviation industry trends.
Specific products from this work are cited throughout the statement.
The products cited contain descriptions of the methods we used to
conduct this work. We have updated our work through April 2015 with
FAA's reports and analyses, including FAA's 2015 aviation forecast, the
2015-2019 National Plan of Integrated Airport Systems (NPIAS), and
airport funding and cost data spanning from 2004 through March 2015. We
also examined the FAA's Fiscal Year 2016 budget proposal and obtained
updated information on FAA program activities from public sources. In
addition, we have ongoing work examining airport funding and planned
capital development for which we plan to issue a report later this
year.
More detailed information on our objectives, scope, and methodology
for our prior work can be found in the issued reports. We conducted the
work on which this statement is based in accordance with generally
accepted government auditing standards. Those standards require that we
plan and perform the audit to obtain sufficient, appropriate evidence
to provide a reasonable basis for our findings and conclusions based on
our audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.
Background
The United States has the largest, most extensive aviation system
in the world with over 19,000 airports ranging from large commercial
transportation centers handling millions of passengers annually to
small grass airstrips serving only a few aircraft each year. Of these,
roughly 3,300 airports are designated by FAA as part of the national
airport system and thus are eligible for Federal assistance.
The national airport system consists of two primary types of
airports--commercial service airports, which have scheduled service and
enplane 2,500 or more passengers per year, and general aviation (GA)
airports, which have no scheduled service and enplane fewer than 2,500
passengers annually. FAA divides commercial service airports into
primary airports (enplaning more than 10,000 passengers annually) and
commercial service nonprimary airports. The 395 current primary
airports are classified by hub type--large-, medium-, small-, and
nonhub--based on passenger traffic.\5\ Passenger traffic is highly
concentrated: 88 percent of all passengers in the United States
enplaned at the 63 large-or medium-hub airports in 2013 (see fig.
1).\6\
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\5\ 49 U.S.C. Sec. 40102(29), (31), (42), and (34).
\6\ Commercial service airports are categorized into hub types
based on their share of passenger enplanements.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: GAO presentation of FAA data. GAO-15-498T
Note: The term ``hub'' is defined in Federal law to identify
commercial service airports as measured by passenger boardings, and the
airports are grouped into four hub categories. (49 U.S.C. Sec. 40102
(29), (31), (42), and (34)).
More than 2,900 airports in the national system are designated as
GA airports. These airports range from large business aviation and
cargo shipment centers that handle thousands of operations a year to
small rural airports that may handle only a few hundred operations per
year but may provide important access to the national transportation
system for their communities.
Generally, the level of aviation activity, whether commercial
passenger and cargo or general aviation business and private aircraft,
helps to generate the funds that finance airport development. The three
primary sources of funding for airport development are Airport
Improvement Program (AIP) grants, PFCs, and locally generated revenue.
All three sources of funds are linked to passenger aviation activity.
AIP is supported by the Airport and Airway Trust Fund
(AATF), which is funded by airline ticket taxes and fees;\7\ GA
flights contribute to the AATF through a tax on aviation jet
fuel. Airports included in FAA's NPIAS are eligible to receive
AIP entitlement (apportionment) grants based on airports' size
and can also compete for AIP discretionary grants.\8\ AIP
grants can only be used for eligible capital projects,
generally those that enhance capacity, safety, and
environmental conditions, such as runway construction and
rehabilitation, airfield lighting and marking, and airplane
noise mitigation.\9\ The amount made available in AIP
appropriations totaled $3.35 billion in Fiscal Year 2014. The
grants generally require matching funds from the local match
ranging from 10 to 25 percent depending on the size of the
airport and type of project.
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\7\ In total, the AATF collected $13.5 billion from various taxes
in Fiscal Year 2014 and appropriated $12.6 billion from the trust fund
to fund FAA and its various programs, including AIP grants. The
uncommitted AATF balance at the end of Fiscal Year 2014 was $5.7
billion. The manner in which the trust fund is funded has not changed
significantly since it was established in 1970 and several attempts to
implement a user fee system have not been successful. See 26 U.S.C.
Sec. 9502.
\8\ NPIAS airports are public-use airports that are deemed by FAA
to be important to the national air transportation system and,
therefore, eligible for AIP funding. AIP grants generally consist of
two types--(1) entitlement funds that are apportioned to airports or
states by formula each year based on the number of airport passengers
or state population and (2) discretionary funds that FAA approves based
on a project's priority.
\9\ 49 U.S.C. Sec. 47102(3).
PFCs, another source of funding for airport development
projects, are a federally authorized, statutorily-capped,
airport-imposed fee of up to a maximum of $4.50 per enplaned
passenger per flight segment, and a maximum of $18 per round
trip ticket. The PFC is collected by the airline on the
passenger ticket and remitted to the airports (minus a small
administrative fee retained by the airline).\10\ Introduced in
1991, and capped at $3.00 per flight segment,\11\ PFC
collections can be used by airports for the same types of
projects as AIP grants, but also to pay interest costs on debt
issued for those projects.\12\ Since its inception, landside
development projects--including, for example, new terminal
projects--and interest payments on debt used to finance
eligible projects have each accounted for 34 percent of total
PFC collections spent. The maximum level of PFCs was last
increased in 2000.\13\ Collections totaled almost $2.8 billion
in calendar year 2014. According to FAA, 358 commercial service
airports are collecting PFCs as of February 2015.
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\10\ 49 U.S.C. Sec. 40117(b)(4).
\11\ Pub. L. No. 101-508, Sec. 9110(2), 104 Stat. 1388-357.
\12\ 49 U.S.C. Sec. 40117(b)(64).
\13\ Pub. L. No. 106-181, Sec. 105(a), 114 Stat. 71, 83 (2000).
Airports also fund development projects from revenues
generated directly by the airport. Airports generate revenues
from aviation activities such as aircraft landing fees and
terminal rentals, and non-aviation activities such as
concessions, parking, and land leases. Aviation revenues are
the traditional method for funding airport development and,
along with PFCs, are used to finance the issuance of local tax-
exempt debt. Because of the size and duration of some airport
development projects--for example, a new runway can take more
than a decade and several billion dollars to complete--long-
term debt can be the only way to finance these types of
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projects.
FAA's main planning tool for identifying future airport-capital
projects is the NPIAS.\14\ FAA relies on airports, through their
planning processes, to identify individual projects for funding
consideration. According to FAA officials, FAA reviews input from
individual airports and state aviation agencies and validates both
eligibility and justification for the project over the ensuing five-
year period. Because the estimated cost of eligible airport projects
that airports plan to perform greatly exceeds the available grant
funding available for these projects, FAA uses a priority system based
on airport and project type to allocate the available funds.\15\ The
Airports Council International-North America (ACI-NA), a trade
association for airports, also estimates the cost of planned airport
capital projects.
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\14\ 49 U.S.C. Sec. 47103.
\15\ 62 Fed. Reg. 45008 (Aug. 25, 1997).
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While almost all airport sponsors in the United States are states,
municipalities, or specially created public authorities, there is still
a significant reliance on the private sector for finance, expertise,
and control of airport assets.\16\ For example, we have previously
reported that the majority of airport employees at the Nation's major
airports are employed by private sector firms, such as concessionaires,
and some airports are also operated by private companies.\17\ Pursuant
to statutory authorization, since 1996, FAA has been piloting an
airport privatization program that relaxes certain restrictions on the
sale or lease of airports to private entities.\18\
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\16\ A sponsor is any public agency or private owner of a public
use airport, codified at 49 U.S.C. Sec. 47102(24).
\17\ GAO, Airport Funding: Aviation Industry Changes Affect Airport
Development Costs and Financing, GAO-14-658T (Washington, D.C.: June
18, 2014).
\18\ 49 U.S.C. Sec. 41734.
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Aviation Activity at Many Airports Has Slowed Since 2007
A variety of factors has had a substantial impact on the airline
industry. We reported in June 2014 that economic issues such as
volatile fuel prices and the economic recession have affected the
industry as have airlines' consolidation and an adoption of business
models that focus more on capacity management.\19\ For instance, the
2007-2009 recession combined with a spike in fuel prices, helped spur
industry mergers and a change in airline business models. Specifically,
Delta acquired Northwest in 2008, United and Continental merged in
2010, Southwest acquired AirTran in 2011, and U.S. Airways and American
Airlines merged in 2014. Although passenger traffic has generally
rebounded as the economy has recovered, the number of commercial
aircraft operations has not returned to 2007 levels as airlines are
flying larger and fuller aircraft.
---------------------------------------------------------------------------
\19\ GAO, Airline Competition: The Average Number of Competitors in
Markets Serving the Majority of Passengers Has Changed Little in Recent
Years, but Stakeholders Voice Concerns about Competition, GAO-14-515
(Washington, D.C.: Jun 11, 2014).
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In June 2014, we found that one outcome of economic pressures and
industry changes had been reductions in U.S. passenger aircraft
operations as measured by scheduled flight operations.\20\ Many
airports lost both available seats and flights since 2007 when aircraft
operations last peaked. However, medium-and small-hub airports had
proportionally lost more service than large-hub or nonhub airports, as
major airlines merged and consolidated their flight schedules at the
largest airports. In June 2014, we found--based on our analysis of
Department of Transportation's (DOT) data--that there were about 1.2
million fewer scheduled domestic flights in 2007 as compared to 2013 at
large-, medium-, small-hub, and nonhub airports.\21\ The greatest
reduction in scheduled flights occurred at medium-hub airports,\22\
which decreased nearly 24 percent from 2007 to 2013, compared to a
decrease of about 9 percent at large-hub airports and about 20 percent
at small-hub airports. Medium-hub airports also experienced the
greatest percentage reduction in air service as measured by available
seats \23\ (see fig. 2). While 2014 passenger activity as represented
by the number of passengers onboard aircraft departing U.S. airports
has rebounded nearly back to 2007 levels (down 4 percent), the total
number of commercial passenger and cargo aircraft departures
(operations) in 2014 is still down 18.5 percent since 2007. Declining
operations reduces pressure on airports' airside capacity, while
rebounding passenger traffic could put pressure on airports' terminals
and gates to accommodate passengers.
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\20\ GAO-14-658T.
\21\ GAO-14-515.
\22\ Medium-hub declines can be partly attributed to airline
``dehubbing'' after a merger, whereby an airline sharply reduces the
number of flights that connect at the airport. For example, Memphis,
Cleveland, and Cincinnati all experienced significant loss of traffic
after a merger.
\23\ GAO-14-515.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: GAO analysis of DOT data. GAO-15-498T
Note: The term ``hub'' is defined in Federal law to identify
primary commercial service airports as measured by passenger boardings.
These airports are grouped into four hub categories--large-, medium-,
small-hub, and nonhub. (49 U.S.C. Sec. 40102(29), (31), (42) and (34)).
We found in June 2014 that air service to small airports, which
generally serve small communities, has declined since 2007 due, in
part, to volatile fuel costs and declining populations in small
communities.\24\ According to a study by the Massachusetts Institute of
Technology (MIT), regional aircraft--those mostly used to provide air
service to small communities--are 40 to 60 percent less fuel efficient
than the aircraft used by mainline carriers at larger hub airports.
Further, from 2002 to 2012, fuels costs quadrupled and became the
airlines' largest expense at nearly 30 percent of airlines' operating
costs. While more recently oil prices have dropped, it remains
uncertain whether currently low oil prices will continue. The second
major factor affecting small community service is declining population
in many regions of the country over the last 30 years. As a result, in
previous work, we have found that population movement has decreased
demand for air service to certain small communities.\25\ For example,
geographic areas, especially in the Midwest and Great Plains states,
lost population from 1980 through 2010, as illustrated in figure 3
below. As a result, certain areas of the country are less densely
populated than they were 35 years ago when the airlines were
deregulated and the Essential Air Service (EAS) was created.\26\ For
small communities located close to larger cities and larger airports, a
lack of local demand can be exacerbated by passengers choosing to drive
to airports in larger cities to access better service and lower fares.
The EAS program was created in 1978 to provide subsidies to some small
communities that had service at the time of deregulation. We reported
last year that EAS has grown in cost but did help stem the declines in
service to those communities as compared to other airports.\27\
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\24\ GAO, Commercial Aviation: Status of Air Service to Small
Communities and the Federal Programs Involved, GAO-14-454T (Washington,
D.C.: Apr 30, 2014).
\25\ See GAO, National Transportation System: Options and
Analytical Tools to Strengthen DOT's Approach to Supporting
Communities' Access to the System, GAO-09-753 (Washington, D.C.: Jul
24, 2009).
\26\ Pub. L. No. 95--504, 92 Stat. 1705 (1978).
\27\ GAO-14-454T.
In June 2014, we reported that GA activity has also declined since
2007, particularly affecting airports that rely on general aviation
activity for a large share of their revenue.\28\ For GA airports--which
generate revenues from landing fees, fuel sales, and hangar rents--the
loss of traffic can have a significant effect on their ability to fund
development. A 2012 MIT study that examined trends for GA operations at
U.S. airports with air-traffic control towers indicated that from 2000
to 2010, total GA operations dropped 35 percent.\29\ According to the
MIT study, the number of annual hours flown by GA pilots, as estimated
by FAA, has also decreased over the past decade.\30\ Numerous factors
affect the level of GA operations including the level of fuel prices,
the costs of owning and operating personal aircraft, and the total
number of private pilots and GA aircraft. For example, we recently
reported on the availability of airline pilots and found that the GA
pilot supply pipeline has decreased as fewer students enter and
complete collegiate pilot-training programs and fewer military pilots
are available than in the past.\31\
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\28\ GAO-14-658T.
\29\ Kamala I. Shetty and R. John Hansman, Current and Historical
Trends in General Aviation in the United States, Massachusetts
Institute of Technology International Center for Air Transportation
(August 2012).
\30\ Unlike commercial service aviation, GA operators are not
required to report flight activity to FAA. To have some idea of the
activity, FAA estimates GA flight hours based on estimates derived from
its annual survey of GA operators and the Part 135 Activity Survey. We
reported in 2012 that the GA survey has long suffered from
methodological and conceptual limitations, even with FAA's efforts to
improve it over the years.
\31\ GAO, Aviation Workforce: Current and Future Availability of
Airline Pilots, GAO-14-232 (Washington, D.C.: Feb 28, 2014).
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Airport Capacity Needs and AIP-Eligible Planned Development Costs Have
Mostly Declined
The Projected Number of Future Capacity Constrained Airports Has
Declined
Earlier this year, FAA reported on airport capacity needs through
2030.\32\ The focus of FAA's analysis was not on the broad range of
investments airports make to serve passengers and aircraft, but on the
capacity of airports to operate without significant delay. Therefore,
the primary focus was on airside capacity, especially runway capacity.
To do this, FAA modeled recent and forecasted changes in aviation
activity, current and planned FAA investments in air-traffic-control
modernization, and airport investments in infrastructure, such as new
runways, to determine which airports are likely to be congested or
capacity constrained in future years.\33\ The FACT3 report is the third
such study FAA has conducted, with previous studies in 2004 and 2007
following a similar methodology. The most recent study found that the
number of capacity-constrained airports expected in the future has
fallen dramatically from the number projected in earlier reports,
referred to as FACT1 and FACT2 (see fig. 4). For example, in 2004, FAA
projected that 41 airports would be capacity constrained by 2020 unless
additional investment occurred. However, in the 2015 report, FAA
projected that 6 airports will be capacity constrained in 2020. FAA
attributed this improvement to changes in aviation activity, investment
in air-traffic-control modernization, and the addition of airport
runways.
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\32\ FAA, FACT3: Airport Capacity Needs in the National Airspace
System, (January 2015).
\33\ Congested airports are defined as having an average delay per
flight of 7 minutes or more and capacity-constrained as having an
average delay per flight of 15 minutes or more delay per flight.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: FAA. GAO-15-498T
Note: FAA has published three reports--FACT 1 (2004), FACT2 (2007),
and FACT3 (2015)--that examined current and future capacity needs
throughout the national airspace system.
As noted above, FAA's most recent capacity report forecasts that 6
airports will need additional investment to improve capacity by 2020, 5
of which are expected to remain capacity constrained even if planned
investments are made (See Table 1). Five of the airports identified in
the FAA analyses--including the 3 in the New York City area--have
experienced capacity constraints since 2004 when FAA first published
its analysis. These 6 airports continue to have among the worst on-time
performance of U.S. airports. In our May 2010 report on air-traffic-
control delays, we identified these same 6 airports plus Chicago O'Hare
as being responsible for 80 percent of all departure delays in the
NAS.\34\ Since 2001, the $8.7-billion Chicago O'Hare modernization
program has helped to increase capacity and reduce congestion there.
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\34\ GAO, National Airspace System: Setting On-Time Performance
Targets at Congested Airports Could Help Focus FAA's Actions, GAO-10-
542, (Washington, D.C.: May 26, 2010).
----------------------------------------------------------------------------------------------------------------
Table 1.--Six Airports Identified by the Federal Aviation Administration as Needing Additional Capacity in 2020
----------------------------------------------------------------------------------------------------------------
No further improvements beyond After planned improvements with
Airport name (location identifier) near-term NextGen midterm NextGen and runways
----------------------------------------------------------------------------------------------------------------
Hartsfield-Jackson Atlanta X X
International (ATL)
----------------------------------------------------------------------------------------------------------------
Newark Liberty International (EWR) X X
----------------------------------------------------------------------------------------------------------------
John F. Kennedy International (JFK) X X
----------------------------------------------------------------------------------------------------------------
LaGuardia (LGA) X X
----------------------------------------------------------------------------------------------------------------
Philadelphia International (PHL) X X
----------------------------------------------------------------------------------------------------------------
San Francisco International (SFO) X
----------------------------------------------------------------------------------------------------------------
Total 6 5
----------------------------------------------------------------------------------------------------------------
Source: FAA FACT3 Report/GAO-15-498T
Note: NextGen is an advanced technology air-traffic management system that FAA anticipates will replace the
current ground-radar-based system.
As we concluded in our April 2013 report, an important factor to
reducing congestion is air-traffic-control modernization. FAA is
collaborating with other Federal agencies and the aviation industry on
the implementation of the Next Generation Air Transportation System
(NextGen), a complex, multi-year, multi-billion dollar, and incremental
process to implement an advanced technology air-traffic management
system that will eventually replace the current ground-radar-based
system. NextGen capabilities are expected to help airports accommodate
the demand for additional capacity in a safe, efficient, and more
environmentally responsible manner. While FAA anticipates that NextGen
improvements will keep airport delays from getting worse than would be
expected without the improvements, the transformation to NextGen will
depend on the ability of airports to handle greater capacity.\35\ For
example, the improved efficiency in runway and airspace use that is
projected to result from some NextGen technologies may require more
capacity in other areas, such as taxiways, terminal gates, or parking
areas for aircraft.
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\35\ GAO, FAA Has Made Some Progress in Midterm Implementation, but
Ongoing Challenges Limit Expected Benefits, GAO-13-264 (Washington,
D.C.: Apr 8, 2013).
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FAA's NextGen Priorities Joint Implementation Plan released in
October 2014 identified two NextGen improvements that FAA asserts would
help increase airport capacity. The Joint Implementation Plan
summarizes the high-level commitments that FAA and the aviation
community collectively agreed to accomplish in the next 3 years and
provides a timeline of capability milestones and locations.\36\ The
first improvement under the plan is to improve airport surface
operations, including the improved data sharing and coordination as
well as surface-metering methods that help efficiently queue airplanes
to better predict hourly departure demand and assigning airlines
departure slots in a queue based on the data. For example, an MIT
report on metering programs at JFK airport in New York found that
metering significantly reduced taxi times, fuel burned, and carbon
emissions.\37\ The second improvement agreed to in the plan is to
increase the use of parallel runway operations. In April 2013, we
concluded that revised standards for using closely spaced parallel
runways and integration of airborne-and surface-traffic management will
be important to ensuring NextGen benefits are realized, since benefits
from the various capabilities are interdependent.\38\
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\36\ The high-priority capabilities also include implementing
performance based navigation procedures and data communication
improvements. The data communications program--referred to as
DataComm--has an approved cost, schedule, and performance baseline with
a longer timeline.
\37\ Alex Nakahara and Tom G. Reynolds, Massachusetts Institute of
Technology Lincoln Laboratory Thomas White, Chris Maccarone, and Ron
Dunsky, PASSUR Aerospace, Stamford, CT. Analysis of a Surface
Congestion Management Technique at New York JFK Airport.
\38\ GAO-13-264.
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The FAA Modernization and Reform Act of 2012 (2012 Act) \39\
included a number of provisions aimed at accelerating NextGen benefits
through the creation of performance-based navigation (PBN) procedures,
such as following precise routes that use the Global Positioning System
that can save airlines and other aircraft operators money through
reduced fuel and flight time. As part of the 2012 Act, FAA was granted
a categorical exclusion from environmental review for PBN procedures in
cases that could demonstrate measurable reductions in fuel consumption,
carbon dioxide emissions, and noise, on a per-flight basis, as compared
to aircraft operations that follow existing procedures.\40\ However,
our April 2013 report found that, according to FAA, potential noise
impacts are measured cumulatively for all flights not on a per-flight
basis. In 2014, FAA sought public comments on how to implement this
exclusion, and according to an FAA official, the agency plans to issue
a notice later this year on how to apply this new categorical
exclusion.\41\
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\39\ Pub. L. No. 112-95 Sec. 213, 126 Stat. 11, 46.
\40\ A Federal action may be categorically excluded--thus exempting
it from further Federal environmental review--if, based on agency
experience, the agency has determined that the proposed action is
within a category of actions that do not individually or cumulatively
have a significant effect on the environment and there are no
extraordinary circumstances in which a normally excluded action may
have a significant environmental effect. See 40 C.F.R. Sec. 1508.4.
\41\ 79 Fed, Reg. 49141 (Aug. 19, 2014).
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Some airports remain capacity constrained despite significant
investment and operational improvements. For example, despite
investments in capacity, operational improvements, and an airspace
redesign for the entire New York metroplex, the three New York area
airports remain capacity constrained.\42\ As we found in July 2008,
these constraints impose a considerable economic burden on the region,
while the delays that emanate from those airports propagate throughout
the NAS.\43\ FAA imposed operating authorizations to take-off or land,
called slot controls, at those airports in the late 1960s to reduce
airport and system delays.\44\ At times when slot controls have been
relaxed or suspended as a result of statutory changes and FAA actions,
delays have ballooned. For example, in 2000, the Wendell H. Ford
Aviation Investment and Reform Act for the 21st Century required the
High Density Rule to be phased out at JFK and LaGuardia by January 1,
2007,\45\ and as a result, airlines scheduled more flights at LaGuardia
than the airport could handle without unreasonable delays. FAA
subsequently issued temporary orders limiting scheduled operations at
LaGuardia, JFK, and Newark, which have been in place since 2007.
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\42\ GAO, FAA Airspace Redesign: An Analysis of the New York/New
Jersey/Philadelphia Project, GAO-08-786 (July 31, 2008).
\43\ GAO-08-786.
\44\ 34 Fed. Reg. 2603 (Feb. 26, 1969).
\45\ Pub. L. No. 106-181, 231(b)(2), 114 Stat. 108 (2000).
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In our 2012 report on slot controls, we found problems with certain
aspects of the slot control rules, including FAA's management of them
at the New York City area airports.\46\ These problems contribute to
not using existing capacity or using it inefficiently at these
airports. This situation may hinder the ability of some new entrant
airlines to obtain slots that they could use to offer new service
destinations and lower fares.\47\ Because opportunities to build new
capacity at these airports are limited, optimizing the available
capacity is paramount. We made six recommendations to FAA and the DOT
to improve the management of the slots to maximize the use of available
capacity at these airports, enhance competition through greater airline
access to slots,\48\ and enhance transparency of slot information. DOT
partly or fully concurred with the recommendations, but has not yet
fully addressed them. On January 8, 2015, DOT proposed new rules to
replace the temporary FAA orders for managing the slots at these
airports and comments are now being submitted to DOT and are currently
due May 8, 2015. The new rules, as proposed, do not provide for
increased capacity at these airports, keeping hourly slot limits at the
same level and introducing a new daily slot limit.\49\
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\46\ GAO, Slot-Controlled Airports: FAA's Rules Could Be Improved
to Enhance Competition and Use of Available Capacity, GAO-12-902,
(Washington, D.C.: Sep 13, 2012).
\47\ GAO-12-902.
\48\ Pub. L. No. 106-181, 231(b)(2), 114 Stat. 108 (2000).
\49\ Slot Management and Transparency for LaGuardia Airport, John
F. Kennedy International Airport, and Newark Liberty International
Airport, 80 Fed. Reg. 1274 (Jan. 8, 2015).
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Estimated AIP-Eligible Development Costs for Next 5 Years Are Lower,
Though
Estimates of Overall Development Costs Have Increased
In the September 2014 NPIAS, FAA estimated that airports have
roughly $33.5 billion in planned development projects for the period
2015 through 2019 that are eligible for Federal support in the form of
AIP grants.\50\ This estimate is roughly 21 percent less than FAA's
previous estimate of $42.5 billion for the period 2013 through 2017
(see fig. 5). FAA reported a decrease in estimated needs for most hub-
airport categories and all types of airport development except projects
to reconstruct or rehabilitate airport facilities, security related
infrastructure projects, and safety projects (see fig. 6). Notably,
according to FAA, planned capacity-related development decreased to
$4.9 billion, a 50-percent decrease. Planned terminal-related
development also saw a major decline, down by 69 percent from the
previous estimate.
---------------------------------------------------------------------------
\50\ National Plan of Integrated Airport Systems for 2015-2019,
FAA, September 2014. AIP and PFC project eligibility standards are
similar; however, some PFC uses (such as debt service) are not eligible
for AIP.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: GAO presentation of FAA data. GAO-15-498T
Note: Dollars expressed in the year of estimate.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: GAO presentation of FAA data. GAO-15-498T
Note: Dollars expressed in the year of estimate. N/A means not
applicable.
The ACI-NA also estimated airports' planned development for the
2015 through 2019 period for projects both eligible and not eligible
for AIP funding. According to ACI-NA, the total estimated planned-
development cost for 2015 through 2019 is $72.5 billion, more than
twice FAA's estimate for just AIP eligible projects.\51\ ACI-NA's
estimate increased 6.2 percent over its prior estimate of $68.7 billion
for the prior 2013-2017 estimating period. According to ACI-NA, the
difference in the respective estimates is attributable to ACI-NA's
including all projects rather than just AIP-eligible projects like the
NPIAS, as well as including projects with identified funding sources,
which the NPIAS excludes. For example, ACI-NA's estimate includes AIP-
ineligible projects such as parking facilities, airport hangars, and
commercial space in large passenger terminal buildings. ACI-NA
attributed more than half of the development costs to the need to
accommodate growth in passenger and cargo activity. ACI-NA estimated
that 36 percent of planned development costs were for terminal
projects. We are currently analyzing FAA and ACI-NA's most recent plan
estimates and will be reporting later this year on the results.
---------------------------------------------------------------------------
\51\ ACI-NA reported $75.7 billion over 5 years, or $15.1 billion
per year but that included an inflation adjustment.
---------------------------------------------------------------------------
Federal Support for Airport Development Has Decreased, While Debt
Levels May Leave Little Room for New Development at Some
Airports
Federal Funding for Airport Development Has Declined in Recent Years
In Fiscal Year 2015, Congress made $3.35 billion available in
appropriations acts for AIP funding, a reduction from the annual
appropriations of $3.52 billion for Fiscal Years 2007 through 2011.\52\
The President's 2016 budget proposal calls for a reduction in annual
AIP funding to $2.9 billion in conjunction with an increase in the PFC
cap. As we testified in June 2014, if amounts made available in
appropriations acts for AIP fall below the $3.2 billion level
established in the Wendell H. Ford Aviation Investment and Reform Act
for the 21st Century of 2000 \53\ and no adjustments are made, under
the 2000 Act the amount of AIP entitlement grants would be reduced, but
more AIP discretionary grants could be made as a result. The larger
amount of AIP funding that would go to discretionary grants would give
FAA greater decision-making power over the development projects that
receive funding.
---------------------------------------------------------------------------
\52\ Congress sets an amount FAA can obligate during a Fiscal Year
in appropriations acts. For Fiscal Year 2009, in addition to the amount
made available of $3.5 billion, AIP received appropriation of $1.1
billion under the American Recovery and Reinvestment Act of 2009 (Pub.
L. No. 111-5, 123 Stat. 115, 205 (2009). The amount made available for
each Fiscal Year includes amounts for AIP grants to airports as well as
for other components of the AIP program. For example, of the $3.515
billion made available for the AIP program in Fiscal Year 2010, $3.4
billion was for AIP grants, $93.4 million was for administrative
expenses of the FAA's Office of Airports, $22.5 million was for the
Airport Technology Research Program, $15 million was for the Airport
Cooperative Research Program, and $6 million was used for the Small
Community Air Service Development Program.
\53\ 49 U.S.C. Sec. 47114.
---------------------------------------------------------------------------
Previous proposals have considered changing how GA airports are
allocated their share of AIP funds, which represented approximately
one-quarter of total AIP funds in Fiscal Year 2014. For example, in
2007, the Administration's FAA reauthorization proposal suggested
changing the funding structure for GA airports. Specifically, FAA would
have tiered GA airports' funding based on level of and type of aviation
activities. AIP entitlement funding would then range, based on the
tier, up to $400,000. While this proposal was not adopted, FAA recently
undertook an exercise to classify GA airports based on their activity
levels.\54\ In 2014, FAA reported that 281 airports remained
unclassified because they did not meet the criteria for inclusion in
any of the new categories, thus having no clearly defined Federal
role.\55\ This figure included 227 publicly owned airports with few or
no based aircraft. According to the most recent NPIAS report, many of
these 227 airports have received AIP funding in the past and may be
considered for future funding if and when their activity levels meet
FAA's criteria for inclusion.
---------------------------------------------------------------------------
\54\ In a 2012 report, FAA categorized GA airports as National
(84), Regional (467), Local (1,236), and Basic (668). In addition,
another 497 GA airports were unclassified. Federal Aviation
Administration, General Aviation Airports: A National Asset (ASSET 1),
May 2012.
\55\ FAA, ASSET 2: In-Depth Review of 497 Unclassified Airports,
March 2014.
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We also found that the Federal PFC cap of $4.50 has not increased
since 2000 and thus has not kept pace with inflation; accordingly,
total collections have remained flat since 2007.\56\ PFC collections
peaked in 2006 at over $2.93 billion and in 2014 totaled $2.78 billion.
Approximately 90 percent of PFC collections go to large-and medium-hub
airports, but large-and medium-hub airports collecting PFCs must return
a portion of their AIP entitlement grants, which are then redistributed
to smaller airports through the AIP.\57\ As previously noted, 68
percent of PFCs have been used to pay for landside development
(terminals) and interest charges on debt. In addition, many airports'
future PFC collections are already committed to pay off debt for past
projects, leaving little room for new development. For example, at
least 50 airports have leveraged their PFCs through 2030 or later,
according to FAA data.
---------------------------------------------------------------------------
\56\ GAO, Commercial Aviation: Raising Passenger Facility Charges
Would Increase Airport Funding, but Other Effects Less Certain, GAO-15-
107 (Dec 11, 2014).
\57\ Medium-and large-hub airports return 50 percent of their AIP
entitlement funds if their PFC level is $3.00 or less and 75 percent of
their entitlement if their PFC level is above $3.00 (49 U.S C
Sec. 47114(f)). FAA's Small Airport fund--for use by small-hubs,
nonhubs, general aviation, and reliever airports--receives 87.5 percent
of the total returned amount, and the other 12.5 percent goes toward
AIP discretionary funds (49 U.S.C Sec. 47116).
---------------------------------------------------------------------------
The President's Fiscal Year 2016 budget proposal and airports have
called for increasing the PFC cap to $8--which is intended to account
for inflation since 2000, when the maximum PFC cap was last raised--and
eliminate AIP entitlements for large-hub airports.\58\ Earlier this
year, we reported on the effects of increasing PFCs on airport revenues
and passenger demand.\59\ Specifically, we found that increasing the
PFC cap would significantly increase PFC collections available to
airports under the three scenarios we modeled but could also marginally
slow passenger growth and therefore the growth in revenues to the AATF.
We modeled the potential economic effects of increased PFC caps for
Fiscal Years 2016 through 2024 as shown in figure 7 below. Under all
three scenarios, trust fund revenues, which totaled $12.9 billion in
2013 and fund FAA activities, would likely continue to grow overall
based on current projections of passenger growth; however, the modeled
cap increases could reduce the growth in total AATF revenues by roughly
1 percent because of reduced passenger demand if airlines pass the full
amount of the PFC increase along to consumers in the form of increased
ticket prices.
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\58\ Airport trade associations, the ACI-NA and the American
Association of Airport Executives, have made prior proposals to raise
the PFC cap to $8.50 with periodic adjustments for inflation.
\59\ GAO, Commercial Aviation: Raising Passenger Facility Charges
Would Increase Airport Funding, but Other Effects Less Certain, GAO-15-
107, (Washington, D.C.: Dec 11, 2014).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: GAO analysis of DOT data. GAO-15-498T
Note: Model assumptions are (1) an elasticity rate of -0.8; (2)
airlines would pass the total fee increase to passengers through higher
ticket prices; and (3) airports that currently impose a PFC would raise
it to the maximum allowed in the first year. ACI-NA/AAAEE did not
specify which inflation index it used in its proposal; therefore, we
used the CPI as it is the Federal inflation-index standard.
As with any modeling exercise, these projected effects depend on
key assumptions regarding consumers' sensitivity to a fare increase
caused by an increase in the PFC, whether airlines would pass on the
full increase to consumers, and the rate at which airports would adopt
the increased PFC cap. First, there is uncertainty associated with
demand analysis, because the estimated reductions in air travel are
highly dependent on the assumptions about consumers' sensitivities to
changes in price. Second, we assumed that the entire PFC increase would
be fully passed on to consumers and not absorbed by the airlines by
adjusting their base fares downward. Airline statements and experts
with whom we spoke largely supported our assumption that airlines would
attempt to pass the PFC increase on to consumers. Finally, we assumed
that airports that currently impose a PFC would raise it to the maximum
allowed amount in the first year. While all airports likely would not
immediately raise their PFC level in the first year, based on near
universal adoption of the current maximum by nearly all of the largest
airports, it is not unrealistic to expect that most airports would be
at the maximum by 2024.
Airlines have historically opposed PFC increases because they
assert that higher ticket prices could reduce demand for air travel
and, therefore, airline revenues. While we have reported that a PFC
increase could marginally slow passenger demand, another issue in this
debate is how increasing PFCs could affect the airlines' ability to
influence airport investment decisions.\60\ PFCs were introduced in
1991, in part, to give airports greater independence from airlines over
investment decisions. While airports must notify and consult with the
airlines on how they spend PFCs, as long as FAA approves, airlines
cannot block these decisions. Airlines can choose to serve other
airports, however, so airports have an incentive to listen to airline
concerns. However, all else being equal, an increase in PFC collections
would provide airports with more influence over airport infrastructure
decisions while a lower PFC would make airports more reliant on
airlines to help fund local capital-funding decisions.
---------------------------------------------------------------------------
\60\ GAO-15-107.
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Congress directed GAO to study alternative methods to collect PFCs
as part of the last Reauthorization.\61\ As part of our work for this
report, we interviewed officials from airports and airlines. Officials
from some of these airports and airlines said they would consider
removing airport fees from the airline ticket altogether and allowing
airports to collect fees themselves. We examined alternative collection
mechanisms, such as airport kiosks and internet-enabled devices such as
smartphones that could be used to collect PFCs separate from the
ticket. We determined that none of these alternatives were better than
the current method. Specifically, we determined that each of the
alternatives negatively impacted the passenger experience and the
transparency of fees relative to the current method.\62\ While airports
have generally supported the current collection method, some told us
they might consider using an alternative method if it allowed them to
remove the PFC cap.
---------------------------------------------------------------------------
\61\ Pub. L. No. 112-95, Sec. 112, 126 Stat. 11, 18 (2012).
\62\ GAO, Transportation: Alternative Methods for Collecting
Passenger Facility Charges, GAO-13-262R, (Washington, D.C.: Feb 14,
2013).
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Airports Rely on a Variety of Local Revenues, Which Have Increased
since 2004
We also found in 2014 that to help fund airport development,
commercial service airports increasingly rely on a variety of locally
generated revenues.\63\ Airports receive nearly as much non-aviation
revenue as revenue from passengers and aircrafts. According to FAA, in
2014, at commercial service airports for which they have data, aviation
revenues totaled $5.2 billion, while nonaviation revenues were just
over $5 billion.\64\ According to ACI-NA, non-aviation revenue has
grown faster than passenger growth since 2004, over 4 percent on
average for non-aviation revenue versus 1.5 percent average growth in
passenger boardings over the same period. Further, some airports have
developed unique commercial activities with stakeholders from local
jurisdictions and the private sector to help develop airport properties
into retail, business, and leisure destinations.\65\ Some examples
include:
---------------------------------------------------------------------------
\63\ GAO-14-658T.
\64\ FAA, CATS financial reports of 442 commercial service
airports.
\65\ Airport-centric development--development at and around
airports, in part, to generate non-aviation revenue and stimulate
regional development--has taken place at airports around the world.
This form of development has also been referred to as aerotropolis or
airport-city. For more information on factors that may support this
form of development, see: GAO, National Airspace System: Airport-
Centric Development, GAO-13-261 (Washington, D.C.: March 28, 2013).
Non-aviation development on airport property: Airports have
turned to an increasing range of unique developments on airport
property, including high-end commercial retail and leisure
activities, hotels and business centers, and medical facilities
for non-aviation revenues.\66\ For example, airports in Denver,
Miami, and Indianapolis have built cold storage facilities on
airport property in an effort to generate revenue by leasing
cold storage space to freight forwarders and businesses that
transport low-volume, high-valued goods, including
pharmaceuticals, produce, and other time-sensitive or
perishable items.
---------------------------------------------------------------------------
\66\ GAO-13-261.
Public-private partnerships: Airports can fund airport
improvements with private sector participation. Public-private
partnerships, involving airports and developers, have been used
to finance airport development projects without increasing the
amount of debt already incurred by airports. For example, the
Port Authority of New York and New Jersey has recently received
responses for its request for proposals for the private sector
to demolish old terminal buildings and construct, partially
finance, operate, and maintain a new Central Terminal Building
---------------------------------------------------------------------------
for LaGuardia Airport in New York City.
Privatization: FAA's Airport Privatization Pilot Program
(APPP), which was established in 1997 to reduce barriers to
airport privatization that we identified in 1996, has generated
limited interest from the public and private sectors.\67\ As we
reported in November 2014, 10 airports have applied to be part
of the pilot program and one airport--San Juan Luis Munoz Marin
International Airport in Puerto Rico--has been privatized (see
fig. 8).\68\ In our report, we noted that several factors
reduce interest in the APPP--such as higher financing costs for
privatized airports, the lack of state and local property tax
exemptions, and the length of time to complete a privatization
under the program. Public sector airport owners have also found
ways to gain some of the potential benefits of privatization
without full privatization, such as entering airport management
contracts and joint development agreements for managing and
building an airport terminal.
---------------------------------------------------------------------------
\67\ GAO/RCED-97-3.See 49 U.S.C. Sec. 47134.
\68\ GAO, Airport Privatization: Limited Interest despite FAA's
Pilot Program, GAO-15-42, (Washington, D.C.: Nov 19, 2014). Stewart
Airport in New York was privatized in 1999 under a 99-year lease to a
private sector operator, but in 2007 the lease was assumed by the Port
Authority of New York and New Jersey after the private sector operator
ceased to operate the airport.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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Source: GAO analysis of FAA data. GAO-15-498T
In conclusion, last year commemorated one century since the first
commercial airline flight,\69\ and in that relatively short time span
commercial aviation has grown at an amazing pace to become an
ubiquitous and mature industry in the United States. While commercial
aviation still has many exciting growth prospects for its second
century, it also faces many challenges--among them how to ensure that
the aviation system can accommodate millions of flights and hundreds of
millions of passengers every year in the midst of shifting aviation
activity and constrained Federal funding. Despite recent declines in
airport operations, it remains important for airports to be maintained
as well as upgraded to maintain safety and accommodate future growth.
Declines in airport operations have reduced demands on AIP, but
rebounded passenger activity could continue to put pressure on PFCs to
finance terminal and other projects. Developing airports will require
the combined resources of federal, state, and local governments, as
well as private companies' capital and expertise. Effectively
supporting this development involves focusing Federal resources on
FAA's key priorities of maintaining the world's safest aviation system
and providing adequate system capacity, while allowing sufficient
flexibility for local airport sponsors to maximize local investment and
revenue opportunities. In deciding the best course for future Federal
investment in our national airport system, Congress is faced with
weighing the interests of all aviation stakeholders, including
airports, airlines, other airport users, and most importantly
passengers, to help ensure a safe and vibrant aviation system.
---------------------------------------------------------------------------
\69\ On Jan. 1, 1914, the St. Petersburg-Tampa Airboat Line became
the world's first scheduled passenger airline service, operating
between St. Petersburg and Tampa, Fla. It was a short-lived endeavor--
only 3 months.
---------------------------------------------------------------------------
Madam Chair Ayotte, Ranking Member Cantwell, and Members of the
Subcommittee, this completes my prepared statement. I would be pleased
to respond to any questions that you may have at this time.
Senator Ayotte. Thank you, Dr. Dillingham.
I would--now would like to call Ms. Sharon Pinkerton,
Senior Vice President for Legislative and Regulatory Affairs at
Airlines for America.
Thank you, Ms. Pinkerton.
STATEMENT OF SHARON PINKERTON, SENIOR VICE
PRESIDENT, LEGISLATIVE AND REGULATORY
AFFAIRS, AIRLINES FOR AMERICA
Ms. Pinkerton. Thank you for the opportunity to participate
in the Committee's examination of airport financing.
If you take one thing away from today's hearing, we want
you to know that we support airport infrastructure investments.
These investments are critical to ensuring that our aviation
system is developed in a way that meets the needs of
passengers, encourages travel and tourism, and helps support
the incredible benefits that the aviation industry delivers
every day across our economy.
One important benefit is the service we provide to small,
medium, and large communities. As airlines have recovered from
the bankruptcies of the past decade and become more financially
stable, we've reinvested profits back into adding service,
hiring back some of the 160,000 employees we had to lay off,
buying $100 billion worth of new environmentally friendly and
customer friendly aircraft; and, importantly for this hearing,
we're investing money into airports. All of these investments
are to improve the customer experience.
So, the issue here today is not whether we should invest--
because we agree there's a need--it's really about how those
investments are financed. And, given the plentiful and robust
variety of funding sources for airport financing, raising a
passenger tax is not the best way to move forward. After all,
all airports have investment-grade credit ratings giving them
easy access to cheap financing, which is the number-one way
airport projects have always been funded. In fact, airlines and
airports have a history of partnering together on significant
improvements. Since 2008, over $70 billion of capital projects
have been completed, are underway, or have been approved at the
Nation's largest 30 airports alone, and development is robust
at small airports, as well.
This investment has enabled new runways and terminals,
better facilities and more amenities. Some of the examples you
might be familiar with: multimillion-dollar terminal
renovations at Sioux Falls, all done without a PFC; Sea-Tac,
you're going to hear more about incredible investment there,
but also in smaller communities in Washington; Wichita, Kansas,
is expecting a new $160 million terminal that's slated to open
in May 2015, along with a $40 million parking and rental car
facility; and, of course, Reno--in 2013, they unveiled a $27
million gateway project which added 11,000 square feet to their
terminal. And all of this investment, the $70 billion, occurred
with existing financing resources.
The fact is that airports across our country are in
incredibly strong financial condition and already receive
billions from passengers and the government, alike. In 2013,
airports collected a record $24.5 billion. That's record
amounts of money from airlines, $10 billion in landing fees and
rents, record amounts in what I like to call ``airport
ancillaries''; $8.2 billion in concessions; $2.8 billion from
PFCs; $3.4 billion from AIP. The point is, airports have
several tools in the toolbox to finance airports, and the PFC
is only one of those tools.
In addition, U.S. airports have more than $11.4 billion in
cash in the bank. I do not know many businesses, much less
families, that have a year's worth of liquidity in the bank.
However, if airports were to need more money, they can easily
access the bond market. Airports, frankly, are flush with cash
and have numerous available pools of funding, which means
projects can easily be financed without raising taxes.
There's one more aspect of the aviation system's resources
that's notable. While you all are trying to fix a bankrupt
Highway Trust Fund, the Aviation Trust Fund is flush with cash.
It has a $6 billion unobligated balance, its highest level
since 2001.
So, thank you for allowing us to testify on behalf of our
member companies and our customers. I'll conclude like I began.
We support airport infrastructure. We're committed to it. And
we believe it can be done without increasing taxes on
passengers. We're putting our money on the table so that our
passengers do not have to.
Thank you.
[The prepared statement of Ms. Pinkerton follows:]
Prepared Statement of Sharon Pinkerton, Senior Vice President,
Legislative and Regulatory Affairs, Airlines For America
Thank you for the opportunity to participate in the Committee's
examination of airport financing as part of your deliberations on the
next Federal Aviation Administration (FAA) reauthorization. I'm not
sure if it was planned this way, but it is very apropos we are having
this discussion one week after tax day.
If you take one thing away from this hearing, we want you to know
that airlines strongly support necessary investments in airports across
the country. These investments are critical in ensuring that our
aviation system is developed in a way that supports the incredible
economic benefits the aviation industry delivers.
In fact, airlines and airports have a history of partnering on
significant improvements. Since 2008, over $70 billion of capital
projects have been completed, are underway, or have been approved at
the Nation's 30 largest airports alone, and development is robust at
smaller airports across the country as well. This funding enabled new
runways and terminals, better facilities and more amenities for
passengers. All of this investment has occurred without any new taxes.
Given the current abundance of resources in the aviation system, it
takes a bit of chutzpah for our airport partners to advocate for a
historic tax hike on the traveling public through a nearly 90 percent
increase in the PFC airport tax. It simply is not necessary since
significant airline investments combined with the existing streams of
resources and funding provide airports with the funds for improvement
projects needed today and in the future.
The fact is that airports across our country are in a very strong
financial position and already receive billions of dollars from
passengers and the government alike. In 2013, U.S. airports collected a
record $24.5 billion in revenue--a 52 percent increase on a per
passenger basis from 2000--including $10 billion in airline rents and
fees, $2.8 billion from existing PFCs, $8.2 billion in non-airline
revenues and $3.4 billion from the FAA's Airport Improvement Program
(AIP). The data clearly shows that projects can easily be done without
raising taxes on passengers.
According to their own financial reports filed with the FAA, U.S.
airports have more than $11.4 billion of unrestricted cash and
investments on hand, or approximately 357 days of liquidity. I am not
aware of many businesses, much less families that have the luxury of
having a year's worth of operating expenses saved up. If airports need
more money, they can easily utilize the bond market to raise revenue.
With investment-grade credit ratings, airports can obtain inexpensive
financing, which is a much better alternative than Congress increasing
taxes on passengers.
There's another aspect of the aviation system's resources that's
notable. While the Highway Trust Fund is bankrupt and needs to be
replenished, the Aviation Trust Fund is at its highest level since
2001, with an uncommitted balance of $6 billion, leaving the AIP
program stable and secure to provide ample funding for airport
projects. In 2014 PFC revenue reached $2.8 billion, which is close to
the all-time high set in 2006. This is at a time when the current
activity levels at U.S. airports still remain below the peak set in
2007--airline operations and passengers for the most recent 12 months
are down 16 percent and 2 percent respectively as compared to 2007
levels. Again, projects can easily be done without raising taxes on
passengers.
We would also like the Committee to step back and take a look at
the big picture. Too often, the airport community focuses the
discussion on their sole aspiration of increasing PFCs without looking
at the overall taxation level of U.S. airlines and their passengers.
While it is easy to get caught in that vacuum, it is our hope that you
recognize air travelers are already overburdened with government-
imposed taxes and fees. In fact, the U.S. aviation industry and its
customers already pay $20 billion in 17 unique taxes and fees imposed
by the Federal government. Federal taxes and fees account for $63 on a
typical domestic round-trip ticket of $300--approximately 21 percent of
the total cost going to taxes and fees--putting air travel in the same
tax bracket as ``so-called'' sin products, which are taxed to
discourage use.
Make no mistake; a PFC increase would be a system-wide and
permanent tax increase with real repercussions. Even a $1 increase in
the PFC would cost passengers an additional $700 million annually;
increasing the PFC to $8 or higher would cost in excess of $2.5 billion
annually. With airport funding at historic levels, we simply should not
be increasing this already large tax burden.
With that said, we do not want you to get the impression that we do
not support our airport friends in other ways. While airlines are
sensitive about the implications of bond funding because we pay the
rents and fees airports use to back the bonds, we intentionally prefer
this payment mechanism because, while an expense, it avoids the harmful
effect on demand that additional passenger taxes produce.
Additionally, utilizing the bond market brings discipline to
airport development scoping and encourages the pursuit of projects that
are economically sustainable, thereby discouraging unnecessary and
inefficient projects. To that end, we also encourage Congress make
permanent the tax-exempt status of airport bonds. This is something I
think both airlines and airports could agree on and the outcome is
clearly in the public interest, while another airline passenger tax
increase is not.
Thank you for allowing us to testify on behalf of our member
companies and our customers. I will conclude like I began, airlines
strongly support necessary investments in airports across the country.
We are committed to airport infrastructure projects and believe they
can easily be done without increasing taxes. Despite the hyperbole, the
facts clearly show there is not a funding crisis at our Nation's
airports.
Senator Ayotte. Thank you, Ms. Pinkerton.
And we'll now hear from Mr. Todd Hauptli, President and CEO
of American Association of Airport Executives.
Mr. Hauptli.
STATEMENT OF TODD HAUPTLI, PRESIDENT AND CEO, AMERICAN
ASSOCIATION OF AIRPORT EXECUTIVES
Mr. Hauptli. Thank you, Senator. Thank you, members of the
Subcommittee for being here, for holding this hearing, and for
your service to the Nation.
I have, in my written remarks, covered many of the areas
that Senator Ayotte has mentioned in her opening statement and
would be pleased to talk about any of those in the question
period. Let me make three points this morning:
The first point is that we are systematically and
chronically under-investing in infrastructure in this country.
And it is not just airport infrastructure or aviation
infrastructure or, for that matter, transportation
infrastructure. We are under-investing in water infrastructure,
power infrastructure, and communications infrastructure. And
increasingly this lack of investment in infrastructure across
the board is having a negative impact on our domestic and our
international competitiveness. And, expressing at least my
opinion, we need to deal with this for ourselves, for the next
generation, and for generations that follow.
Point number two: in this economic, fiscal, and political
environment that we find ourselves in today, we don't believe
that the Federal Government, and the Federal Government alone,
can solve this problem.
I'll use airport infrastructure as an example. The AIP
program that was mentioned earlier is the principal
construction program for airports. The FAA--not airports, but
the FAA--says that there are nearly $7 billion a year in
eligible projects. Yet you, in the United States Congress, fund
that program a little over $3 billion a year. You could
literally double the Federal investment in airport
infrastructure and still be in no danger of overinvesting. And
does anyone in this room believe today that a non-defense
discretionary spending program as good as AIP may be is going
to see triple-digit growth or, for that matter, even double-
digit growth in the years ahead? It's for that reason we
believe it's absolutely imperative to modernize the Passenger
Facility Charge Program, last addressed in Congress 15 years
ago.
The PFC has lost, over the years, half of its purchasing
power due to inflation and rising construction costs. We're
talking about giving airports the self-help that they need to
build these projects, because the Federal Government can't do
it alone. Said respectfully, it's time for Congress and the
Federal Government to get out of the way and let airports build
what needs to be built if you can't provide the resources to us
to do that.
Third point: Airports and airlines have been going about
this for the past 25 years. The past quarter of a century we've
fought over PFCs. And it's about money, it's about control, and
it's about perspective. Airlines look at the world in 90-day
increments of time, the next quarterly report. That's
understandable; their job is to maximize shareholder value.
Airports look at the world in a 3, 5, 7, 10, 12, and even 15-
year window of time because that's how long it takes to build
the necessary infrastructure. Airports are stewards in their
community, as all of you are. Airports are trying to provide
best opportunities for competition and enhanced service.
An airline, if it doesn't like what's going on in a
particular community, is unhappy with the yield, can pull out
and leave. And I suspect that a number of you on the Committee
have seen that occur in your states. We believe that our
interest, as local government, aligns with your interest, as
members of the U.S. Senate, in looking out for what is in the
best interest of your community. Push this decision down to the
lowest local unit of government, to the city councils, to the
mayors, to the airport boards. That's where this decision
belongs. And I urge all of you to support an increase and
modernize the Passenger Facility Charge Program.
Thank you, Mr. Chair.
[The prepared statement of Mr. Hauptli follows:]
Prepared Statement of Todd Hauptli, President and CEO, American
Association of Airport Executives
Chair Ayotte, Ranking Member Cantwell, and members of the Senate
Aviation Subcommittee, thank you for inviting me to participate in this
hearing on airport issues and infrastructure financing. It is an honor
for me to be here today.
AAAE is the world's largest professional organization representing
the men and women who manage primary, commercial service, reliever, and
general aviation airports around the country. On behalf of all our
members, I would like to thank each of you for being good partners and
strong advocates for airports in your states.
I am pleased to be here with Mark Reis, the Managing Director of
the Seattle-Tacoma International Airport and Immediate Past Chair of
Airports Council International-North America (ACI-NA). Mark is an
exceptionally talented and well-respected leader in the aviation
industry. It's been a pleasure to work with him and ACI-NA President
and CEO Kevin Burke.
AAAE and ACI-NA have put together a number of detailed policy
proposals for consideration as part of reauthorization for the Federal
Aviation Administration (FAA) that we have shared with your staff.
Today, I would like to discuss some of our key proposals including
those pertaining to small community air service and highlight
recommendations that would help airports of all sizes build critical
infrastructure during the current fiscal climate.
By any measure, airports around the country need additional
resources to upgrade aging facilities, accommodate rising demand, and
to keep pace with evolving safety and security standards.
Unfortunately, infrastructure investment in the United States is still
behind other countries in the world. According to the latest Global
Competitiveness report, the United States has the 12th best
infrastructure in the world and the ninth best aviation infrastructure.
I hope all of us would agree that ninth place simply isn't good enough.
At a time when there is enormous pressure to reduce Federal
spending, modernizing the local Passenger Facility Charge (PFC) is the
best way to deliver additional resource to airports and make our
infrastructure more competitive. That's why AAAE, ACI-NA, and a group
of large hub airports that participate in the Gateway Airports Council
are urging you to update the Federal cap on PFCs from $4.50 to $8.50
and allow it to be periodically adjusted for inflation.
Last adjusted in 2000, a modernized PFC would help airports of all
sizes. In fact, some of the most compelling calls for self-help come
from small airports in communities like Manchester, New Hampshire;
Sioux Falls, South Dakota; and Spokane, Washington. The following
includes a more detailed discussion of PFCs as well as other financing
recommendations.
Increasing Demand and Congestion; Airport Capital Needs
Increasing Demand: Airports, airlines, and Federal agencies are all
expecting passenger levels to increase in the short-and long-term.
Airlines for America (A4A) is predicting that air travel this spring
will reach 2.2 million passengers per day and rise to the ``highest
level in seven years.'' The airlines estimate that almost 135 million
passengers will fly on U.S. carriers between March 1 and April 30--an
increase of 6.6 million passengers from same two-month period in 2013.
The FAA also anticipates that passenger levels will continue to
climb. The agency estimates that U.S. commercial air carrier
enplanements will increase from less than 740 million in 2013 to almost
776 million this year--an increase of 36 million passengers. That's
more than the combined populations of Florida, Washington, New
Hampshire, and South Dakota.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The FAA's latest Aerospace Forecast also indicates that
enplanements are expected to increase to more than 800 million
passengers by 2017. The agency anticipates that passenger enplanements
will reach the one billion mark by 2029--just 14 years from now. By
2034, passenger levels are expected to exceed 1.1 billion.
Another 320 million passengers is the equivalent of adding the
entire U.S. population to our already constrained aviation system. That
may seem like a long time into the future, and the FAA's estimates may
change some. But planning, designing, and building runways and other
capacity-enhancing projects can take an enormous amount of time.
Airports simply don't have the luxury of being able to flip a
switch and instantly complete a new runway or some other large capacity
project. The Department of Transportation (DOT) ``Beyond Traffic''
report points out that ``building a new airport runway can easily take
more than a decade. . . .''
Airports need to begin preparing now for increasing passengers and
start planning and financing time-consuming infrastructure projects.
And it will be increasingly difficult for airports to fund those
projects if PFCs remain artificially capped at $4.50 as they have been
since 2000.
Increasing Flight Delays, Cancellations, and Complaints: Without
adequate airport infrastructure investment, increasing demand will
likely translate into increasing congestion, more flight delays, more
cancellations, and more customer complaints.
Airline flight delays and cancellations have been creeping back up
in the past few years. According to the Bureau of Transportation
Statistics (BTS), more than 21.3 percent of arrivals were delayed in
2014--up from 16.7 percent in 2012. Travel over the busy holidays is
also becoming more challenging. Twenty-two percent of flights were
delayed over the Thanksgiving holiday last year--the highest percentage
since 2007.
The number of cancelled flights has been rising, too. BTS indicates
that U.S. carriers cancelled almost 127,000 flights last year--the most
since 2008.
With increasing flight delays and cancellations, it's no wonder
that passenger complaints are escalating. According to DOT Air Travel
Consumer Reports, the agency received almost 5,000 complaints about
flight delays, cancellations, and misconnections last year. That number
is up about 25 percent from 2013.
Airport Capital Needs: With increasing passenger levels, airports
are also facing significant capital needs. As part of its 2015 National
Plan of Integrated Airports System (NPIAS), the FAA estimated that
there are $33.5 billion in AIP-eligible projects between 2015 and 2019
or approximately $6.7 billion per year. The annual average is twice the
current funding level.
The FAA's NPIAS provides a snapshot of certain airport capital
needs. But it is important to note that the FAA estimate only reflects
those projects that are eligible for Federal funds. The FAA report does
not include other necessary but ineligible infrastructure projects such
as gates and certain terminal projects that airports fund with PFCs and
other revenue sources.
Like the FAA, ACI-NA has a long track record of evaluating airport
capital needs. The association's latest Capital Needs Survey estimates
that airports will have $75.7 billion in capital needs between 2015 and
2019 or more than $15.1 billion annually for AIP-eligible and other
necessary projects. This is more than twice the $6.2 billion that
airports expect to receive in AIP funds and PFC revenue this year.
Recommendations for Helping Airports Finance Critical Infrastructure
Projects
Airports rely on a combination of PFCs, AIP funds, bonds, state and
local grants, and other airport revenue to finance infrastructure
projects at their facilities. But it is important to note that unlike
AIP and PFCs, bonds are not a revenue source--they are essentially
loans that airports need to pay back. As one airport executive
described it:
``Bonding is a stop-gap fix for a lack of funding needed for
immediate projects. It is a loan, plain and simple, and is not
a revenue source. Any use of bonding is simply kicking the can
down the road for future passengers to pay.''
In terms of additional borrowing, many airports are unable to issue
new bonds because they have reached the limits of their debt capacity.
Other small airports are unable to go to the bond market to finance
infrastructure projects. In fact, FAA financial reports show that
airports had $84 billion in debt at the end of 2013.
Ensuring that airports collectively have adequate funding to build
critical infrastructure projects will require Congressional action on
PFCs, AIP, and the tax-treatment of airport bonds. Needless to say,
flat or reduced AIP funding will only increase pressure on airports to
secure funds from other revenue sources like PFCs.
Modernize Federal Cap on Local PFCs: AAAE, ACI-NA, and the Gateway
Airports Council--a group of large hub airports--are united behind a
proposal to update the Federal cap on local PFCs from $4.50 to $8.50
and to allow for the periodic adjustment of the cap for inflation.
Modernizing the PFC cap continues to be our top priority for the next
FAA reauthorization bill.
For 25 years, the PFC program has helped airports increase safety,
security, and capacity; mitigate the impact of aircraft noise; and
increase competition. Airports use money generated from PFCs for a
variety of purposes including building new runways, taxiways, and
terminals.
PFCs are local fees that must be approved locally, imposed locally,
and used locally for projects approved by DOT in consultation with the
airlines. There is an inherent level of accountability locally that
ensures any revenues raised through the PFC are used for critical
locally-supported projects.
A PFC adjustment is long overdue. The cap has not been adjusted
since 2000 -15 years ago. Considering the ongoing pressure to reduce
Federal spending, it is now more important than ever that Congress
raise the Federal cap on local PFCs. Modernizing the cap would allow
airports to finance a greater share of critical infrastructure projects
with their own local revenues.
The $253 million cut in AIP funding that airports sustained in 2013
as part of the sequestration process underscores the need for Congress
to update the Federal cap on local PFCs. Modernizing the PFC cap would
provide airports with the self-help they need to finance critical
infrastructure projects without relying as much on scarce Federal
funds.
PFCs Help Increase Capacity; Enhance Competition: Airports use PFC
revenue to build infrastructure projects that increase capacity, reduce
delays, and enhance competition among carriers.
Port Authority of New York and New Jersey: The Port Authority of
New York and New Jersey, for example, is using PFCs and other sources
of revenue to reconstruct runways at John F. Kennedy International
Airport. The improved runways will help increase capacity, reduce
delays, and enhance safety at one of the Nation's busiest airports.
The Port Authority is both widening its runways to accommodate
larger aircraft and raising them by a foot for flood mitigation. In the
past five years, the Port Authority has used $470 million in PFC
revenue for runway widening and raising, $162 million for Runway Safety
Areas, and $115 million for delay reduction. Again, this $750 million
in capacity-and safety-related projects simply wouldn't be possible
without local user fees.
Meanwhile, the Port Authority is moving forward with plans to
replace the aging Central Terminal at LaGuardia Airport. Airport
terminals--like runways and taxiways--increase capacity. Without a new
terminal, LaGuardia simply wouldn't be able to efficiently accommodate
four million additional passengers annually.
Almost half of the funding for the more than $3 billion Central
Terminal project will come from PFCs. Raising the PFC cap to $8.50 and
indexing it for inflation would allow airports like those in New York
and New Jersey to invest in additional capacity-and safety-related
projects on the airside and the landside.
Tampa International Airport: PFCs can help increase airline
competition, and that's exactly what happened at the Tampa
International Airport. The airport's international terminal in 2011 was
at capacity and needed to be expanded. The airport embarked on a $27
million terminal project that would not have been possible without $8
million in PFC revenue.
As a result of the PFC investment, the airport was able to bring in
three new airlines: Edelweiss Airlines, Copa Airlines, and Lufthansa.
The return on investment is substantial. The airport used $8 million in
PFCs, and airport officials estimate that the new service will have an
annual economic impact on the region of at least $120 million.
PFCs Help Small Airports: Although large airports obviously benefit
from PFCs, the local user fee is an important source of income for
smaller commercial service airports, too. Small airports rely on PFCs
to augment their AIP funding and to help pay the higher local matching
requirement for AIP funds.
The last FAA bill reduced the Federal share for projects at small
airports from 95 percent to 90 percent. Doubling the local match
requirement had an enormous financial impact on small airports.
Adjusting the PFC cap to $8.50 would help small airports generate more
local revenue to meet their higher local requirements.
Manchester Regional Airport: The Manchester-Boston Regional
Airport, a small hub airport in New Hampshire, is pressing for a
modernized PFC. Airport Director and AAAE First Past Chair Mark Brewer,
A.A.E, said that the airport could use the increased PFC revenue to
make additional payments on its existing debt service on PFC projects--
a proposal that would help airlines operating at the New Hampshire
airport.
``By using PFC revenue for that purpose we could reduce the debt
load on airline rates and charges,'' Brewer told lawmakers when he
appeared before the House Aviation Subcommittee in late 2013. ``This is
yet another example of where airports and airlines would truly benefit
from a PFC increase.''
Spokane International Airport: The Spokane International Airport
has used PFCs to fund almost $120 million in safety, efficiency, and
capacity improvements over the years. Larry Krauter, A.A.E., the Chief
Executive Officer at the airport, says that some of those projects may
not have been completed without revenue from the local user fee. Other
projects may have taken longer to implement, cost more to complete, and
required the airport to issue more debt.
The Spokane airport plans to use additional PFC revenue to finance
a number of important projects such as airfield perimeter security
enhancements and security access control improvements. A higher PFC cap
would allow the airport to fund a needed terminal renovation and
expansion project on a pay-as-you-go basis while simultaneously
reducing or eliminating the need to issue more debt, which again would
increase cost and time.
The Spokane airport values it relationships with its airline
partners, and revenue from airline rates and charges helps pay for
airport operating expenses. But like many small-and medium-sized
airports around the country, airport officials are not expecting the
airlines to make substantial investments in their capital projects--
especially for projects that enhance competition.
``Historically, the airlines have spent very little on improvements
at Spokane International Airport and do not have any intentions of
spending significant amounts of capital funds to improve the passenger
experience at SIA or to address other deficiencies,'' Krauter said.
``That is why the PFC is important as well as why we support its
modernization to restore the lost buying power that has eroded since it
was last adjusted in 2000.''
Sioux Falls Regional Airport: Because of the increasing pressure on
AIP funding, some smaller airports that haven't collected PFCs in the
past are turning to the local fee for help. Airport officials at the
Sioux Falls Regional Airport recently explained why the small hub
airport in South Dakota plans to use PFCs to finance its infrastructure
projects.
``Due to the shrinking Airport Improvement Program. . .our ability
to fund major projects is in jeopardy. We actually have two projects
planned for our primary runway with costs in the multiple tens of
millions,'' airport officials explained. ``At this time, it appears
that AIP will only cover a portion of that need. There is simply not
enough discretionary funding to support the projects. The result is
that we are forced to pursue PFC funding.''
Other small commercial service and general aviation airports that
don't collect PFCs also benefit from the PFC program. That's because
large and medium hub airports that collect PFCs turn back up to 75
percent of their AIP entitlements, and a large percentage of those
withheld funds are distributed to small airports through the Small
Airport Fund. Small airports received roughly $500 million from the
fund in FY15.
Construction Cost Inflation: Airport efforts to prepare for
increasing passenger levels have been hampered by rising construction
costs. According to the Means Construction Cost Indexes, the average
construction costs for 30 major U.S. cities jumped more than 70 percent
since 2000--the last time Congress raised the PFC cap.
Unfortunately, rising construction costs have eroded the purchasing
power of PFCs and AIP funds. For instance, a $4.50 PFC is worth
approximately half that amount today--about $2.41 according to the
Engineering News Record Construction Cost Indexes and about $2.24
according to the Means Construction Cost Indexes. Unless corrective
action is taken, the value of PFCs will erode even more.
In order to keep up with construction inflation, it is necessary to
raise the PFC cap to $8.50 today. Keep in mind that raising the cap to
that level would only allow PFCs to keep up with construction cost
inflation that has already occurred. The cap also needs to be adjusted
periodically to prevent further erosion.
``Classic Example of a User Fee''
Despite claims from the airline industry, PFCs are not taxes. PFCs
are local user fees charged to passengers using airport facilities to
help defray the costs of building airport infrastructure. Moreover,
PFCs are imposed by states or units of local government--not the
Federal government. PFCs are not collected by the Federal government,
not spent by the Federal government, and not deposited into the U.S.
Treasury.
The highly-respected and non-partisan Congressional Research
Service agrees that PFCs are not taxes. In a January 2015 report, CRS
accurately describes the PFC as ``a state, local, or port authority
fee, not a federally imposed tax deposited into the Treasury.''
Marc Scribner from the libertarian Competitive Enterprise Institute
recently described PFCs as ``classic example of a user fee.'' He
correctly pointed out that ``unlike taxes, user fees can only be
imposed on the service beneficiaries. . .The primary beneficiaries of
airports are the passengers who use the airports; thus, charging them a
facility user fee that will be used solely for specific, statutorily-
defined airport improvements cannot constitute a tax.''
A Closer Look at Airport Revenue: Our airline partners have been
trying to make the case that adjusting the PFC cap isn't necessary
because commercial service airports collected $24.5 billion in revenues
in 2013. But they conveniently ignore the fact that there are expenses
associated with operating commercial service airports. The airlines
might have a point if airports could have devoted the entire $24.5
billion for capital projects. But that is most certainly not the case.
The fact is almost half of the airline's estimate--or $11.7
billion--paid for airport operating expenses such as personnel costs,
firefighting and law enforcement, utilities, janitorial services,
insurance, materials and supplies. According to airport financial
reports, airports also had $6.3 billion in debt service costs in 2013.
That's the amount of principal and interest that airports paid for
long-term bonds during the year. When combined with airport operating
expenses, airport non-capital costs were $18 billion in 2013--or 73
percent of A4A's estimate.
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The carriers go on to argue that they paid $10 billion in ``airline
rents and fees'' in 2013. It is true that airports collected that much
in ``aeronautical revenue.'' But not all of it came from the airlines
as A4A claims. The ``aeronautical revenue'' category also includes
revenue from Fixed Base Operators and landing fees from general
aviation and the military. The ``passenger airline'' portion of
aeronautical revenue was $8.1 billion--almost $2 billion less than
A4A's claim.
Another 25 percent of A4A's estimate--or $6.2 billion--came from
AIP funds and PFCs. And that estimate is misleading because airports
didn't actually receive the full $3.4 billion in AIP grants. According
to the FAA, airports received less than $3 billion in AIP grants in
2013 and slightly less than $2.8 billion from PFCs. There's no question
that $5.8 billion is a large amount of money. But revenue from those
two programs would only cover 38 percent of the more than $15 billion
in annual airport capital needs.
The airlines also argue that modernizing the PFC isn't necessary
because airports had $11.4 billion in unrestricted cash at the end of
2013. Like many Americans and businesses around the country, airports
wisely put aside revenue for unexpected emergencies. This ensures that
airports are prepared in case a natural disaster happens or when
incoming revenue suddenly declines such as when a carrier reduces
service or pulls out of a market all together.
If airports didn't have those reserves on hand, their credit
ratings would likely be downgraded. A lower bond rating would increase
airport borrowing costs, which airports would be forced to pass on to
airlines. It's seems odd for the airlines to suggest that airports
should have less unrestricted cash, since doing so could result in
higher borrowing costs and ultimately higher fees for the airlines
themselves.
In a 2012 report on rating criteria for airports, Fitch Ratings
argues that ``airports should have liquidity at least equal to several
months of operating/debt service ready.'' Fitch explains why:
``An important part of its analysis focuses on unrestricted
liquidity as the airport sector is susceptible to adverse
conditions, whether they come from carrier actions, macro
events, or economic cycles. Metrics considered include cash to
debt and days cash on hand. With healthy reserves, airports can
use unencumbered funds in several ways, including weathering a
likely airline bankruptcy, terrorist/health incident, or
natural disaster, and also the cash funding of capital
improvements or lowering the cost burden passed on to airlines
or passengers.''
Finally, A4A's estimate also doesn't take into account the amount
of debt that airports have outstanding. Airport financial reports show
that airports had more than $83 billion in outstanding debt in 2013.
Without a PFC increase, airports will have to issue even more debt to
finance their infrastructure projects. Modernizing the PFC cap and
paying for more projects on a is a fiscally responsible approach that
helps airports and airlines.
Provide Adequate AIP Funding: AAAE and ACI-NA are also urging
Congress to maintain adequate funding for airport infrastructure
projects in the next FAA reauthorization bill. No general fund revenues
are used for AIP grants. The AIP program is supported entirely by users
of the aviation system through various taxes and fees that are
deposited into the Airport and Airway Trust Fund.
AIP is a critical source of funding for airports of all sizes and
especially smaller airports around the country that don't generate as
much PFC revenue or have easy access to the bond market. Large and
medium hub airports also depend on AIP funding--particularly money
distributed through the Letter of Intent Program--to help pay for large
capacity-enhancing projects.
Unfortunately, AIP funding has been trending downwards. S. 223, the
Senate-passed version of the last the FAA reauthorization bill proposed
$4.1 billion for AIP in FY11. However, the final version of the
legislation (H.R. 658) ratcheted funding back to $3.35 billion
annually.
The AIP program received approximately $3.1 billion in Fiscal Year
2013 after the diversion of $253 million to pay for FAA operations.
Again, it is important to point out that not all AIP funding actually
goes toward airport capital projects. In FY13, for instance, slightly
more than $100 million of AIP went to the FAA to operate the program.
Only about $2.9 billion actually went to airport infrastructure
projects.
Overall AIP funding ticked back up to $3.35 billion in FY14 and in
FY15. However, AIP funding levels have not been nearly enough to cover
the FAA's estimated $6.7 billion in annual AIP-eligible projects. Like
the stagnant PFC cap, flat AIP funding has lost ground to construction
cost inflation over the years.
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Opportunity to Recalibrate AIP: Raising the PFC cap to $8.50 and
periodically adjusting it for inflation could potentially open the door
to recalibrate the AIP program. With a PFC increase firmly in place,
limited Federal funds could be focused on smaller airports that need
AIP funds the most. Many large airports are willing to give up their
entitlements in exchange for a sufficient PFC increase. But again, any
effort to modify the AIP program must begin by modernizing the PFC cap
and indexing it for inflation.
The Administration has proposed to raise the PFC cap to $8 and
reduce AIP from $3.35 billion to $2.9 billion--saving about $450
million annually. The Administration is also simultaneously proposing
to eliminate entitlements for large hub airports. But the
Administration has rightfully made it clear that its proposal to reduce
AIP funding is contingent upon raising the PFC cap.
The Administration's plan represents a step in the right direction.
However, airports are calling on Congress to update the PFC cap
slightly higher to $8.50 and to index it for inflation. If our proposal
were adopted, the AIP program could also be recalibrated to focus
limited Federal funds on smaller airports. But a number of steps would
be required to ensure that small communities are kept whole if AIP
funding dips below $3.2 billion because of formulas in current law.
AIP Funding and ATC Reform: As Congress considers proposals to
reform the Nation's Air Traffic Control system and transform how the
FAA is financed, we urge you to keep the fundamental structure of the
Federal AIP program intact. While some may say the Air Traffic Control
modernization process is broken, most would agree that the AIP program
is not.
The AIP program has a decades-long, demonstrated record of success
in building critical infrastructure at airports of all sizes.
Maintaining a solid Federal program with sufficient funds for large and
small airports is essential to the long-term viability of airports
around the country and the entire aviation system.
As you consider proposals to transform the FAA, we urge you to
maintain a sufficient and stable revenue stream to support capital
projects at large and small airports. Airport operators strongly
believe that they should continue to receive revenue from a dedicated
airport trust fund rather than the less predictable general fund as
some have proposed.
Preserve and Restore Tax Exempt Financing for Airport Bonds: While
it isn't under this committee's jurisdiction, airports urge you to work
with your colleagues on the Senate Finance Committee to help finance
infrastructure projects with bonds. Specifically, we are urging
Congress to retain the tax exemption for municipal bonds and to
eliminate the tax burden of the Alternative Minimum Tax (AMT) on
airport private activity bonds.
AAAE and ACI-NA have long argued that Federal tax law unfairly
classifies the vast majority of bonds that airports use as private
activity even though they are used to finance runways, taxiways and
other facilities that benefit the public. Since private activity bonds
are subject to the AMT, airport bond issuers traditionally have been
charged higher interest rates on their borrowing.
A permanent AMT fix would help airports reduce their borrowing
costs, allow them to invest in more infrastructure projects, and
support more jobs. Since reducing borrowing costs would benefit
airports and their customers, this is one airport infrastructure
financing proposal that airports and airlines will likely continue to
agree makes sense.
Close Bag Fee Loophole: While airports and airlines may agree on
the need for AMT relief, we continue to have a fundamental disagreement
over the airlines' increasing reliance on baggage fees and other
ancillary charges. Airports are recommending that those fees be subject
to the same aviation excise taxes as base air fares and that the
revenue be deposited into the Airport and Airway Trust Fund.
Airport operators respect our airline partners and the highly
competitive nature of the commercial airline industry. However, at a
time when Federal funding for airport infrastructure projects is
stagnant, and the purchasing power of PFCs is eroding, the airlines'
current business model simultaneously reduces funds that could be used
for airport infrastructure projects and air traffic control
modernization.
Air carriers are increasingly relying on revenue generated from
checked baggage fees and other ancillary charges and less on funds from
base airline tickets. Unlike airline tickets, baggage fees and some
other ancillary charges are not subject to a 7.5 percent excise tax. In
other words, the airlines' a la carte pricing model allows carriers to
avoid paying aviation excise taxes for services that were once included
in the price of traditional airline tickets.
The airlines' reliance on baggage fees and the shrinking percentage
of revenue from base fares has been a growing trend in recent years.
According to BTS, the percentage of airline revenue from base fares has
dropped from almost 88 percent in 1990 to slightly less than 71 percent
in 2013--the last full year currently available.
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According to BTS, U.S. airlines collected slightly more than $3.35
billion in baggage fees in 2013--and the carriers were on track to
collect at least that amount in 2014. Those figures are for bag fees
alone and do not include revenue that carriers generate from
reservation change fees and other ancillary charges. The 2013 airline
bag fee revenue is almost the same amount that Congress approved for
AIP in FY14 and FY15. It's also more than airports collected in PFC
revenue last year.
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The airlines' use of ancillary fees shortchanges the Airport and
Airway Trust Fund of revenue that could otherwise support airport
infrastructure projects, air traffic control modernization, and other
aviation system improvements. Between 2008 and the third quarter of
2014, the airlines raked in more than $20 billion in revenue from bag
fees.
Closing the baggage fee loophole and charging the same 7.5 percent
as base fares would have generated approximately $250 million in 2013--
about the same amount of AIP cuts that airports sustained that year to
fund FAA operations. From 2008 through the third quarter of 2014, the
bag fee loophole cost the trust fund $1.5 billion. Again, that's
revenue that could be used to pay for NextGen and airport
infrastructure projects.
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We appreciate the airlines' responsibility to answer to their
shareholders. And airports want our airline partners to be successful.
But the ancillary fee loophole should be closed. Doing so would
generate about $1 billion every four years that could be used for AIP
and NextGen. It would also help the Nation meet the long-term needs of
our aviation system.
Recommendations for Helping Small Communities
This Committee has a long bipartisan track record of looking out
for small communities and supporting programs that ensure people who
live and work in rural areas have access to our aviation system. As you
consider the next FAA bill, we urge you to maintain funding for small
community programs and protect the cost-effective Contract Tower
Program.
Essential Air Service: Congress created the Essential Air Service
(EAS) program as part of the Airline Deregulation Act of 1978 to ensure
that small communities could maintain a minimal level of scheduled air
service. Since then, this program has successfully allowed people who
live in rural and less populated areas to have access to the national
aviation system. According to DOT, 160 communities participate in the
EAS program including 44 in Alaska.
Commercial air service is not just a matter of convenience for
leisure travelers. It is also critical to economic development efforts
in communities around the country. Without reliable commercial air
service made possible by the EAS program, it would be difficult for
many small communities to retain and attract businesses that create
jobs.
The last FAA bill included a number of EAS reforms. For instance,
the bill eliminated service to communities with fewer than 10
enplanements a day except those communities more than 175 miles from a
large or medium hub airport and those located in Alaska and Hawaii. The
bill also left intact a provision to eliminate service to communities
with more than $1,000 per passenger subsidy--a proposal that Congress
approved as part of a previous short-term extension.
Small Community Air Service Development Program: AAAE and ACI-NA
have been long-time proponents of the Small Community Air Service
Development Program. Since Congress created the program as part of H.R.
1000, the Wendell H. Ford Aviation Investment and Reform Act for the
21st Century, it has helped numerous small communities suffering from
insufficient air service or unreasonably high fares.
DOT Assistant Secretary for Aviation and International Affairs
Susan Kurland told House lawmakers last year that small community
grants ``fund a wide range of projects, including various kinds of
financial incentives to airlines, intermodal solutions such as shuttle
services to the airport, leakage studies, cutting edge marketing
techniques, and start-up cost offsets.''
It is worth noting that small communities that participate in the
program bring significant local funds to the table. According to
Assistant Secretary Kurland, more than half of grantees contributed at
least 20 percent of the costs, and 12 percent paid at least 50 percent
of the costs.
Small airports around the country face numerous challenges
including a consolidated airline industry and regional airlines that
terminate service because they say there is a shortage of commercial
pilots. Since many small communities are struggling to maintain and
attract new commercial service it is now more important than ever to
fund this program.
Vision 100 authorized $35 million per year for the Small Community
program. Congress reduced that level to $6 million annually in the last
FAA reauthorization bill. We urge you to authorize at least $6 million
annually for this program in the next FAA bill.
We also urge you to make a technical change to the program. Under
current law, only those airports that were classified as a small hub
airport or smaller in calendar year 1997 are eligible to participate in
the Small Community program. That requirement unfairly excludes a
handful of small airports from participating in the program because
they were classified as a medium hub in 1997 even though they are
classified as a small hub today.
Airports that have dropped out of the medium hub category in recent
years should be eligible to participate in the Small Community Air
Service Development Program just like other small airports. Allowing
all current small hub and non-hub airports to be eligible to
participate in this program would be a welcome technical fix that could
help more small airports suffering from insufficient air service or
unreasonably high fares.
Contract Tower Program: On behalf of the 252 airports in 46 states
that participate in the FAA Contract Tower (FCT) Program, we would like
to thank members of this Committee for your long-standing and critical
support of this program. We are grateful that so many of you led the
charge to keep 149 Contract Towers open during the first round of
sequestration in 2013.
As a result of this 33-year government/industry partnership, the
FCT Program enhances aviation safety at airports that otherwise would
not have a tower. It also plays a key role in connecting smaller
airports and rural communities with the national air transportation
system. It is interesting to note that approximately 80 percent of all
contract controllers are veterans.
Before an airport is admitted into the contract tower program, the
FAA performs a rigorous cost benefit analysis to ensure that the safety
benefits will outweigh the economic costs. This has worked well. But
now the agency is in the process of revising its cost benefit
methodology in a way that could put the thumb on the cost side of the
scale and against the clear safety benefits these towers provide the
national air transportation system. This means that some airports may
lose their contract tower or have to pay an onerous portion of the
costs.
AAAE and its affiliated organization--the U.S. Contract Tower
Association--are asking this Committee to consider taking a handful of
steps in order to keep a fair and balanced cost benefit analysis
intact. We look forward to working with all of you to ensure that FCT
continues to be a cost-effective and proven way to enhance air traffic
safety at smaller airports across the country.
Pilot Shortage: A number of small communities have experienced
commercial air service reductions in the past year, in part, because
carriers say that there are not enough qualified pilots to operate
their flights. Not surprisingly, airport operators around the country
are concerned about possible short-and long-term repercussions.
Mainline carriers often tap pilots from the regional airlines that
provide service to smaller communities. So a number of airport
directors at small-and medium-sized facilities are concerned that this
situation could make it more challenging for them to attract and retain
commercial air service.
To complicate matters, a large number of pilots are also expected
to retire in the next several years. InterVistas Consulting Group
estimates that 16,000 pilots at the big four U.S. carriers will retire
between now and 2022. In 2013, Boeing estimated that the airlines
around the world will need to hire almost 500,000 pilots by 2032--or
about 25,000 annually.
Airports would like to work with you and other aviation
stakeholders to ensure that there are enough pilots in the pipeline to
accommodate rising demand and to fill the seats of those who are
expected to retire. Working together we can also ensure that people who
live in smaller communities continue to have access to our national
aviation system.
Conclusion
Chair Ayotte, Ranking Member Cantwell, and members of the Senate
Aviation Subcommittee, thank you again for inviting me to participate
in this hearing on airport issues and infrastructure financing. I look
forward to working with you as you continue preparing for the next FAA
reauthorization bill.
Senator Daines [presiding]. Thank you, Mr. Hauptli.
Mr. Reis.
STATEMENT OF MARK M. REIS, MANAGING DIRECTOR, SEATTLE-TACOMA
INTERNATIONAL SEATTLE
Mr. Reis. Thank you, Mr. Chairman. And thank you for the
invitation to testify today.
Today, I will tell a story of one airport, but it is
representative of the challenges that other airports are facing
across the country.
Last year, Seattle-Tacoma International Airport--Sea-Tac,
as we call it--was the fastest-growing large-hub airport in the
country. So far this year, passenger loads have grown by 13
percent. Both the vibrant Seattle economy and the increasingly
important role Sea-Tac plays in the national airspace system,
NAS, is responsible for this. Our current 5-year capital
program will cost $1.7 billion and requires us to issue $1.2
billion in new debt. We will also commit essentially all of our
PFC capacity through 2035.
We are now developing a 20-year airport master plan, which
is identifying our facility needs beyond the next 5 years. The
forecast indicates we will need to handle 66 million passengers
in 2034, almost 30 million more than we did last year. We
currently project the need for 35 more gates as part of a
complex program of improvements, which we think will cost in
excess of $10 billion.
To fund these investments, we will borrow a lot of money,
but bonds no more pay for airport investments than getting a
mortgage from a bank pays for a home. The question is, How will
we pay back the borrowed capital? Much of it will, in fact,
have to be paid by the airlines, but a very early projection
suggests that Sea-Tac's cost per enplanement could go up by 150
percent between 2019 and 2034. Such an increase could
dramatically change airline perspectives on serving Sea-Tac,
and thus, penalize our economy as airlines make decisions based
on their profit-and-loss statements, not what is good for
Seattle or the NAS.
Another option is the use of non-aeronautical revenues.
However, our current airline agreement requires the airport to
use half of that net income to reduce airline rates. The other
half will be needed to fund the dining and retail
infrastructure, parking, and roadways, which cannot be paid for
by airline rates, PFCs, or Federal grants. This leaves the
Airport Improvement Program, AIP, and Passenger Facility
Charges.
Congress capped spending at $3.3 billion in the AIP in
2011. It is not realistic to think that a large hub like Sea-
Tac will get sufficient AIP grants to make a meaningful dent in
a $10 billion program. In fact, I am not sure we should. AIP
grants are a critical lifeline to fund projects at general
aviation, non-hub, small-hub, and many medium-sized airports.
As AIP has lost ground against inflation, smaller airports have
felt the pinch, seeing fewer projects funded by AIP and local
matching requirements go up.
The final option is the Passenger Facility Charge. It is
the only funding source that aligns directly with the
passengers who will use the new facilities needed to meet the
requirements of both our economy in our region and the NAS. As
you are aware, the PFC is a locally approved user fee. As much
as some would like to reinvent it as a tax, the Federal
Government never touches the money, and the decision to charge
a PFC is made by local airport governing bodies.
Our current capital program commits 90 percent of our
projected PFC revenue stream through 2035. Because of the PFC
cap imposed 15 years ago, Sea-Tac will have available only
about $8 million of PFCs in 2016 for new projects; thereafter,
growing at less than 3 percent. This is a drop in the bucket
compared to a $10 billion need.
If Congress would modernize the PFC by making its current
spending power equivalent to the cap imposed in 2000, the Port
of Seattle Commission could then determine the appropriate PFC
level, which could support up to $3 billion in master-plan
investments.
Now, you've heard some claim that increasing the PFC would
have a negative impact on the willingness of the American
public to fly. This assertion flies in the face of the data. At
Sea-Tac, average airfares increased by 27 percent between 2009
and 2014. During that same period, passenger volumes increased
by over 22 percent. National data tell the same story.
Airlines for America has also asserted that a PFC increase
is not needed because the airlines will happily pay the cost of
new facilities. That is different message than what we are
hearing in Seattle. Multiple airlines are pleading for us to
devote our limited PFCs to their preferred projects so they
don't have to pay for those improvements in their rates and
charges. So, the airlines are saying here that PFC is
unnecessary, but in Seattle they are aggressively competing for
limited PFCs.
Madam Chairman, let me close by saying, first, that the
greater Seattle region is relying on Seattle-Tacoma
International Airport to match airport capacity with our
economy's needs; and, second, that Sea-Tac very much needs a
modernized PFC to fulfill that responsibility.
Thank you. And I look forward to your questions.
[The prepared statement of Mr. Reis follows:]
Prepared Statement of Mark M. Reis, Managing Director,
Seattle-Tacoma International Airport
Thank you, Chairwoman Ayotte, Ranking Member Cantwell, and members
of the Subcommittee for inviting me to testify on Airport Issues and
Infrastructure Financing.
I am the Managing Director of Seattle Tacoma International Airport
(Sea-Tac) and the Immediate Past Chair of Airports Council
International-North America (ACI-NA).
Located in Washington state, Sea-Tac is an increasingly critical
part of America's aviation system. In 2014, we facilitated over 18.7
million enplanements and were the 13th largest airport in the United
States. In fact, with a 7.7 percent increase in passengers in 2014,
Sea-Tac was the fastest growing large hub airport in the United States.
So far in 2015, our passenger load has grown by 13.1 percent (Q1, 2015
vs. Q1, 2014).
The vibrant economy of the Greater Seattle region has been a major
driver of this growth. In 2013, Seattle was the fastest growing large
city in the U.S., according to the U.S. Census Bureau. Today, Sea-Tac
proudly supports more than 170,000 jobs in the region, totaling about
$6.1 billion in personal income and $16.3 billion in business revenue.
Our international traffic has grown by 67 percent since 2007, providing
tremendous economic benefit to the region. In fact, each new
international flight at Sea-Tac adds about $75 million annually to our
regional economy.
But it is not just the robust Seattle economy that is requiring
Sea-Tac Airport to scramble to handle this extraordinary increase in
airline traffic. In fact, Sea-Tac is playing an increasingly important
role in the National Airspace System (NAS). Each and every new flight--
last year we handled over 23,000 more take-offs and landings--came to
Seattle as a result of an airline decision. For example, in 2014 Delta
Airlines grew by 1,606,585 passengers (+37.7 percent) and 10,141
landings (+79.3 percent); Alaska Airlines grew by 1,341,253 passengers
(+7.5 percent) and 3,756 landings (+4.3 percent). These decisions were
in part a result of very significant changes in the global aviation
marketplace. As aircraft technology has evolved and as foreign flag
airlines have initiated non-stop service from cities across Asia to
U.S. cities, Seattle's role as a critical U.S. gateway to Asia has
become more pronounced. This circumstance has certainly benefited the
Seattle region but, more importantly, it has made the NAS more
efficient by effectively replacing a Northeast Asia hub with a U.S.
gateway hub. Quite logically, there is a growing amount of ``feed''
traffic from all over the United States to Seattle to make the most
efficient use of a gateway that is closer than any other in the U.S. to
the vast majority of Asian destinations.
Sea-Tac's extraordinary growth is just one example of how airports,
airlines, and the Federal government must act in concert to ensure that
we can meet the needs of airports and the NAS in the face of increasing
economic growth nationwide.
While Sea-Tac's growth may be among the most extraordinary,
airports across America are facing the challenge of meeting the demands
of our resurgent economy. The Federal Aviation Administration (FAA)
estimates that U.S. airport enplanements will grow to more than $1.14
billion over the next 20 years. So Sea-Tac's experience is not unique.
But it is an excellent case study in the real-world challenges that the
American airport industry faces today. In this testimony I will outline
these challenges and demands, with a particular focus on Sea-Tac's
challenges to meet the needs of the NAS and the region's continued
economic growth as a result of the limited financial tools available to
U.S. airports.
Today's airport industry is vastly changed from just a few years
ago. Expanding global networks, surging passenger demand, and domestic-
carrier consolidation have forced airports to adapt their business
models. In our business today, U.S. airports are working to become more
efficient and more customer-friendly in order to compete with each
other, with other modes of transportation, and with our international
counterparts who are setting new standards for airport customer
service. But the fact that four major carriers handle about 85 percent
of all U.S. traffic makes our operating environment more difficult as
our communities have seen airline competition go down and airfares go
up. So airports are expected to provide better customer service and
modernized facilities all the while trying to keep airline rates and
charges as low as possible. In this environment, many airports have
struggled to retain their current air service and passenger flows, let
alone attract new business.
Unless something changes, this constrained environment will,
unfortunately, become the new normal--much to the detriment of regional
economies across the Nation.
The Port of Seattle's statutory responsibilities and Federal
obligations require Sea-Tac to do everything we can to provide the
aeronautical capacity to support the NAS and our region's economic
demands. That obligation is becoming tremendously more challenging. We
are now in the midst of a 20-year master planning process. So far, we
have completed the forecast that indicates that the region's economy
will need Sea-Tac to handle 66 million passengers in 2034, 28.5 million
(76 percent) more than we did last year. This passenger growth will
require us to handle nearly 200,000 (+ 60 percent) more operations
during that period. That will mean we will have 36 percent more
aircraft on our airfield during peak hourly operations; we will need to
handle 70 percent more deplaning passengers during peak arrivals times
and 58 percent more enplaning passengers during peak departure times.
Because Sea-Tac`s operational area (i.e., the airfield and terminal
footprint) is only 1,500 acres, we simply have no ``elbow room'' to
easily handle this substantial increase in activity. Thus, providing
the facilities that our region and the NAS needs at Sea-Tac will
require major investments and financial resources.
While in the middle of this master planning, Sea-Tac is also in the
midst of a five-year capital improvement program which will modernize
our North Satellite concourse including the addition of eight new gates
($512 million), reconstructing one of our runways ($100 million),
updating our baggage system to improve security and efficiency ($317
million), and constructing a new International Arrivals Facility
(approximately $600 million) to replace our 1970s facility that cannot
handle current demands. The financing plan for this $1.7 billion
program includes $1.2 billion in new debt, most of which will result in
higher airline rates and charges and a commitment of essentially all of
our PFC capacity through 2035.
Yet despite this significant investment, Sea-Tac will not be able
to keep up with airline or passenger demands. In 2021--even after
adding the eight new gates--we anticipate that the airlines will need
to load and unload some flights by transporting passengers by bus to
and from as many as 12 remote hardstand locations because we will not
have sufficient gate capacity. The preliminary master planning work
indicates that, to serve 66 million passengers, Sea-Tac would need to
add 35 more gates, dramatically expand our ticketing/check-in
facilities, and substantially redesign and rebuild our vehicle drives
systems. Because we do not have readily available expansion space, we
will likely need to move three airline maintenance hangars, several
cargo buildings, an Aircraft Rescue and Firefighting (ARFF) station
and, perhaps, a freeway. At this point we believe these capital
expenditures will cost at least $10 billion to implement--above and
beyond our current capital plan and financing plan.
I would like to share with the Subcommittee how I think about the
options Sea-Tac faces as we contemplate this massive investment
challenge. First, let me note that, while some airlines identify
airports' access to the bond market as one of the reasons that there is
not an airport funding problem, in fact bond revenues are only a means
of financing construction. The bonds--with interest--must be paid back.
Claiming that bonds are the answer to the airports' funding needs would
be like claiming that a home mortgage was the answer to someone's
housing needs. Yes, a mortgage will help buy a house but the homeowner
needs to have a source of income to pay the debt service on the
mortgage. So the options addressed below are those we could use to
either fund directly, or pay bonds issued to finance, the capital
investments.
One option--in fact, the option the airlines claim should be the
default--is to put the costs of these investments into the airlines'
rate base. The vast majority of the $10+ billion investments will
indeed support airline activity. Putting the debt service costs of,
say, $8.5 billion of aeronautical investments in the airlines' rates
and charges could drive their costs per enplanement (CPE) at Sea-Tac
from $14.00 (current projection for 2019) to $35.00 in 2030 (due to the
many unknowns about the many factors associated with future projects,
the financing environment and the pace of passenger growth, this figure
is an informed but very preliminary projection). This increase could
dramatically change the airlines' propensity to serve Sea-Tac and,
thus, penalize our economy as airlines headquartered in other parts of
the country make corporate decisions based on their profit and loss
statements, not what is good for Seattle region or the NAS.
Some could argue that a better option would be to use local taxes
to build local airport facilities. While the Port of Seattle does have
limited additional property taxing authority, it is critical to funding
the Port's seaport facilities. More to the point, though, as we
consider airport investments and the NAS, is that only about one third
of Sea-Tac passengers are King County residents (those who would pay
increased property taxes). As I mentioned above, Sea-Tac is
increasingly playing a significant role as a gateway for international
flights; our best estimate is that fully 40 percent of our
international passengers are connecting at Sea-Tac to reach another
U.S. destination. It would be highly inequitable to require all King
County taxpayers--including those who seldom or never use the airport--
to pay for facilities used by travelers from all over Washington state
and the United States, as well as passengers from all over the world.
Another source of funding some propose to be adequate to the task
is the non-aeronautical revenues the airport receives from dining and
retail, parking and other non-airline sources. While this is in fact a
growing source of net income at Sea-Tac, our current airline agreement
requires the airport to devote half of that net income to reduce
airline rates. The net income retained by the airport will be needed to
fund airport operations and facilities (e.g., dining and retail
infrastructure, parking, roadways, etc.) that are not eligible to be
paid by airline rates, PFCs or Federal grants.
It is worth taking a moment to note that, in addition to ensuring
adequate, safe aeronautical capacity is in place, airports must also
make substantial investments to provide for a wide variety of non-
airline facilities. Providing for the many facets of the passenger
experience requires airports to build ground transportation roadways
and parking areas, restaurants and stores, recycling facilities, cell
phone lots, etc. No Federal grants and no PFCs can be used to pay for
these facilities.
If increased airline rates and charges, local taxes and non-airline
net income are inappropriate or inadequate to the task, what about the
options within the jurisdiction of the Congress: The Airport
Improvement Program and Passenger Facility Charges?
In 2011, Congress capped the Airport Improvement Program (AIP) at
$3.3 billion, six percent less than its funding level in 2007-2011. Not
only was the authorization an overall funding cut, but the amount of
AIP that is actually going to fund projects at airports has also
decreased as administrative costs for the Office of Airports have
grown. For a large hub like Sea-Tac, AIP can provide a share of the
cost of an airfield project, but the AIP is wholly inadequate to have a
meaningful impact on the funding needs of larger airports. However, AIP
is critical to smaller airports throughout the Nation. It serves as a
funding lifeline for projects at general aviation, non-hub, small hub
and many medium size airports. The overall distribution of funds for
decades has worked extremely well, balancing the needs of both general
aviation and commercial service airports. As the AIP pot of money has
decreased, though, smaller airports have felt the pinch as money
available to fund AIP-eligible projects has decreased and local match
requirement have increased. As a result, all size airports have had to
turn to other funding options to pay for projects.
The AIP is funded through the Airport and Airways Trust Fund
(AATF), which as a contract authority program has provided funding
stability for airside projects in the entire airport system. As
Congress explores options for changes for reforming FAA and the AATF,
it is vitally important that airports be a part of that conversation.
The final option is the Passenger Facility Charge (PFC)--the
funding source that, at Sea-Tac, is most closely aligned with the
passengers who are using the airport and, along with the airlines,
causing us to plan and pay for the tremendous facility expansion ahead.
PFCs can and must be a critical part of the funding plan for Sea-Tac to
meet the needs of our region and the NAS. The Federal cap on PFC user
fees was last adjusted fifteen years ago--by $1.50 per enplanement. As
you are aware, the PFC is a locally generated and approved user fee,
not Federal funding. The Federal government never touches the fees and
the decision to charge a PFC is made on an airport-by-airport basis by
local airport governing bodies. In the case of Sea-Tac Airport, that
would be the directly-elected (by the voters of King County) Port of
Seattle Commission. While airlines and community stakeholders play a
role in the PFC approval process, the decision about whether or not to
charge a PFC user fee and use it as a funding source is truly a local
decision and impacts only those passengers that utilize the airport's
facilities. This allows airports and their governing bodies to make
decisions that are in the best interest of their region to encourage
competition among carriers, secure capacity increases and support
economic growth through a passenger's direct investment in local
airport infrastructure. As public institutions accountable to local
citizens, airports balance the very real need to keep costs low while
ensuring that aviation specific infrastructure meets regional demand.
As I mentioned above, the financing plan for our current capital
program commits all but 10 percent of our projected PFC revenue stream
until 2035. The remaining 10 percent would equate to about $8 million
per year (in 2016) and, as you can imagine, would make a negligible
impact on the $10+ billion cost of implementing our master plan.
This current Federal cap on the PFC means that in 2015 it is worth
less than half of its spending power when the cap was adjusted in 2000.
To provide airports the same PFC spending power today, the PFC cap
would need to be $8.50. The outdated cap on the PFC prevents airports
like Sea-Tac from making the capital investments required to meet the
air travel needs of both our communities and the Nation. In addition,
the Federal cap substitutes the Congress's one-size-fits-all decision
making for that of locally-elected officials regarding appropriate fees
for passengers at individual airports.
Our preliminary analysis indicates that, if Congress would
modernize the PFC by making its spending power equivalent to the cap
imposed in 2000, the Port of Seattle Commission would have the option
of determining the appropriate PFC level and potentially make available
$3 billion of capital to help pay for our $10+ billion master planning
investments. This would be $3 billion that would not need to go into
the airlines' rates and charges.
I would like to pause here to address two of the often-articulated
concerns about raising the PFC. First, many airlines claim that
increasing the PFC would have a negative impact on the propensity of
the American public to fly. This assertion flies in the face of the
data. At Sea-Tac, average airfares increased by 27 percent between 2009
and 2014; during that same period, passenger volumes increased by over
22 percent. If one is concerned that there may be a lag in the impact
of those airfare increases, that impact has not yet shown up at Sea-
Tac: As noted previously, passenger volumes continue to grow,
increasing by 13.1 percent through the first quarter of this year.
The national data tell the same story: The airlines' argument seems
to make no sense when you compare a small adjustment in the PFC to the
rising price of airline tickets. According to the Bureau of
Transportation Statistics since 2009, nationwide airfares have
increased by more than 23 percent, while air travel has increased by
more than 7 percent. In addition, bag fees have increased 99 percent,
resulting in $11 billion in airline profits over the same time period.
The four dollars airports are seeking in order to fund projects that
improve passenger service and benefit local communities pales in
comparison to the billions of dollars that passengers are paying in
higher airfares, bag fees, change fees, seat reservation fees, etc.
The airline trade association is also quick to claim that a PFC
increase is not needed because the airlines are more than prepared to
pay the costs of capital improvements through their rates and charges.
While I cannot speak to what may be happening in other parts of the
country, I will note for the Subcommittee that in the past few weeks,
five separate airlines have appeared in front of the Port of Seattle
Commission, to plead that the Port allocate our limited PFCs to the
project that would reduce the rates and charges of the individual
airline. Some airlines are quite articulate regarding the merits of the
PFCs being used to fund a new International Arrivals Facility (thus,
decreasing the costs of one rate base) or to fund other terminal
investments (thus, decreasing the costs of other rate bases). None of
the airlines disputes the importance of any of the projects, but they
are all quite clear that they would prefer that PFCs be used for their
preferred project in order to decrease their rates and charges.
The airlines' positions in Seattle seems to run counter to Airlines
for America's messaging here in Washington, suggesting that the issue
for the airlines is not so much whether increased PFCs would be a
valuable funding tool, but who gets to make decisions about which
airports increase PFCs, for what projects and to what levels.
I will conclude my discussion about our experience at Sea-Tac by
reiterating that--at this point in time and based on what we now know
while in the middle of our master planning process--Seattle-Tacoma
International Airport will require increased Passenger Facility Charge
fees in order to make the investments required to meet both the needs
of our region and the needs of the NAS. If Congress is not prepared to
eliminate the cap and leave such decisions wholly to locally-
accountable officials, it should increase the cap to at least $8.50 and
index it to account for inflation.
While Sea-Tac may, more than other airports, be facing the
challenge of remarkable growth right now, our airport is not a lone
exception. Other airports throughout the United States--large, medium,
and small--face similar financial challenges. According to ACI-NA's
most recent capital needs study, airports of all sizes need over $15.14
billion annually in infrastructure improvements to modernize aging
runways and terminals, relieve congestion and delays, and spur new
airline competition--far more than the $6.2 billion that airports
received last year from both PFCs and AIP. As a result, infrastructure
projects all over the country are stalled because of declining Federal
grant dollars and the eroding purchasing power of today's PFC. ACI-NA
and AAAE have chronicled several of these examples in a report it
shared with many of you and posted on the AirportsUnited.com website,
but let me highlight a few now:
JFK, Pittsburgh, and San Diego need new terminal projects to
meet growing demand and to spur competition in their markets.
Newark and LaGuardia need to make airfield improvements to
reduce chronic traffic delays in the New Jersey-New York
metropolitan region.
Chicago, Fort Myers, Kansas City, San Antonio, Dallas and
Jackson, MS, all have delayed runway projects, which are
constraining capacity at their airports.
Los Angeles needs to move forward with a transformational
ground-transportation plan for their severely land-locked
facility.
Reno and Savannah-Hilton Head both need to expand their
Customs and Border Protection facilities to meet increased
demand for international service.
Gerald Ford in Michigan needs to build a consolidated
checkpoint for TSA.
Oakland needs to repair its airfield-perimeter dikes that do
not meet FEMA's current flood-control standards.
The list goes on and on . . .
In conclusion, America's airports are powerful economic engines,
generating more than $1.1 trillion in annual activity and supporting
more than 9.6 million jobs. New investments in airports will help local
communities all across the country maintain their current air service
and attract new carriers, which will increase competition and lead to
lower fares for passengers. As I have detailed, the airport community
is united in its belief that modernizing the PFC user fee and
maintaining AIP are the best options for strengthening our Nation's
airport system to meet the needs of today and the challenges of
tomorrow. I appreciate this opportunity to testify before you today and
welcome your questions.
Senator Daines. Thank you, Mr. Reis.
Mr. Minerva.
STATEMENT OF MICHAEL J. MINERVA, VICE PRESIDENT, GOVERNMENT AND
AIRPORT AFFAIRS, AMERICAN AIRLINES
Mr. Minerva. Thank you, Mr. Chairman and members of the
Subcommittee. Thank you for the opportunity to testify today
about airport issues and infrastructure financing.
My name is Michael Minerva, and I am Vice President of
Government and Airport Affairs for American Airlines. I am
particularly pleased to be speaking with you since airport
funding at the 225 domestic airports served by American
Airlines is an everyday part of my job. I'm responsible for
negotiating with airports over lease arrangements, capital
projects, in addition to handling State and local government
affairs.
I would like to talk to you today about what I experience
firsthand when airports and airlines sit down together at
tables to hash out how projects should be financed. I'd like to
make two points:
First, airport by airport, airlines and airports are
reaching agreements on capital spending, and will continue to
do so without any change in the statutory PFC scheme.
Second, there is no lack of funding for airport improvement
projects. Any gaps that exist between an airport's current
conditions and the desired conditions result from the lead
times and complexity involved in competing--completing airport
projects, and not from any lack of funding. Many of our
Nation's airport terminals, airfields, and systems are nearing
the end of their useful lives. The airlines not only support
projects to repair and improve airport infrastructure, we
demand it, and we are willing to pay for it.
At the Nation's large-hub airports, generally, there are
$70 billion in completed projects, underway projects, and
approved projects. If the PFC tripled tomorrow, the incomplete
projects would not move faster. That's because the pacing item
for airport improvement projects is not a lack of funding, it
is simply the lengthy process required to complete such complex
projects, even when done exactly right.
For example, a new runway in Charlotte that is no more than
a 2-mile paving project will take 7 years to complete, not
because of funding, but because of the complexities of planning
for, designing, and building a project on an active airfield.
A fully-funded $2.7 billion terminal improvement project at
Dallas-Fort Worth Airport will take several more years to
complete, because only a few gates can be closed at a time. The
limited factor is not funding.
And these examples are not exceptions, they are the norm,
and they illustrate that increasing PFC funds today will not
translate into changes tomorrow, due to the complexities
inherent in airport improvements.
Now, it's no surprise that airports would welcome the extra
cash from an increase in PFCs. Often, airports are under local
pressure to undertake projects that are not urgent or
necessary. And this is not a sufficient reason to fundamentally
alter the existing dynamic that encourages airports and
airlines to reach consensus on airport improvements. And,
despite airport protestations to the contrary, this dynamic is
generating tens of billions in new project dollars at the
current PFC levels.
In fact, as someone who leads and works with a team that
spends its days traveling to your communities and talking to
the professionals who run your airports, I can tell you,
airports and airlines work toward consensus much more than one
might assume, listening to this policy debate in Washington.
And, unfortunately, here in Washington, there's a lot of
information about PFCs. Here are some facts:
First, indexing PFCs to inflation is not needed, because
airport rent has well outpaced inflation. That is giving
airports money to spend at a rate that increases faster than
inflation and faster than ticket prices.
Second, local officials and airport directors tell airlines
that they want us to keep fares in their communities
competitive. Increasing the PFC makes it more costly for the
public to fly.
And, third, airports have great access to financing for
capital improvements, since their basic cost structures are
guaranteed by the airlines. If an airport takes in less money
than it spends, the airlines make up the difference.
Counterarguments to all these points were made 3 years ago
as part of the last FAA reauthorization debate. Yet, since that
time, airports and airlines have agreed to fund tens of
billions of dollars in new projects. And the same will happen
at the current PFC rates.
In closing, please consider that airports and airlines
agree on the scope, pace, and funding of airport capital
improvement projects, almost without exception and with the
current PFC structures in place. Those capital improvements are
coming, often not as fast as we all would like, because airport
improvement projects take so long, despite the best efforts of
everyone involved.
I'd be happy to answer any questions from the Committee
members.
[The prepared statement of Mr. Minerva follows:]
Prepared Statement of Michael J. Minerva, Vice President, Government
and Airport Affairs, American Airlines
Good morning Chairman Ayotte, Ranking Member Cantwell, and members
of the Subcommittee. Thank you for opportunity to testify today about
airport issues and infrastructure financing. My name is Michael Minerva
and I serve as Vice President of Government and Airport Affairs for
American Airlines. I am particularly pleased to be speaking with you
since airport funding at the 225 domestic airports American serves is
an everyday part of my job. I am responsible for negotiating with
airports over lease agreements and capital projects in addition to
state and local government affairs.
I would like to talk to you today about what I experience
firsthand--when airports and airlines sit in rooms and hash out how
projects should be financed. I'll make two basic points. First, airport
by airport, airlines and airports are reaching agreements on capital
spending and will continue to do so without any change in the statutory
PFC scheme. Second, there is no lack of funding for airport improvement
projects. Any gaps that exist between an airport's current conditions
and desired conditions result from the lead times and complexity
involved in completing airport projects and not from any lack of
funding.
If your only exposure to the PFC issue was at the national level,
you might reasonably assume that arguing about PFCs dominates airport
and airline discussions. That's not the case. The airline-airport
relationship does not play out on the national stage. It's handled on
an airport-by-airport basis with the airlines working directly with
airport directors. Airports and airlines generally work together very
effectively and have been doing so for years. The relationship is not
simply one of landlord-tenant. We and our airport counterparts consider
ourselves business and civic partners. Neither of us can exist without
the other.
From a funding perspective, when you look at airports on an
individual basis, as I do with over 225 domestic airports, you will not
see the funding shortfall that is often claimed in Washington. Airports
are funded by their users and not from general revenue--not even of the
city, county or state where the airport is located. The agreements
between the airlines and airports are structured so that the airlines
protect the airport from any cost overruns and revenue shortfalls
without accessing any taxpayer funds. If an airport brings in less
money than it spends, the airlines make up the difference. Any cost
certainty the airlines have comes from the managerial acumen of the
airport staff. That's one reason we care so passionately about how
airport projects are designed, managed and funded.
Many of our Nation's airport terminals and systems are nearing the
end of their useful lives. The airlines not only support projects to
repair and improve airport infrastructure, we demand it, and we are
willing to pay for it. At the Nation's large hub airports generally,
there are $70 billion in projects completed, underway or approved. If
the PFC tripled tomorrow, the incomplete projects would not move
faster. That's because the pacing item for airport improvement projects
is not a lack of funding. It is simply the lengthy process required to
complete such complex projects, even when done exactly right.
For example: the Charlotte airport wants to build a new runway to
be online in the early 2020s to handle future demand. The airlines will
pay for it--even though the PFC in Charlotte remains at 2/3 of the
current statutory maximum. The airport, which has a strong history of
executing projects efficiently, is starting the process in 2015 because
the runway will take seven years to build--with half of that time
needed just to prepare for and complete the environmental review
process. The two-mile paving project--and that's all it is--will take a
total of seven years because of the complexities of planning for,
designing and building a project on an active airfield. That's just how
long it takes--it has nothing to do with funding availability.
Terminal improvement projects face timing, not funding, challenges
as well. An example of that is DFW, where the $2.7 billion fully funded
Terminal Repair and Improvement Program, or TRIP, is underway. If you
visit Terminal C at DFW, you see an old terminal. But if you visit the
low Terminal A gates, you see a brand new one. That's because the TRIP
program must be completed in small phases across the airport. A project
like this takes a considerable amount of time, because only a few gates
can be closed at a time, which means the project has to move slowly.
The limiting factor is not funding.
These examples are not exceptions. They are the norm and they
illustrate that increasing PFC funds today will not translate into
changes tomorrow due to complexities inherent in airport improvements.
It's no surprise that airports would welcome the extra cash from an
increase in PFCs. Often, airports are under local pressure to undertake
projects that are not urgent or necessary. This is not a sufficient
reason to fundamentally alter the existing dynamic that encourages
airports and airlines to reach consensus on airport improvements.
Despite airport protestations to the contrary, this dynamic is
generating tens of billions in new project dollars at the current PFC
levels.
As I've stated, airlines and individual airports address their
capital needs without arguing about the PFC issue. But the fact remains
that there is a lot of misinformation out there about PFCs. Here are
some facts:
Indexing PFCs to inflation is not needed because airport
rent has well outpaced inflation. That is giving airports money
to spend at a rate that increases faster than inflation and
faster than ticket prices.
Local officials and airport directors want airlines to keep
fares competitive. Increasing the PFC makes it more costly for
the public to fly.
Airports have great access to financing for capital
improvements since their basic cost structures are guaranteed
by the airlines.
Counter arguments to all these points were made three years ago as
part of the last FAA reauthorization debate. Yet since that time,
airlines and airports have agreed to fund tens of billions of dollars
of new projects. The same will continue to happen if the PFC remains at
its current rates. That is because airlines believe in and support
spending for airport infrastructure.
In closing, please consider that the airports and airlines agree on
the scope, pace, and funding of airport capital improvement projects
almost without exception, and with the current laws and PFC structures
in place. Those capital improvements are coming--often not as fast as
we would like, but only because airport improvement projects take so
long despite the best efforts of everyone involved.
More PFC taxes simply will not deliver airport improvements any
sooner. The airports as a group want significantly increased PFC funds
they can spend on projects without the inconvenience of having to
negotiate with the airlines that pay for airport facilities. The
airlines prefer our current system whereby we and the airports continue
to work collaboratively to determine how billions of our dollars are
spent to improve the Nation's airports.
I'll be happy to address any questions from committee members.
STATEMENT OF HON. STEVE DAINES,
U.S. SENATOR FROM MONTANA
Senator Daines. I want to extend my thanks to the actual
Chair of this committee for yielding to the Acting Chair to
start with my questions. So, thank you, Senator Ayotte.
In my hometown of Bozeman, Gallatin Field's been operating
since 1941. We are part of the Bozeman-Yellowstone
International Airport. It has come a long ways to opening up
that area. In fact, between 2000-2007, Bozeman pursued rapid
infrastructure development fueled by increased tourism to
Yellowstone National Park and a growing tech sector. The
continued economic growth of the region is largely contingent
on the ability to maintain regular air service. I can tell you,
I can do this job, going back and forth, because of the great
air service in and out of Bozeman.
We opened up a new terminal in 2011. And the FAA delegated
Bozeman as a ``small hub.'' In the four years leading up to the
airport expansion, we saw a 15 percent increase in passenger
enplanements in Bozeman, and, most recently, we've seen a 26
percent increase, compared to 4 percent nationally.
We've been very appreciative of the Contract Tower Program,
because, without it, the Bozeman Airport would not have a
tower. However, the airport's grown so much that it's now one
of the busiest contract towers in the country. The airport
continues to struggle with less staffing than their Federal
counterparts. In fact, there are approximately 100 Federal FAA
towers with less operations than Bozeman. While it's more
common for a Federal tower to convert to a contract tower,
Bozeman Airport is interested in possibly converting into a
Federal tower. The airport has informed me, just recently, that
the FAA has been exploring this issue for years. And, when I
inquire with the FAA about it, they said the FAA does not,
quote, ``convert contract towers to Federal towers,'' and they
have no criteria for doing so. Despite the fact we have 100
Federal FAA towers with smaller operations than Bozeman, we're
now Montana's busiest airport.
Mr. Hauptli, as a representative for small airports, it
seems to me that there needs to be a mechanism for the FAA to
right-size Federal towers to the busiest airports, and contract
towers to the slower or smaller airports. Would you have any
suggestions on how to best address this issue from an airport
and the FAA's perspective?
Mr. Hauptli. Sure, Senator. I can't speak for the FAA, but
I can speak for the airport side of that equation. The
statistics that you cite, I think, are significant in terms of
the growth that you've experienced at that facility and in your
community. We'd be happy to work with you and your staff, talk
with the FAA about potentially developing criteria for the
conversion that you talk about. That's something, obviously, in
the context of this upcoming FAA reauthorization bill that you
could consider--that the Committee could consider--including in
the legislation. Be happy to talk to you about that.
But, my understanding is you're correct, the FAA doesn't
believe that they have, currently, criteria to deal with that
issue.
Senator Daines. Yes. Seems, again, with 100 airports right
now with smaller operations with FAA towers, it seems like we
could find a path forward there to solve that problem. So,
thanks for your help on that, Mr. Hauptli.
Mr. Hauptli. Yes.
Senator Daines. Mr. Dillingham, in your testimony, you
discussed the decline in airport operations at most airports.
While we've got airports that are growing, like the Bozeman
Airport, and, now that we're a small hub, would you have any
recommendations on how they can address growing infrastructure
and funding needs?
Dr. Dillingham. Are you referring to smaller----
Senator Daines. Small airports that are growing.
Dr. Dillingham. Right.
Senator Daines. Yes.
Dr. Dillingham. I think that the way the current Federal
funding is organized, where there's a cross-subsidy for--from
the AIP program to the smaller airports, that that is, in fact,
one of the best ways to make sure that smaller airports can
acquire the kind of funds that they need for infrastructure
development. And, as you mentioned before, the Contract Tower
Program is also another element that helps to make those small
hubs more efficient. I mean, it's--one of the things that is
sort of a consensus out there is that we need the spokes in the
wheel to go to the major hubs. And those small airports make up
part of that national airspace system or airport system.
Senator Daines. Thank you for that thoughtful answer.
Mr. Hauptli, could you give us an example of some projects
that have not moved forward because there hasn't been a
Passenger Facility Charge increase? Raising airline ticket
prices through PFCs is not an option when it already costs us
more to fly to other cities because we have to connect through
a hub to get to our final destination. So, what exactly is not
getting funded at airports and why do we need to see an
increase in the PFCs.
Mr. Hauptli. Sure, Senator. Thank you for the question.
It is a regular contention of my colleagues on the airline
side of the equation that, ``Well, you don't need an PFC
increase, because things are getting built.'' And, to a large
extent, many of the projects are, in fact, getting built at
major facilities across the country. What happens is, they take
much longer to get built, and it costs much more money than it
should. It's much less efficient than it should be. Airports
have a series of--from across the country, in various states--
projects that we'd like to see accomplished through an increase
in the PFC.
And, Senator, since you also are very focused on the small
communities, I'd offer an example for your consideration of an
unintended consequence in public policy in the last
reauthorization bill. Congress doubled the requirement for
local communities to come up with their share in order to get
grants from the FAA. That has been very expensive, very hard
for small communities to come up with those resources. An
increase in the PFC would allow these smaller communities to
use that for their local matching share and be able to build
some of these projects.
Senator Daines. Thank you.
Yield back to the Chair Ayotte.
Senator Ayotte [presiding]. Well, thank you, Senator
Daines, for taking over for us while we had another committee
hearing going on, myself and the Ranking Member.
But, we're very pleased to have the Ranking Member of the
overall Commerce Committee here today, Senator Nelson. I would
like to call on him.
Thank you.
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA
Senator Nelson. Madam Chairman.
And I just want to raise one issue. No doubt you all are
aware that, last December, it was discovered, a plot of
smuggling guns onto airplanes in the Atlanta Airport, flying to
New York. The police were quite frustrated because all these
guns were showing up on the streets of Brooklyn, and they
couldn't figure out how they were getting there. They had
policed I-95 and so forth. Well, the scheme was that, because
there are many entry points for airport employees at the
Atlanta Airport, that there is not extensive screening, an
airport employee carried guns in. Then that employee went up to
the sterile area of passengers and rendezvoused with a
passenger who had an empty backpack, and transferred the guns
into the backpack, and the guns were transported by plane. And
it included a carbine. And when they arrested him--and this is
going on several months, several trips--when they arrested him
in December, he had 16 guns in the backpack. Now, it's a good
thing he was a criminal and not a terrorist.
So, obviously, this has been addressed by the Access
Control Working Group of which you all have been a part. But,
lo and behold, I was very pleased to discover that, out of the
450 airports in this country, two airports that have addressed
the problem are in my state. First, Miami, when they discovered
a drug-smuggling ring, way back in 1999. And recently, a
similar drug-smuggling deal in Orlando, in 2007. And what they
did was common sense. They took the hundreds of entry points
and boiled it down to a handful, and then put up the screening
that is similar to what we, as passengers, go through. And not
only do they screen the employees, the employee has a badge,
the picture has to match, the swipe has to be current. And, in
the case of Orlando, they've got to punch in an identification
number.
Now, that's so common sense to take care of this problem.
What do you all think about that?
Ms. Pinkerton. Senator Nelson, thank you so much for that
question. Sharon Pinkerton, representing the airlines here. And
I'm from Florida, so I'm very familiar with Miami and Orlando.
And, in fact, I testified on this very issue about a month ago,
after the Atlanta incident.
Since that time, as you're aware, we've worked very closely
with Secretary Johnson, who announced the results of the
Working Group and the recommendations that have been made. We
think we need to pursue those recommendations as soon as
possible and some of the things are those that you mentioned.
For example, we need to reduce the number of access points at
airports right now. We need to increase screening of employees,
and we need to make sure that, when employees are traveling on
personal business, they're not using their employee card to
avoid screening. There's a list of 20-some recommendations. I
can assure you, it's a very high priority for the airlines.
Senator Nelson. Well, Madam Chairman, I'll just say that
this has been taken care of in two of the major airports. There
are--but, there are 448 more airports, just in this country.
And it seems, to this Senator, that it's common sense if we are
going to give the assurances to the traveling public that they
are going to be safe. And this is a serious breach of potential
safety.
Thank you, Madam Chairman.
Senator Ayotte. I want to thank Senator Nelson. You raise
such an important issue here. And I have to say, just having
reviewed the response to both Chairman Thune and yourself from
the TSA Acting Administrator, this is something that leaves me
with more questions than answers, because one of the things, as
I see in this response--and I think, Mr. Hauptli, you can help
me with this--is basically, when it comes to lost, stolen, or
otherwise unaccounted for badges or airport credentials in the
last 5 years, the Acting Administrator says, ``TSA does not
maintain a record of lost or unaccounted-for airport IDs,'' and
basically turns it back to the airport, saying, ``Airport
operators issue and are responsible for conducting periodic
audits and maintaining records for one year.'' And if the
percentage of those unaccounted sort of reaches a breach level,
then there may be something done about it, but it doesn't seem
like that information gets translated back at all to TSA. So,
where are we left with all of this? I see this as a huge,
gaping problem that the Ranking Member rightly--obviously, he's
got some ideas from his airports. But, what are your thoughts
on this?
Mr. Hauptli. Thank you, Senator.
The Aviation Security Advisory Committee that was
referenced earlier has come out with a series of
recommendations--28 in all. Secretary Johnson announced the
other day five immediate actions that would be taken including
additional recurrent vetting--the point that you raised,
Senator--to try and make sure that we are, on a more continuous
basis, vetting those employees. And the airport community is
supportive of that effort, going forward.
You are correct that if a particular facility reaches a
threshold, a single-digit, I would say single-digit threshold,
then it triggers rebadging the entire population. I met,
yesterday, with the acting head of TSA, and we discussed this
issue, discussed how we can strengthen this effort, going
forward. It is, I would say to all of you on here, a multi-
layered, risk-based effort that needs to be undertaken to
prevent these kinds of breaches.
Senator Ayotte. Yes, I appreciate it. This is obviously of
deep concern, because if you think about that you're doing on a
percentage basis, in terms of the review, the risk-based
assessment becomes even more important, because it's not really
the number of people who get issued the badge, but those that
are unaccounted for, or the security credentials unaccounted
for, because it only takes one. Right? So, I think that looking
at the review and the risk-based element becomes even more
important, rather than the number. So, I'm glad you're focusing
on it. I see this as something that I'm glad the Ranking Member
raised, because it's incredibly important. And I was a little
troubled by the response of TSA. I think we need to be more
direct in addressing this.
I wanted to follow up, Mr. Hauptli, on the contract tower
issue. The Inspector General audit of the FAA Contract Tower
Program concluded that FAA contract towers provide cost-
effective and safe air traffic control services and operate a
lower cost than similar FAA-operated towers. The Inspector
General found that contract towers, on average, cost $1.5
million less per tower compared to the FAA tower system. Mr.
Hauptli, in your testimony, you note that the FAA is in the
process of revising its cost-benefit methodology in a way that
could skew the analysis of a contract tower's value,
potentially threatening their continued operation, which would
be--you know, as I look at communities in New Hampshire,
especially Nashua, New Hampshire--that would be bad for the
safety of the flying public. Can you please expand on your
statement and also address how you believe this new cost-
benefit methodology could impact the Contract Tower Program?
Mr. Hauptli. Sure. Thank you for the question, Senator.
Hit the rewind button just a little bit and go back to
sequestration, round 1, where the FAA attempted to close many
contract towers.
Senator Ayotte. I remember this well.
[Laughter.]
Senator Ayotte. I think many of us on this committee do.
Mr. Hauptli. I wanted to mention it because it would
provide me an opportunity to say thank you to members of the
Committee for your very vigorous support of the Contract Tower
Program and your efforts to address this. And we greatly
appreciate it, airports around the country.
You're correct, the Contract Tower Program handles 28
percent of the operations in this country, yet only costs 14
percent of the cost. There are tremendous cost savings
involved. The safety level is without question. It's a very
effective program and, frankly, we believe, should serve as a
model for other areas of government, a partnership between
industry and government, going forward.
As it relates to what's taking place today at the FAA, we
are concerned. The FAA is looking at revising the cost-benefit
analysis. And our concern is, early indications have us
thinking they're putting their thumb pretty hard on the scale
of the cost side, but they really aren't doing the same when it
comes to the benefits. We believe, as an example, that once a
cost-benefit analysis of a tower is done, that that should be
it, and the tower should be able to operate. The FAA wants to
do almost--I won't say ``continuous''--but much more repetitive
cost-benefit analysis at some of these facilities. And we just
are concerned that, in the administration's efforts to save
money in certain areas, that this is one area where they
haven't really shown that they have as great of appreciation
for the Contract Tower Program as many of the members of this
committee do. So, we're watching that very carefully and would
ask the Committee, in its consideration of the next FAA
reauthorization bill, to be vigilant in that regard, as well.
Senator Ayotte. Thank you.
I'd like to call on Senator Cantwell.
Senator Cantwell. Thank you, Madam Chair.
And let's--I want to dig into this issue on how we move
forward, because I think probably nobody cares more about the
health of airlines than a Senator from Washington who wants the
aviation industry to be strong, in general.
Obviously, airlines oppose increasing the Passenger
Facility Charge, because the PFC is one of the fees included in
total ticket price, and they argue that that impacts the
passenger demand. And airlines also maintain that there has
been ample funding in the PFC, looking at 2014 reaching a
record high of $2.9 billion. So, the past decade has been a
very challenging one for airlines. But, the current financial
state of the industry has improved, and obviously we need to
make infrastructure investments, as well.
So, Mr. Reis, do you want to talk a little bit about what--
how you've dealt with this at Sea-Tac? Because I know that
airports are able to generate revenue from non-aeronautical
operations, such as the dining and parking and stores. And, you
know, if you've ever been to Dubai, you look at that airport,
and you think, ``OK, how much money are they generating from
all those activities?'' But, that revenue that we generate here
in the U.S. can be used to fund operations or facilities which
are not permitted uses of AIP or the PFC. So, the current
agreement between Sea-Tac and airlines require that half of the
net income from those non-aviation operations be diverted to
reducing the fee charged to airlines and airports.
So, is that something that's across the board? Do you think
this is something that we should be looking at as part of
legislation?
Mr. Reis. Thank you for the question, Senator.
You're absolutely correct that, at Sea-Tac Airport, fully
half of our net income from all of our non-airline sources is
used to actually reduce the rates and charges of the airlines.
Now, that is a provision in our lease agreement with the
airlines. And it's important to note that the old saying of
``When you've seen one airport, you've seen one airport''
applies to lease and use agreements just like it does to
facilities and local politics, et cetera. So, each airport and
the airlines that serve that airport have a lease agreement of
one sort or another, with very few exceptions, which operate
under an operating agreement. And the provisions of those all
vary.
So, in our instance, we generate about $45 million of net
income from our non-airline revenue sources. Half of that is
used to reduce airline costs, and the rest of it, we need to
invest in various facilities. Mostly, we seek to use that money
for projects that the airlines are not responsible to pay for
under the lease agreement and are not eligible for Federal
moneys. On the other hand, we--one of the major projects we are
undertaking at the moment is a new international arrivals
facility. And we are proposing to invest a very significant
amount of our net income, our retained earnings from non-
aeronautical sources, in that facility in order to bring the
cost of the facility down.
Now, interestingly, Mr. Minerva and Ms. Pinkerton both made
a very big point of, ``Airlines and airports work together and
work all this stuff out.'' And it is true. The vast majority of
the cases, that really does happen. In this particular
instance, though, many of the domestic airlines are indicating
they intend to vote against this international arrivals
facility because they don't like the financing arrangement.
Nobody thinks we don't desperately need a new international
arrivals facility. Certainly, the Senator knows, if you arrive
at Sea-Tac today, going through a 40-year-old facility that is
subterranean is not a very good front door. So, airlines,
airports, everybody, the community, knows we need to build the
facility. The airlines are indicating that they're going to
vote against this and seek to stop the project because we are
not devoting enough PFCs to that project. It's not because they
don't think the project's a good project. It's because they
want us----
Senator Cantwell. The airlines, in this case, want the PFC
that's already--revenue allocated to this.
Mr. Reis. Correct. The argument is that we are devoting too
many PFCs to this international arrivals facility, and not
enough to other projects. So, it really comes down to which
airline rate base will get the benefit of PFCs, because
airports cannot charge the airlines for the costs of a project
that are paid for by PFCs.
So, as I said in my oral statement, in Washington, D.C.,
the airlines are saying a PFC is not necessary. In Seattle, on
the ground in the real world, they're arguing about the
allocation of the PFC to a project because it will reduce their
rates and charges.
Senator Cantwell. Well, I have 11 seconds left. Well, I can
wait and hear from the airlines. But, I do want to hear from
them on what they say about this. But, I also want to make a
point about----
I think we need to dig into this issue overall. I really
want to understand how all the revenue from the airports are
generated. I really do have some concerns about the flying
public, who basically get charged an exorbitant rate for a
bottle of water, when they really want a different product.
I do want to congratulate Sea-Tac for having, I think, been
voted one of the healthier foods of the airport industry. And
that's not just from me. I cringe when I see pilots, here at
D.C. National, trying to find something that they want to eat.
And I guarantee you, there's very little at National Airport
that I want pilots eating, because it's high-fat-content fast
food that is not what I really want pilots eating. So, I think
there are a lot of issues about, what else can airports do in
generating--you know, I mentioned Dubai, but I really do think
that this issue about, what are the future partners for airport
facilities to generate more revenue? Particularly now that
consumers, because of safety have more time there.
But, anyway, I want the airlines to comment about their--
this PFC issue. And I'm happy to wait for an answer, Madam
Chair, on the next round, too. So----
Senator Ayotte. OK. Why don't we--I know that Senator
Wicker has to get going, so why----
Senator Cantwell. Yes, fine.
Senator Ayotte.--don't we go to him.
Senator Cantwell. Thank you.
Senator Ayotte. Thank you.
STATEMENT OF HON. ROGER F. WICKER,
U.S. SENATOR FROM MISSISSIPPI
Senator Wicker. Thank you.
And thank you, gentlemen.
Mr. Hauptli, I came here with hopes, in my 5 minutes, of
talking about AIP, contract towers, and Passenger Facility
Charges.
Mr. Hauptli. Yes, on all three, Senator.
[Laughter.]
Senator Wicker. Yes. So, I'm glad the Chair, Senator
Ayotte, covered the contract towers question. Let me just
reiterate that, in the industry and in Congress, the Contract
Tower Program is viewed as one of the most successful
government-industry partnership programs. And, it's my
understanding--and correct me if I'm wrong, sir--contract
towers handle about 28 percent of all tower aircraft
operations, but account for only about 14 percent of the
spending.
Mr. Hauptli. You're exactly right, Senator.
Senator Wicker. Very good.
Well, let's move on, then, since Senator Ayotte covered
that, to the AIP program. The President proposes $2.9 billion
for the next Fiscal Year, although there's a $3.2 billion AIP
funding threshold. This would mean that all direct
apportionments would be cut for nonprimary designated airports
and entitlements to airport, with a primary designation being
reduced drastically. In my state of Mississippi, only three of
the 74 airports are designated as primary.
So, what types of airports are most reliant on AIP funding?
And what airports would stand to lose the most if AIP continues
to be cut as the President has proposed? And how would small
communities and nonprimary airports be affected by the
administration's proposal?
Mr. Hauptli. Right. Senator, thank you for the question.
While airports of all sizes benefit from the Airport
Improvement Program, certainly the smaller the airport, the
greater the percentage reliance on that funding stream, that
Federal funding stream represented through the AIP program. So,
I'd say that virtually all of the airports in your State,
Senator, would be jeopardized by the administration's proposed
funding level of $2.9 billion, certainly without Congress
stepping in to make an adjustment to deal with that threshold
at $3.2 billion that you suggest, that you reference in your
question.
We believe that the AIP program, as I mentioned earlier,
has according to the FAA nearly $7 billion in eligible
projects, yet Congress is funding at closer to this $3 billion
level. We believe that there is more than enough justification
for a higher authorization level for the Passenger Facility
Charge Program. This committee, in the previous FAA
reauthorization bill, had a much higher authorization level for
the program, and it got whittled down as that bill made its way
through the final process. So, we would support very robust
funding for AIP in the future to guarantee that revenue stream
to protect the smaller airports in the country.
Senator Wicker. As a matter of fact, our calculations are
that we'd--would--96 percent of my airports in Mississippi
would be disadvantaged under this proposal.
Now, you said your answer to the PFC question would be yes.
So, I've just got to learn to phrase it correctly----
[Laughter.]
Senator Wicker.--so it will be a question that I want to
get a ``yes'' answer to.
Mr. Hauptli. ``Should I vote for an increase in the
Passenger Facility Charge?'' I think was your question.
[Laughter.]
Mr. Hauptli. The answer is yes, Senator.
[Laughter.]
Senator Wicker. Tell me again. Why--I think we understand
why the larger airports are in favor of this--why are so many
small and medium-sized airports with lower passenger volumes
also interested in this issue?
Mr. Hauptli. It's a great question. And it's, frankly, sort
of counterintuitive. But----
Senator Wicker. It is.
Mr. Hauptli.--some of the biggest supporters of an increase
here in modernizing this program come from some of the smallest
airports. One reason is that in the last round of FAA
reauthorization Congress agreed with an administration
suggestion and lowered the percentage that the Federal
Government would support in what the match would be for a
smaller airport. In other words, airports--smallest airports
now--instead of only having to come up with a 5-percent
matching share requirement, are now required, under Federal
law, to come up with 10 percent. And, as you know, Senator, in
many small airports, many small communities, coming up with
that increased local matching share is very challenging. An
increase in the Passenger Facility Charge would allow those
smaller airports to come up with that local matching share.
Senator Wicker. So, that's one reason.
Mr. Hauptli. Yes, sir.
Another reason would be to increase the Passenger Facility
Charge at the smaller airports, is that it is a necessary
function for them in order to build some of these additional
projects that the airlines wouldn't necessarily be supportive
of. So, greater autonomy in deciding how and what gets built in
their community. And again, Senator, our contention is that the
unit of government closest to the people--the city councils,
the mayors, the airport boards--are the ones who should be
making this decision, not all of us here in Washington, D.C.
Senator Wicker. Thank you.
Thank you, Madam Chair.
Senator Ayotte. Thank you, Senator Wicker.
Senator Gardner.
STATEMENT OF HON. CORY GARDNER,
U.S. SENATOR FROM COLORADO
Senator Gardner. Thank you, Madam Chair, for the hearing.
And thanks, to the witnesses today, for your time and
testimony.
I just--I kind of want to follow up and just have a little
bit of a discussion on the--this PFC issue and the negotiations
that take place. And so, Mr. Hauptli, Mr. Reis, when you are
negotiating with an air carrier to--airline--to have gates at
your airport, you negotiate a set price or rate, right, for the
use of that facility and that gate?
Mr. Reis. Well, Senator, our airline agreement, like the
vast majority, is a cost-based agreement. So, we, on an annual
basis, calculate what we need to charge for gates, ticket
counters, ramp space, et cetera, based on formulas that are in
our airline agreement that define these, in our instance, for a
5-year agreement; sometimes they're 7-, 10-, 20-year
agreements. So----
Senator Gardner. And does that vary by airline, if it's 5
years or 3 years or 10 years? Does it vary by airline at the
airport?
Mr. Reis. No. We have an agreement that covers every single
one of the signature airlines. So, there are some airlines who
might fly once a day, might fly three times a week, with a
single flight, who choose not to become a signatory to the
agreement with the airport. But, we have 28 airlines who are
signatories to our agreement. This includes, of course, all of
the large airlines, but many ones who don't fly very much at
all. And it's that agreement that defines the cost-based cost-
recovery rates for each of our facilities.
Senator Gardner. So, would the PFC go into this discussion
if it was a--you know, if the administration's proposal or
other proposals were to go to $8, $8.50, would that be a part
of the discussion, in terms of the rates that these--that they
would pay? Would they ask for a lower rate, you would
anticipate?
Mr. Reis. Well, it would be an automatic part of the
calculation, because a very, very large part of the cost-
recovery rate for all of our facilities is the cost of
capital--paying back debt service for bonds, et cetera. And if
we use a PFC to build some gates, or we use it to build a
runway, we don't charge the airlines for that.
For example, in 2008 we opened our third runway. It was
about a 20-year project, most of which was permitting. Very--we
built it pretty quickly once we got all the permits and the
litigation overdue. And we have paid all of the debt service
for that runway through PFCs. So, as a result, a brand-new
runway that cost us a billion dollars to build, mostly because
of the civil engineering in order to create the space to build
the runway, the airlines do not pay a penny for. So, that's how
the rates and charges--PFCs will play into the rates and
charges.
Senator Gardner. And so, I guess, Mr. Minerva, then if the
rates--or PFC were to increase, would you be looking for
something out of the airport to try to offset that--the PFC cap
were to be lifted?
Mr. Minerva. I think the way that Mr. Reis described it
makes the most sense. And let me actually--about the leases--
and let me start from a ground zero. Because this is the way
that airlines look at our airport leases.
Airport leases are a way of allocating costs and revenues
at the airport. And the revenues at the airport come from the
airlines--the passengers, whether they're coming there to fly
or they're parking, they're buying good, whatever. Those--
that--those are the sources of revenue. So, an airport will,
basically, add up all of its costs, add up all of its revenues,
and then the lease agreement determines how those things are
allocated.
Now, a lot of those costs--when an airport takes on an
additional project or takes on additional cost--the burgers
cost what the burgers cost, right? The parking costs what the
parking costs. So, those things tend to sit at their level. Any
additional costs tend to be incurred by the airlines. And a lot
of that is cost of capital. So, if an airport goes out, sells
bonds to fund a project, then the debt service goes into that
stackup of costs, which is generally paid for by the airlines.
In a PFC, the money comes out of our ticket. It's not free to
us.
Senator Gardner. Right.
Mr. Minerva. The money comes out of the tickets that we
sell. And it comes out of that source rather than out of--than
being added to the stack of airport costs. So, it's really--
when you look at any new project, you say, well, some may be
bond, some pay be PFCs. All may be bonds, all may be PFCs. It
doesn't reduce the operating cost of the airport, it just is a
separate funding stream.
Senator Gardner. In terms of changes you would like to see,
if PFC caps were to be lifted, what changes would you like to
see in oversight, in involvement, more say in where money is
spent?
Mr. Minerva. I'm having trouble envisioning a world in
which I'm living with a higher PFC, so the conditions that
would apply in that world are a bit foreign to me. We don't
think there is a problem that a higher PFC would solve. And we
would urge the Committee to look closely at the examples of
projects that are not being done. We're not really aware of--I
mean, we have seen a list from the airports. Some of the list
of projects on that list have already been done, some of them
our airports have never even talked to us about. So, we think,
really, the focus ought to be on what projects are not getting
done and what projects are getting done.
Senator Gardner. And so, that could be a change, even under
existing PFCs. You're talking about concerns with what is being
done at the existing rate it is. And that's one idea for
additional involvement?
Mr. Minerva. Well, we think that the current system drives
a lot of airport and airline consensus. And one of the things
you heard Mr. Hauptli say is that decisions should be made at
the local level--we agree with that; by the airport directors--
we agree with that, in part. But, we think that it's best made
in conjunction with the airlines so that the local officials,
city, State, airport operator, working with the airlines. We
don't think those decisions ought to be made unilaterally.
Because, when you have projects of 700 million, a billion, $2
billion, we think that you get better projects when the
airports and the airlines work together. That's what's
happening today.
Senator Gardner. And, to the best of your knowledge, did
the gyrocopter pay a PFC?
[Laughter.]
Senator Gardner. Thanks, Madam Chair.
Senator Ayotte. Senator Klobuchar.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Thank you very much, Madam Chair.
Thank you so much, all of you, for being here. Many of my
colleagues remember the last FAA reauthorization bill and the
tough issues. And, unfortunately, delays on coming to an
agreement, as we all remember, led to 23 separate short-term
extensions and a partial shutdown of the FAA. I remember how
much that affected some of our smaller airports. And I really
do not want that to happen again. So, I'm going to start with
that.
I know that many in the aviation issues have--industry have
issues that they'd like to see addressed this year, but I also
think we need to stress that we need more certainty provided by
a long-term reauthorization bill. Even the last reauthorization
caused some uncertainty for our airports.
Mr. Reis, how important is a long-term reauthorization in
planning for the future for airport investments?
Mr. Reis. Well, you've raised a very good and very hot
issue, in many ways. Certainly, the reality that the FAA faced
in that period of time when we had the succession of 6-month
extensions, 3-month extension, 2-week extensions, was quite
unnerving. They could not issue grants, because they really
didn't know how much money they would really have for the
entire year. So, it was--especially for small airports that
need grants and need them on an annual basis, it really
required them to delay projects and, in some instances, lose an
entire construction season because the FAA could not make a
grant, even though both the FAA airports office and the airport
understood that it was programmed, because they technically did
not have a commitment of the money. In some instances, those
projects actually delayed through a summer and into the next
construction season.
Senator Klobuchar. OK, thank you. I know there has been a
number of discussions related to reforming the air traffic
control system in the FAA reauthorization. I know we're going
to have a more detailed hearing on that later. But, I'd like to
get the airport perspective on the proposals that would put the
Airport Improvement Program into discretionary funds and remove
it from the trust fund. Maybe, Mr. Hauptli, if you want to take
that. Can you please share your thoughts on what this would do
to the program?
Mr. Hauptli. Sure. Thank you, Senator. Great question, very
topical question, and an item of significant concern for the
airports.
We want to make sure, in whatever goes forward with air
traffic control modernization, that the AIP, the Airport
Improvement Program, piece of it remain within the Aviation
Trust Fund. We need that predictable, stable funding stream
that is supported by the users of the system rather than
subject AIP funding to the vagaries of the Federal budget
process and general revenues.
Senator Klobuchar. Very good. Thank you. I like that term,
``vagaries.'' That would be correct.
Dr. Dillingham, our Nation's airports are located in small
rural areas, as well as big ones. We have a big hub that we're
proud of in Minneapolis and St. Paul, a little like Newark.
Maybe not quite as big.
[Laughter.]
Senator Klobuchar. But, we also have a lot of small rural
airports. And the Small Community Air Development Grant Program
and the Essential Air Service are crucial to keeping these
rural areas thriving and connected to the rest of the world.
What, if any, steps has GAO indicated can be taken to address
these--some of the issues we've--having at the smaller
airports? And, you know, what do you think we need to do to
keep these routes strong?
Dr. Dillingham. Thank you, Senator, for the question.
Yes, GAO has looked at both the EAS program and the Small
Community Development Program. We have recommended that the
Congress may want to look at extending the eligibility for the
Small Community Development Program. We've also said, in fact,
that the EAS program, although controversial, is necessary for
some small rural communities. We also recommended--when we did
our work, a couple of years ago, that we should be also
thinking intermodally. And, by that, I mean----
Senator Klobuchar. The hub, the--uh-huh.
Dr. Dillingham. Right, exactly. But, also the--to the
extent that it is--it makes sense, you could think about
whether there's a bus link to a bigger hub or a close hub, or
even an air taxi to a hub. So, you know, all of our work has
suggested that we have a national system and we need to have
that national system connected by the most efficient means that
are available.
Senator Klobuchar. Very good.
Last--I'll just put this on the record--but, in the last
FAA reauthorization, I made sure to include the language, in
Section 154, that required the FAA to give processing priority
to airport construction projects carried out in states where
the weather during a typical year prevents construction
projects from being carried out before May 1, like states like
mine, where, as I noted at our weather hearing yesterday, it
was 41 below zero, without windchill, and embarrassed Minnesota
one day last month. But, the point is, is that I think that's
been helpful. And I guess I'll put that on the record for you,
Mr. Hauptli, to give those states some priority when they
have--during those construction seasons.
Mr. Hauptli. Right. And I would just add, very briefly,
Senator, I was in the great state of Minnesota on Tuesday,
meeting with the great airport director, Jeff Hamiel at
Minneapolis, and there were snow flurries----
Senator Klobuchar. Yes, OK, thank you.
Mr. Hauptli.--on Tuesday.
Senator Klobuchar. Thank you for backing that up. And we
will put----
Mr. Hauptli. So, it backs your point.
Senator Klobuchar.--we will put that on the record, despite
the fact that Senator Sullivan claims that Alaska is colder.
That is just not true.
[Laughter.]
Senator Klobuchar. All right. Thank you very much.
Senator Ayotte. Senator Booker.
STATEMENT OF HON. CORY BOOKER,
U.S. SENATOR FROM NEW JERSEY
Senator Booker. Jumping in real quick. And thank you,
Chairwoman.
We've got a problem in our region. You know, we have,
serving New Jersey, the busiest airports in America. At least
four of the five airports in the United States, the FAA has
already identified four of the five Jersey-serving airports--
or, four of the five busiest airports are Jersey-serving
airports that the FAA has identified as capacity-constrained
all the way through 2030. There's congestion, there's demand,
and it's such a critical area of our global and national
economy. To me, it's just unacceptable that the three airports
in the New York/New Jersey region, or, as I like to call it,
the New Jersey/New York region----
[Laughter.]
Senator Booker.--are ranked--they're ranked on the bottom
of all on-time arrivals because of these problems.
There's an urgent need to invest in New Jersey's airports.
A report last year showed that we're ranked last--last in the
50 states--in the amount of Federal airport improvement grants
we receive per passenger. We need to invest more in this
infrastructure. And it's frustrating to me to see that we're
not in some way keeping up. And so, I'm eager to work with
everybody--a lot of my friends in the airlines, in the
airports, and the FAA--see if we can come together to figure
out how to deal with this specific regional crisis.
I do want to explore more--and we don't have the time
here--a lot of the different views I'm seeing on some of these
issues. But, just really quick, Mr. Hauptli, over the last four
decades, investments in our airports have not kept pace with
what's needed, as I've just described. And I'm curious, are
there some investments that should be being made in our region
that could really help with airport capacity and the increased
on-time arrivals?
Mr. Hauptli. Absolutely, Senator. And thank you for the
question.
Just as an observation, in your region, in the aftermath of
the superstorm, you know, we saw pictures and video of runways
under water. The Port Authority of New York and New Jersey has
undertaken a very significant project to both expand runways at
JFK, widen them, and then also raise them so that we don't have
this safety concern in the future. Passenger Facility Charges
are a vital element in that project, going forward.
Senator Booker. Right. I'm sorry, did you want to--Ms.
Pinkerton?
Ms. Pinkerton. Yes, we completely agree that the airports
in New Jersey and New York are critical. I know United is
working closely with the airport there to pursue improvements
at Newark. I also think that there--is a lot to know--the Vice
President has cited LaGuardia's central business terminal as an
example. And we support that need. I think, unfortunately,
what's holding back some of these projects, and that project in
particular, the Governor decided that he wanted to wait to pick
a public/private partner in LaGuardia. So, there's private
money that's begging to get into LaGuardia, but, because they
have to wait for this redesign competition to be done, that
project has been delayed yet again.
I think another thing that's unique about New York, but
there are also other projects that fall into this category, a
series of airports exist today that are called ``revenue
diversion airports.'' And under that scheme, there's about--
almost $430 million every year that goes off of the airport--
airport revenue that goes off of the airport.
So, I mean, what we've tried to lay out here today,
Senator, is, we want JFK, Newark, and LaGuardia to be
modernized, and we're standing ready, willing, and able. The
question here is, Do you want to raise the rate base, which
airlines are saying we're ready to do that, or do you want to
increase taxes? And so, we think there are a lot of other
issues--I agree with Senator Cantwell----
Senator Booker. Well, that's the picture--if I can, just to
get out my last question--I mean, that's the picture--
everybody's identifying the urgency. We're spending less in
Fiscal Year 2015 on airport improvement investments than we
were in 2007. My frustration is, is that the money does not
seem to be getting to where we need it. And is the question
that we need to raise the fees or do we need to better allocate
the dollars that we have? And I see, Mr. Minerva, you referred
to that, as well.
So, I just want to--just let me end with this. You know,
there's a dramatically growing number of passengers, and we see
that, the volume continuing to grow. I'm worried that we get
the least percentage of AIP per-passenger funds. As I look at
the allocation of those dollars nationally, in New Jersey,
we're really at the bottom. And so, really quickly, in the
seconds I have left, we know we haven't even--the PFC, there
are a lot of calls for it to be adjusted to inflation. There's
debates back and forth whether we have enough money, or not.
But--so, Ms. Pinkerton, let me just end with you. What steps
are airlines taking to ensure the proper investment in our
airport infrastructure in order to allow for the growing
demand, and especially in the highly congested hubs? And again,
I need to----
Ms. Pinkerton. Yes.
Senator Booker.--explore this more, but----
Ms. Pinkerton. Well, I think you've raised an interesting
question about how AIP is allocated. And I think what you heard
Dr. Dillingham say--right now, AIP, there's no doubt about it,
the vast majority of AIP goes to small and non-hub airports. In
fact, $1.8 billion, or 55 percent, of AIP goes to airports that
support 3 percent of passenger traffic. Now, a lot of that is
because the GA airports are getting a tremendous amount of
money. So, it's a balance, because I've heard a lot of other
folks on the Committee today say they want that money to go to
small communities. And I understand that.
So, what are we doing? We're investing our own money in
these airports. I mentioned earlier, JFK, you've got JetBlue's
terminal 5, Delta's terminal 4, Newark, as well, is an example.
So, we are literally--not just PFCs, not just AIP, but we are
putting our own money in these airports. And we're committed.
Senator Booker. OK, thank you.
Thank you.
Senator Ayotte. Senator Schatz.
STATEMENT OF HON. BRIAN SCHATZ,
U.S. SENATOR FROM HAWAII
Senator Schatz. Thank you very much.
I have a question for the panel. The Commerce Department
has an ambitious but reachable goal of attracting 100 million
international visitors by 2021. It's supported by the private
sector, State and local tourism authorities. But, a potential
chokepoint is the airports, themselves. A recent U.S. travel
survey estimates that, within the next 6 years, the top 30 U.S.
airports will experience Thanksgiving-like congestion at least
once a week. Not the most welcoming impression for our
international visitors. One study estimates that the U.S.
economy will lose 48 billion a year in lost travel spending by
the year 2034 because of capacity constraints. With
international travel expected to increase by more than 2
percent each year, we've got to make sure that our airport
infrastructure is up to the task.
So, the question for the panel is, What infrastructure
improvements do we need to make to ensure that our airports are
globally competitive and that we can meet our ambitious but
reachable goal? And I'll start with Dr. Dillingham.
Dr. Dillingham. Thank you, Senator.
I think one of the most important things that we need to
focus on is the implementation of the NextGen, the next-
generation air transportation system, and all of the
capabilities which that is forecasted to bring, in terms of
increasing the efficiency and capacity at the airports as well
as in the air. That would be the number-one suggestion that we
would make, to make the U.S., and keep the U.S., competitive in
international travel.
Senator Schatz. Thank you.
Ms. Pinkerton. Yes, thank you, Senator.
I've worked very closely with the White House and DHS on
that travel and tourism initiative. Frankly, our focus has been
on what we think is the real chokepoint--Customs lines have
been extraordinary long. We face three and four hour waits.
Again, airlines have taken it upon themselves to spend their
own money, through rates and charges, on what are called APC
kiosks, so that now, when people are coming into JFK, the lines
are much shorter. Miami's been another focus for us. So, I
think we need to continue to work on that entry process and
also continue to work on the infrastructure at those gateway
airports, which, again, we are investing our own money, and
we're committed to continue to do that.
Senator Schatz. Before we move on, I agree with you about
Customs and Border Protection, and I agree that that's
currently the--likely the rate-limiting factor for a lot of our
international arrivals. And I also understand that the--a fair
amount of progress has been made--consular offices and
everybody else is working on this, and progress is being made.
But, it is a question of physical infrastructure, as well. And
so, to me, part of working the strategy is to understand that,
as we improve CBP, that we will then find ourselves with the
infrastructure being the problem. And the problem with
infrastructure needs is that you cannot make operational
changes that will overcome a lack of planning or a lack of
funding. In other words, they will be upon us, and we'll be 5,
10 years behind the eight ball. Whereas, some relatively
simple, you know, executive branch changes made a real
difference.
So, I just wanted to say, I think you're right. I think the
administration has done the right thing here. But, from a long-
term infrastructure planning standpoint, we've got to get on
the physical aspects of the airports if we really want to reach
100 million international visitors.
Mr. Minerva. Senator, we certainly agree with that. And I
think one way to look at this--the way that the airlines, and I
would say the airports, tend to look at it is less on a
national basis and more on an airport-by-airport basis and
looking what each--at each airport needs, see an expansion of
the Tom Bradley International Terminal in Los Angeles, a recent
North Terminal in Miami. Mr. Reis talked about his facility,
which, you know, we have a different view on, in terms of the
funding question there, where there are six funding options,
and there's a disagreement as to which funding option. Not
every airport has six funding options. But, Sea-Tac was able to
lay out six separate ideas. And so, right now you're sort of in
the middle of the--it can be a rough-and-tumble world out there
between the airlines at airports. And the airlines disagree on
which of the six to fund. But, it's--there's no lack of funding
and no need for a higher PFC there.
So it really is something where we look at each airport and
try to figure out what the growth at that airport will be, and
how to handle it. Because those passengers, when they start
clicking on the Website to the time they finish their final
journey, they've paid us for that journey, and they hold us
responsible for every bad thing that happens on that journey,
whether it's a line in immigration or at TSA and things that we
don't have as much control over.
Senator Schatz. I'll take the rest of the answers for the
record.
But, I did want to mention, Mr. Hauptli, if you wouldn't
mind taking a question for the record. I'm deeply passionate
about Essential Air Service. It's especially important in an
island State. We're the most isolated populated place on the
planet, and we really depend on Essential Air Service, and want
to make sure that, from an appropriations standpoint, an
authorization standpoint, that we continue to be supportive.
I'm sorry, my time is expired.
Mr. Hauptli. Senator, I will take that for the record. And
I just wanted to very quickly echo what you said about----
Senator Schatz. With the Chair's permission.
Mr. Hauptli.--physical--Ma'am?--physical infrastructure,
very quickly. I just wanted to compliment you, Senator, and
your staff. You talked about the limiters on international
arrivals. In Hawaii, one of the big limiters is the fact that
there's only a single point of entry: Honolulu. You and your
staff have worked very hard with the Hawaii Department of
Transportation, working with CBP, to try and get them to open
up a facility in Kona. That will make a huge difference in your
State.
Senator Schatz. Thank you. That was definitely worth the
time. I appreciate it.
[Laughter.]
Senator Ayotte. I'm glad.
Senator Sullivan.
STATEMENT OF HON. DAN SULLIVAN,
U.S. SENATOR FROM ALASKA
Senator Sullivan. Thank you, Madam Chair.
And I actually want to also encourage you to continue your
focus on Essential Air Service. The great state of Alaska and
the great state of Hawaii have a lot in common on a whole host
of issues, despite our size differences.
And I also, Madam Chair, want to mention what--Senator
Klobuchar, what she mentioned. I did mention that, every day--
you know, 41 below zero, yesterday in our hearing, when we were
talking about that, is kind of just another day in Alaska. But,
the issue, seriously, of shorter construction seasons in
certain states is a very important one for a lot of us,
including my state.
I wanted to talk about another topic that I think, in my
view, holds a lot of risk for aviation infrastructure. I
recently had the opportunity to speak at a conference about
some of the biggest risks and threats to energy infrastructure
in the United States. And some of the panelists were talking
about terrorists and cyber attacks and things like this. My
view is that the--some of the risks are a lot closer to home,
particularly our own Federal Government. And whenever we talk
about financing, in infrastructure, I think a lot of times we
forget about just the mountains of red tape that have been
piled up, year after year. We see it. We see it everywhere.
Keystone, 6 years. We can't even move that. We--we're not even
close. In Alaska, between litigation and permitting from the
Federal Government, we had a mine that took 20 years to permit.
I think, on average now, it takes 8 years to permit a bridge in
America. These numbers are ridiculous, and they add huge costs
to infrastructure.
I'm wondering if any of you would like to comment on that.
I fear that this kind of regulatory redtape--we're always
looking for more dollars, but we're not always looking for ways
to make our own permitting system more efficient, timely, and
certain.
Would any of you like to comment on that? Because I think
it's a huge overlooked issue. And if you have recommendations
on how we can do that better--we have to do it better. In every
infrastructure area, particularly yours, if you have comments
or suggestions, I would welcome those.
Mr. Hauptli. Senator, it's a great question. And we are
constantly looking for opportunities to streamline some of the
regulatory process, whether that is environmental reviews----
Senator Sullivan. But, they only grow. They only grow----
Mr. Hauptli. They only grow.
Senator Sullivan.--coming out of Washington.
Mr. Hauptli. My colleague to my left, Mr. Reis, runs the
Seattle airport. As he mentioned earlier, they opened a new
runway in 2008. What he didn't mention is that they built the
great pyramids of Egypt faster than they built that runway. It
took longer to build that runway than the great pyramids of
Egypt. And that's----
Senator Sullivan. How many years from the beginning of
permitting to end of construction?
Mr. Reis. Well, I will clarify. It only took us about three
and a half years, 4 years, to build it. It took about 15 years
to get through the permitting and the litigation.
Senator Sullivan. Fifteen years. Do you think that added a
few dollars to the project?
Mr. Reis. Now, some of the----
Senator Sullivan. Did that add a few dollars to the
project?
Mr. Reis. There's just--well, it certainly added some
dollars to the project, and there were certainly outcomes of
the regulatory process, the environmental review, that were
meritorious. And so, the issue was--is not, ``Should or
shouldn't these''----
Senator Sullivan. No, nobody wants to cut corners, but--on
the environment, on protecting the environment--but nobody
wants 15 years for a permitting process.
Mr. Reis. That's----
Senator Sullivan. It's lunacy.
Mr. Reis. That's the exact point I was going to make, is
that it's not so much the substance of the outcome, but the
process to get to that outcome, that really was very
debilitating to the----
Senator Sullivan. Well----
Mr. Reis.--to the cost.
Senator Sullivan.--we would welcome any very specific
recommendations that you have with regard to this issue. I
think it's an enormous issue, and we always--we just add more.
Let me give you one example. Mr. Reis, Mr. Hauptli, you--in
the testimony or statements that you put forward--or the--from
the North American Airports Council International on the
proposed rule for the waters of the United States from the EPA,
that testimony, Madam Chair, which I'd like to have submitted
for the record, states that that rule will pose a significant
regulatory threat to ongoing airport construction, compliance
with certain Federal aviation safety requirements. It will have
significant impacts on the time required, cost of, and
construction of the projects.
Can you--would you care to comment on that rule,
specifically?
Mr. Reis. I would ask, Senator, if we could submit a
response for the record, because I'm not personally that
familiar with the details. But, I will ask the Airport Council
International staff to provide me some information that I can
put in the record for you.
Senator Sullivan. Great.
Thank you, Madam Chair.
Mr. Minerva. Senator, if I may add. This is an area where
the airports and the airlines really agree. It's a common
frustration we share. When I talked about how long these
projects take, it's not for failure of execution on the part of
the airports, it is just how long it takes even to get started
when we all agree and we're ready to go and the money is there,
and we wait.
Senator Sullivan. Well, we really, really need your
detailed, detailed comments on how to fix it. We will work to
fix it.
Thank you.
Senator Ayotte. Thank you, Senator Sullivan. I think you
made some very good points about how we could improve the
system for everyone. So, it--we'd look forward to those
comments as we go through the authorization.
And I would like to turn it back to my Ranking Member,
Senator Cantwell.
Senator Cantwell. Thank you, Madam Chair.
So, I want to go back to this infrastructure funding
question, and give the airlines a chance to talk about that.
You started, Ms. Pinkerton, talking about the rate base as
a different alternative. I look at this--the whole question and
think mostly about our constituents and the consumer, because
they're the one who's ultimately paying for all of this, as Mr.
Minerva said, in the purchase of an airline ticket or in the
PFC charge, itself, or going to the facility. So, what is it
you would prefer instead?
Ms. Pinkerton. Yes. As I said earlier, I think what this
boils down to is a choice, frankly, between forcing the
passenger to pay on the ticket, which I do think has a
disproportionate impact on small communities because of the
connections, or putting it in the rate base and having airlines
pay. And some people say we pass everything on to consumers.
That's not exactly true. I mean, if we passed everything on to
consumers, we would have never lost the $50 billion that we
lost, a decade ago.
Senator Cantwell. So, you're saying you--the exorbitant
amount of fuel cost increase, you didn't pass on to consumers,
and you made--airlines made other choices about how to deal
with that, right?
Ms. Pinkerton. Yes. Absolutely. And that's what resulted in
the losses. And so, thank goodness that's turned around a bit.
In 2014, we made four and a half cents on the dollar. And the
good thing about carriers being able to make modest margins is,
we turn around--we bought--we've got $100 billion worth of
planes on order right now. That's good for customers, more
environmentally friendly, and we're reinvesting back into
airports.
Again, I want to stress, the international facility in
Seattle is going to get built. All of these projects are going
forward within existing resources. Some are being paid with
PFCs, some are being paid with AIP. And, because of airports'
incredible investment-grade credit ratings, they've got cheap
access to bonds. We simply don't see the need to increase
taxes. We think it is a choice: either have carriers pay for it
or have the consumer pay for it. Also, like United Travelers,
consumer groups have come out and opposed a PFC increase.
Senator Cantwell. Mr. Reis or others, do you have a comment
about that?
Mr. Reis. Well, I think that it's, frankly and
respectfully, a little disingenuous to say that the airlines do
not pass costs on to the consumers. As I said, the airfare in
Seattle grew by 27 percent in the last 5 years. And, of course,
we all know the long litany of change fees, reservation fees,
seat fees, food fees, and bag fees that the airlines have
added. So, if someone did an objective analysis of the
additional average incremental cost to the consumers over a 5-
year, 10-year period, you would find a very large number of--
associated with the increased cost to the consumer. So, to say
that a $4 increase in the PFC per segment is going to have a
very deleterious effect upon the American public is just,
frankly, not looking objectively at the data of the costs to
the American public of flying over the last 10 years.
So, then the question comes, if the airlines are saying
they want to put this in the rate base, as opposed to the PFC--
and, as I said earlier, the entire billion-dollar runway at
Sea-Tac Airport, the airlines are not paying any amount of,
because it's in--been paid for by PFCs--then I think it really
comes down to control. As Ms. Pinkerton said, and Mr. Minerva
said, the international arrivals facility is a facility at Sea-
Tac that everybody involved believes should go forward. It's
not a question of whether we desperately need it. It really
comes down to who gets to make the decision on how we're going
to finance it. Should the Port of Seattle Commission, elected
by the people in King County, make that decision, or should the
airlines make that decision? And our view is that there are
certain decisions that should be made by the local government,
by allocating funding sources appropriately, following our
airline agreement. And the airlines are disagreeing, and they
want more PFCs into that facility. So, it's----
Senator Cantwell. Well, what's----
Mr. Reis.--really all about control.
Senator Cantwell.--what about the rate base don't you like?
Because, obviously, Ms. Pinkerton brought something up that I
think is a valid point about--connecter flights obviously would
be paying more. So, if you're just by the nature of Washington,
a lot of connections through Sea-Tac and you're paying a ticket
tax from Spokane to Sea-Tac and then Sea-Tac to L.A.--and, of
course, we're trying to improve that with more direct flights
and things of that nature--but, you know, you've got a lot of
people, if you're in those--if you're a connecter, then you're
paying twice. Is that your--that was your point, right, Ms.----
Ms. Pinkerton. Yes.
Senator Cantwell.--Pinkerton? So--but, there may be some
aversion to the rate base here that I'm not understanding.
Mr. Reis. Well, again, if I had to fly with a one-stop
flight to D.C. here yesterday, instead of flying nonstop, I--my
ticket would have included--if the Congress would increase the
PFC to $8.50, as we suggest, my ticket would have included an
$8 increase in PFCs, as opposed to $4 on a nonstop flight. That
still pales in comparison to the increased costs that the
airlines are imposing on their passengers.
So, yes, it would be--an effect upon the passenger would be
greater, because there would be on--two stops--or one stop and
two segments fees from the PFC. But, ultimately, the facilities
need to get built. And, while the airlines can point to many
examples where the airlines and the airports work together to
approve a facility, we can find plenty of examples where the
airlines are resisting the airport putting things into their
rate base. And, because they have a--an airline agreement that
allows them to veto, in some instances, those projects, some of
those projects are not getting done.
So, it varies by facility, it varies by airport. But,
ultimately, with an increased PFC, something that would just
give us back the spending power we had in 2000, then local
governing boards would have a tool. They don't have to raise
the PFC. They would have the ability to choose to do so, and--
because they determine that it was the most cost-effective way
to fund a project.
Senator Cantwell. Well, I see that I'm over my time again,
and yet still have more to discuss here, but I want to turn it
back to the Chair. And I see our colleague is here.
Senator Ayotte. Thank you.
Senator Blumenthal.
STATEMENT OF HON. RICHARD BLUMENTHAL,
U.S. SENATOR FROM CONNECTICUT
Senator Blumenthal. Thank you, Madam Chairman.
Unlike some other means of raising resources, the money
that airlines earn on ticket fares, the monies that airlines
recoup from ancillary costs, like baggage fees, is not subject
to Federal excise taxes, which means that the Federal
Government is, in effect, losing out on hundreds of millions of
dollars in revenue that could go to our airports and improving
their economic contribution to the Nation. I don't need to
belabor the point that has been made by many of my colleagues
about the lagging investment in our air infrastructure. But,
shouldn't there be Federal excise taxes on funds that are
raised from bag-checking and all these other ancillary fees?
I'll open that to any of the members of----
Mr. Hauptli. Senator, I completely agree with you on that
point. And the AAAE Board of Directors, 2 years ago, passed a
policy position that those fees should be subject to the excise
taxes. The airlines, since 2008, have collected $20 billion in
baggage fees that have not been subject to taxes. If those fees
had been subject to the excise tax, that would have represented
$1.5 billion additionally that could have been used for Next-
Gen advancements, and infrastructure advancements throughout
the country. We think that is a very clear-cut case that those
bag fees and ancillary fees should, in fact, be subject to the
tax.
Senator Blumenthal. What year was that?
Mr. Hauptli. From 2008 until last year.
Senator Blumenthal. And----
Mr. Hauptli. And, Senator, the airline----
Senator Blumenthal.--those numbers would hold true for
subsequent years?
Mr. Hauptli. Yes. In fact, last year, the airlines
collected more in bag fees than the Federal Government funded
for Airport Improvement Program projects.
Ms. Pinkerton. So, if I can respond, I think it's
unfortunate that the airport community chooses to tax bag fees,
as opposed to talking about what we're trying to talk about at
this hearing, which is to get needed projects done.
Senator Blumenthal. Did you say ``attack'' bag fees?
Ms. Pinkerton. Well, I'm saying that Mr. Hauptli is
supporting taxing bag fees.
Senator Blumenthal. OK.
Ms. Pinkerton. What we have going on in aviation resources,
unlike what's happening in the Highway Trust Fund--I know you
work on that a lot--which is bankrupt and needs to be
replenished, we're at all time record highs of revenue in the
Aviation Trust Fund--$13.6 billion last year. The Aviation
Trust Fund has $6 billion in cash sitting in the bank that's
unobligated right now.
You know, I could talk about the airport's ancillary
charges on food and whether or not that should be taxed. But,
the fact of the matter is, we don't have a revenue problem.
Fortunately--and we are committed to moving forward on these
airport projects that need to be done within existing
resources. So, additional taxes, either on airports or
airlines, simply aren't needed.
Senator Blumenthal. I'm not sure I understand. You're
saying, basically, no new money is necessary.
Ms. Pinkerton. Existing resources--when you look at the $11
billion that the airports have in the bank, the $6 billion
that's sitting in the Trust Fund now, they had record revenues
from concessions this year, and every airport, unlike airlines,
has the ability to obtain cheap financing on the bond market.
Airport projects have always been primarily funded through
bonding. It makes sense. You've got a project with a useful
life of 20, 30, and 40 years, and you want to spread the cost
of that over the life of the useful asset.
So, as I said, this comes down to, Do you want to increase
the cost of travel, which I think negatively impacts small
communities, or have it go into the rate base, which airlines
are saying, ``Yes, we're willing to pay''?
Senator Blumenthal. Well, let me ask you, because my time
is going to expire shortly. Wouldn't the fees, themselves, be
reduced, as has been the experience with the base ticket fares,
if this tax were imposed, and thereby improve the travel
experience, but also provide an additional source of revenue
for infrastructure?
Ms. Pinkerton. Well, again, we don't need an additional
source of revenue, since there are so many robust and plentiful
resources of revenues that are out there right now. And,
frankly, I don't think that adding a tax to a bag fee is going
to reduce the cost of travel--it's just going to increase the
cost.
Mr. Hauptli. Senator, there's a short answer to your
question. And it's yes.
Ms. Pinkerton. And one other thing, just for the record. I
noticed, when Senator Daines asked Mr. Hauptli for an example
of an airport project that wasn't moving forward because it
didn't have an extra PFC increase, there hasn't been a
response.
Senator Blumenthal. Any other members of the panel want to
weigh in on this?
Mr. Reis. Senator, I would like to address the assertion
that airports have this very large pot of cash available on our
balance sheets, and that that could be used for funding
projects. A number of years ago, post-9/11, the airlines were
in deep trouble, and the airlines were looking to airports to
do everything we could to reduce their rates and charges. At
Sea-Tac--and this was replicated at airports around the
country--we looked at the way we charge airlines for our use of
capital, and changed it dramatically. We changed it so that,
rather than charging the airlines a non-cash expense, basically
coverage on our bond debt service in order to have the cushion
that the rating agencies wanted us to have to ensure that we
had enough resources to pay back the debt, we eliminated that
for the airlines and, instead, retained a higher amount of cash
because it was a cheaper way for us to have the security we
needed for issuing bonds, and didn't cost the airlines
anything. So, it dramatically reduced the airlines' rates and
charges when we made that change, a reduction that remains
today. But, the costs for us, of being able to do that, and
retain the very good bond rating that Ms. Pinkerton continues
to underline, is, we had to have higher levels of cash on our
balance sheet. That was the security. So, we're using balance
sheet security instead of income statement security to
dramatically reduce the airlines' rates and charges, but it is
what is behind our high bond rating.
So, on one hand, Ms. Pinkerton really wants to underline
how valuable our high bond ratings are and, thus, our low-cost
capital. And she's absolutely correct. But, on the other hand
she's saying we should spend down the cash that is on the
airport balance sheets that makes it possible for us to have
those low--or those very good bond ratings.
Senator Blumenthal. Mr. Minerva, I'd be interested in your
point of view in representing the airlines.
Mr. Minerva. Absolutely, thank you.
I think, you know, the airlines are not necessarily--and,
in most cases, are not--asking airports to spend down their
cash. There's a great range of days of cash on hand across
airports. We think some have too many. But, that's not--but,
for the most part, it's very rare that we go to an airport and
say, ``Spend your cash.'' We will ask an airport to fund a
project through bonds. And we will pay the debt service on
those bonds. And what happens out there in the airports, you
have projects--sometimes the airport brings them forward,
sometimes the airline brings them forward. You have sort of a
slow conversation, ``You know, in a couple of years, we might
need something here.'' The airport and the airlines talk
together. First, we agree on the wisdom, the scope, the pace of
the project, and then we turn to the financing and we go for
whatever sources are available. The primary source is airport
bond funds. And we tell our airports that we support a project,
we pay the bonds. And that's what happens out there almost all
of the time.
A lot of the disagreements that you hear at this table just
are not reflected. In fact, I think when Mr. Reis talks about
his airport and the things they did after 9/11, that's a great
example of how airports and airlines have worked together. And
we continue to work together. And that's what I see every day
in the airports that I deal with the most and the airports that
we have at American. Those things get done. And there's a very
positive relationship between airports and airlines. We
consider ourselves business partners. We're part of the
communities we serve. And so, a lot of these things about bag
fees and inflation indexing, that's not what we talk about out
there when we get these projects done.
Senator Ayotte. I want to make sure that we can--so, we're
4 minutes over, and I know that Senator Cantwell has some
follow-up, and----
Senator Blumenthal. Thank you.
Senator Ayotte.--so, appreciate it. So, I want to make sure
I can get to Senator Cantwell. So----
Well, we're going to have a vote called soon, too----
Senator Cantwell. Yes.
Senator Ayotte.--and then--I won't leave without to you,
Dr. Dillingham.
Senator Cantwell. Yes. I know people want to wrap up. I
want to round out this discussion about this very important
subject. And I think it's good that you're all being
forthcoming about this, because I think it's going to help us
get to where we ultimately need to get to.
But--and I do want to thank Dr. Dillingham, too. I really
appreciate--I feel like you're one of the most tech-savvy
people I've met at GAO, the fact that you were talking about
where we need to go with UAVs, and now you're making the point
that we're going to get these huge savings out of Next Gen, and
that's what we ought to be thinking about--very, very helpful.
So, thank you for understanding the technology and where
aviation is going.
To this issue, I feel that airports are stewards of our
economy. They represent a economic tool. Mr. Reis has to be
accountable to a board of commissioners. And those
commissioners have to be accountable to the public. And the
public, I'm sure, eats up a lot of Mr. Reis's time about what
it is--to my colleague from Alaska, I guarantee you there are a
lot of neighborhoods that like to have a say about things,
particularly noise and other things. Part of the process. But,
on this issue, Mr. Reis has to look--or airports, in general--
globally about the economic development tool that an airport
represents. So, he has to plan for that. And if he has to plan
for that, and, every time he has to plan for that, he has to go
out for rate-based conclusion from the airlines about what
you're willing to do in a negotiation to pay for that
infrastructure, he doesn't have all the tools--I'm assuming
that this is why they probably prefer the PFC, because it gives
them that ability to then look at that resource.
But, I think this is a very important issue, in general.
So, I feel the competition from the airlines and what we're
seeing on the international front. We have to do a better job
of--I think, on our Open Skies policy, in making sure that U.S.
carriers get a fair shake. I also think that airports across
America, who now all of a sudden no longer have wide-body
service or single aisle service--they've got regional jets, and
yet their huge infrastructures, like Pittsburgh--these cities
are without an economic development tool.
So, I don't know, Mr. Reis, if you want to comment on that,
but I have a feeling that one of the reasons you prefer a
different mechanism is because you do have to plan. So, while
the airlines might even be arguing with each other over routes
and slots and all these other things, your day-to-day job is to
plan for that economic commerce and expansion and serving the
public. And it is a broader view, and it must become
challenging, at times, then trying to figure out how to get
cooperation from a bunch of airlines that are generally working
together, but oftentimes also competing.
Mr. Reis. Well, you're absolutely correct. And, in the one
project that I've mentioned several times, we have a profound
disagreement among the airlines about how we should fund it.
And----
Senator Cantwell. You mean ``among the airlines.''
Mr. Reis. Among the airlines. Not just between the Port of
Seattle and the airlines, but between airlines. They have a
different view of that.
To the point of the process and the question of who gets--
--
Senator Cantwell. So just so everybody understands--
basically, you're being stymied on trying to plan what you know
is necessary economic development for the Port so that it can
continue to sustain the business that we have in the Northwest.
But, you can't, because the airlines, who compete with each
other, are arguing about how to pay for it, because it would be
a rate-base issue.
Mr. Reis. Well, we're working through it. I will say, this,
again, has to do with our international arrivals facility. We
had the first meeting with the airlines on the problem, on the
need for us to deal with this profound congestion problem, in
September 2010. We are now in the process, four and a half
years later, of procuring the design-build contractor to
actually carry out the project. And the airlines are still
arguing about how to fund the project, and arguing that--the
airlines who have a great deal of international service want us
to put more PFCs into the facility, because it'll bring the
rate down for the carriers who use the facility and pay for it
in their rate base. The carriers who have none or very little
international service are arguing that, no, we should not put
PFCs into that project, or we should put very little PFCs into
it, and, instead, we should put it in other projects. So, here
we are, four and a half years after we started the conversation
with the airlines, and the airlines are still arguing among
themselves and arguing with this--with us on the funding.
So, it comes down, as you said, Senator, to: How do we do
what's right for the region's economy? How do we do what's
right, not just for the city of Seattle, the greater Seattle
area, but the entire Pacific Northwest? And 40 percent of our
international traffic connects at Sea-Tac to other airports all
over the United States. How do we do that, when the airlines
are seeking to slow the project down in order to get the
funding in their----
Senator Cantwell. Yes.
Mr. Reis.--preferred way? And that takes a toll on the
greater Seattle area.
Senator Cantwell. Thank you.
Thank you, Madam Chairman.
Senator Ayotte. Thank you.
So, before we wrap this hearing up, which I'm about to do,
I want to give Dr. Dillingham the last word here. Thank you,
sir. Especially since you've appeared before the Committee
twice this week. You deserve the last word.
Dr. Dillingham. Thank you, Madam Chairman. Always a
privilege.
I was going to respond to Senator Schatz that, just to
remind the Committee that, in 2010, GAO made a recommendation
that, if the Congress determined that taxing baggage fees and
other untaxed ancillary fees would be useful for the Trust
Fund, that they could consider amending the IRS code and the
Treasury regulations and move forward with that. So, that was
what I wanted to try to share with the Committee and with
Senator Schatz, as well.
Thank you very much.
Senator Ayotte. Thank you.
I want to thank all of you for being here. This was a
robust discussion today on a very important issue that we need
to address in the reauthorization. But, I thought that we had a
good variety of viewpoints represented on this important issue.
And I think all of us share the concern to make sure that we
can continue to invest in our airport infrastructure, also
focusing on the passengers and their experience, and that
they're, as consumers, paying for all of this. So, I know we
appreciate this testimony today, and we'll be taking it under
advisement as we work on the authorization. And I'm sure we'll
have follow up questions for all of you and those that you
represent.
So, with that, I'm going to close out this hearing and note
that the record will be open for 2 weeks. And, during this
time, Senators are asked to submit any questions for the
record. Upon receipt, if each of you would submit your written
answers to the Committee as soon as you can, we'd appreciate
it.
And I want to thank you all for being here today for this
important hearing.
This hearing is now adjourned.
[Whereupon, at 11:45 a.m., the hearing was adjourned.]