Aviation Financing: Why Change is Needed
Aviation Financing: Why Change is Needed
April 11, 2006
Federal Aviation Administration
FY04 Tax Revenue Sources1 $ in millions Alaska/Hawaii GA Aviation $70 / 0.7% Gasoline $38 / 0.4%
International $1,539 / 16.1%
GA Jet Fuel $279 / 2.9% Cargo Waybill $484 / 5.1% Commercial Fuel $492 / 5.1%
Passenger Ticket $4,929 / 51.5%
Domestic Segment $1,747 / 18.2%
Total: $9,579 1Breakdown
of Passenger Ticket vs. Domestic Segment, and International vs. Alaska/Hawaii is estimated by FAA. Passenger Ticket includes revenue from rural airports tax and tax on the value of third party frequent flyer miles.
FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
2
FY04 Estimated Taxes By User Group1 $ in millions
GA Turbine Fractionals / $279 / 2.9% Part 135 $332 / 3.5%
GA Piston $38 / 0.4%
Other Commercial $272 / 2.8%
U.S. Commercial Freight Carriers $455 / 4.7% Foreign Airlines (incl. freight) $750 / 7.8%
Regional Airlines (incl. freight) $1,202 / 12.5%
U.S. Commercial Passenger Carriers (Legacy) $4,901 / 51.2%
U.S. Low Cost Carriers $1,350 / 14.1%
Total: $9,579 1Some
users considered general aviation by FAA are classified as commercial by IRS, and therefore pay commercial taxes rather than GA fuel taxes. They are “Fractionals / Part 135” above and in “commercial” totals in summary tables. Part 135 includes passenger and freight flights. “Other commercial” includes charters on U.S. carriers and non-ETMS commercial flights.
FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
3
Overview of FY 2004 FAA Budget ($ millions)
FY2004 Funding by Line of Business
FY2004 Funding by Account
Research, Engineering & Development (RE&D) $119 / 1%
Airport Improvement Program $3,380 / 24%
RE&D $119 / 1%
Ops - Air Traffic $6,217 / 45%
Commercial Space (AST) $12 / 0%
Facilities & Equipment $2,871 / 21%
Ops - Staff Offices $379 / 3%
Ops - Comm'l Space $12 / 0%
FAA Financing: Why Change is Needed April 11, 2006
Ops - Aviation Safety $871 / 6%
Airport Improvement Program $3,380 / 24%
Aviation Safety (AVS) $977 / 7%
Air Traffic Organization (ATO) $9,361 / 68%
Total: $13,849 Federal Aviation Administration
4
Why Change is Needed • Stability: Industry trends have increased FAA workload without corresponding increases in Trust Fund tax revenue – Despite FAA cost control measures, there is a risk of a continued gap between Trust Fund revenues and FAA costs under the current system due to uncertain future shape of aviation industry
• Technology: Need to fund capital requirements of Next Generation Air Transportation System (NGATS) • Fairness: Commercial airlines and their passengers currently pay a much higher share of total taxes than their share of system flights • Timing: Current taxes expire on September 30, 2007 FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
5
Industry Restructuring Industry Trends
Impact
Lower ticket prices, low cost carriers Smaller aircraft, more regional jets
Lower Trust Fund receipts Increased FAA workload Relative U.S. Jet Fleet Growth
Cumulative U.S. Jet Fleet Growth 7,000
5.0 4.5
C hange in A ctive A ircraft vs 2000
Business Jets (incl. microjets) 5,000
4,000
3,000
Regional Jets 2,000
1,000
0
A c tiv e A irc ra ft In d e x e d to 2 0 0 0 F le e t S iz e
6,000
Regional Jets
4.0 3.5 3.0 2.5 2.0
Business Jets (incl. microjets) 1.5 1.0
Large (Air Carrier) Jets 0.5
Large (Air Carrier) Jets 0.0
(1,000) 2000
2001
2002
Source: 2006 FAA Forecast
2003
2004
2005
2006
2007
2008
Fiscal Year
FAA Financing: Why Change is Needed April 11, 2006
2009
2010
2011
2012
2000
2001
2002
Source: 2006 FAA Forecast
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Fiscal Year
Federal Aviation Administration
6
Gap Between Revenue and Costs $15,000
FAA Expenses
$14,000
$ Millions
$13,000 $12,000 $11,000 $10,000 $9,000
Trust Fund Tax Revenue + Interest $8,000 $7,000 2000
2001
2002 2003 Fiscal Year
2004
2005
Note: Tax Revenue = Income Statements; Expenses = FAA Appropriations FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
7
Est. Trust Fund Uncommitted Balance ($ mil)
Trust Fund Uncommitted Balance $8,000
$7,074
$7,345
$7,000 $6,000 $4,815
$5,000 $3,898
$4,000 $3,000
$2,447 $1,940
$2,000 $1,000 $0 2000
2001
FAA Financing: Why Change is Needed April 11, 2006
2002 2003 Fiscal Year (Year-End)
2004
Federal Aviation Administration
2005
8
Cost Cutting Measures What we’re doing… • Reduced staffing by over 16 percent since 1992 • Completed largest outsourcing effort in government • Consolidated accounting and personnel functions • Renegotiated costly MOUs with our labor unions What may be done… • Consolidation (regional offices, TRACONS, staff) • Reduce hours at some facilities (towers with low traffic) • Discontinue some redundant Navaids (non-directional beacons) • Eliminate some runway approach procedures • Steps to lower labor costs and improve employee productivity FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
9
Aging FAA Infrastructure • Average en route facility condition index (FCI) currently rated “poor” and getting worse every year Age* 31 35 28 17 27 41 21
Towers TRACON Facilities Primary En Route Radars Primary Terminal Radars Secondary Radars En Route Control Centers Flight Service Stations *Average Age in Service
FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
10
Next Generation System • FAA must fund the “Next Generation” Air Traffic System – Need to handle projected aviation growth – Strong user support for next generation system – Necessary to provide capacity, reduce delays, and lower costs both for users and for FAA
• Substantial capital needs are difficult to support through current system – Mismatch between the timing of FAA appropriations and capital funding requirements – Mismatch between user payments for new capital investments and benefits from those investments – Uneven funding from year to year – Federal deficits limit funding flexibility – Price of airline tickets not connected to capital spending needs FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
11
Timing • Existing Trust Fund taxes expire at the end of Fiscal Year 2007 (September 30, 2007) • Due to low Trust Fund balances, it is critical that a new funding mechanism be in place before the expiration of the existing tax structure • If substantial changes are included in the financing reauthorization, lead time will be necessary to set up required collection mechanisms
FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
12
Bottom Line… • FAA and system users need a more stable, more equitable funding system that can also finance the Next Generation aviation system
FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
13
April 11, 2006
Federal Aviation Administration
FY04 Tax Revenue Sources1 $ in millions Alaska/Hawaii GA Aviation $70 / 0.7% Gasoline $38 / 0.4%
International $1,539 / 16.1%
GA Jet Fuel $279 / 2.9% Cargo Waybill $484 / 5.1% Commercial Fuel $492 / 5.1%
Passenger Ticket $4,929 / 51.5%
Domestic Segment $1,747 / 18.2%
Total: $9,579 1Breakdown
of Passenger Ticket vs. Domestic Segment, and International vs. Alaska/Hawaii is estimated by FAA. Passenger Ticket includes revenue from rural airports tax and tax on the value of third party frequent flyer miles.
FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
2
FY04 Estimated Taxes By User Group1 $ in millions
GA Turbine Fractionals / $279 / 2.9% Part 135 $332 / 3.5%
GA Piston $38 / 0.4%
Other Commercial $272 / 2.8%
U.S. Commercial Freight Carriers $455 / 4.7% Foreign Airlines (incl. freight) $750 / 7.8%
Regional Airlines (incl. freight) $1,202 / 12.5%
U.S. Commercial Passenger Carriers (Legacy) $4,901 / 51.2%
U.S. Low Cost Carriers $1,350 / 14.1%
Total: $9,579 1Some
users considered general aviation by FAA are classified as commercial by IRS, and therefore pay commercial taxes rather than GA fuel taxes. They are “Fractionals / Part 135” above and in “commercial” totals in summary tables. Part 135 includes passenger and freight flights. “Other commercial” includes charters on U.S. carriers and non-ETMS commercial flights.
FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
3
Overview of FY 2004 FAA Budget ($ millions)
FY2004 Funding by Line of Business
FY2004 Funding by Account
Research, Engineering & Development (RE&D) $119 / 1%
Airport Improvement Program $3,380 / 24%
RE&D $119 / 1%
Ops - Air Traffic $6,217 / 45%
Commercial Space (AST) $12 / 0%
Facilities & Equipment $2,871 / 21%
Ops - Staff Offices $379 / 3%
Ops - Comm'l Space $12 / 0%
FAA Financing: Why Change is Needed April 11, 2006
Ops - Aviation Safety $871 / 6%
Airport Improvement Program $3,380 / 24%
Aviation Safety (AVS) $977 / 7%
Air Traffic Organization (ATO) $9,361 / 68%
Total: $13,849 Federal Aviation Administration
4
Why Change is Needed • Stability: Industry trends have increased FAA workload without corresponding increases in Trust Fund tax revenue – Despite FAA cost control measures, there is a risk of a continued gap between Trust Fund revenues and FAA costs under the current system due to uncertain future shape of aviation industry
• Technology: Need to fund capital requirements of Next Generation Air Transportation System (NGATS) • Fairness: Commercial airlines and their passengers currently pay a much higher share of total taxes than their share of system flights • Timing: Current taxes expire on September 30, 2007 FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
5
Industry Restructuring Industry Trends
Impact
Lower ticket prices, low cost carriers Smaller aircraft, more regional jets
Lower Trust Fund receipts Increased FAA workload Relative U.S. Jet Fleet Growth
Cumulative U.S. Jet Fleet Growth 7,000
5.0 4.5
C hange in A ctive A ircraft vs 2000
Business Jets (incl. microjets) 5,000
4,000
3,000
Regional Jets 2,000
1,000
0
A c tiv e A irc ra ft In d e x e d to 2 0 0 0 F le e t S iz e
6,000
Regional Jets
4.0 3.5 3.0 2.5 2.0
Business Jets (incl. microjets) 1.5 1.0
Large (Air Carrier) Jets 0.5
Large (Air Carrier) Jets 0.0
(1,000) 2000
2001
2002
Source: 2006 FAA Forecast
2003
2004
2005
2006
2007
2008
Fiscal Year
FAA Financing: Why Change is Needed April 11, 2006
2009
2010
2011
2012
2000
2001
2002
Source: 2006 FAA Forecast
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Fiscal Year
Federal Aviation Administration
6
Gap Between Revenue and Costs $15,000
FAA Expenses
$14,000
$ Millions
$13,000 $12,000 $11,000 $10,000 $9,000
Trust Fund Tax Revenue + Interest $8,000 $7,000 2000
2001
2002 2003 Fiscal Year
2004
2005
Note: Tax Revenue = Income Statements; Expenses = FAA Appropriations FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
7
Est. Trust Fund Uncommitted Balance ($ mil)
Trust Fund Uncommitted Balance $8,000
$7,074
$7,345
$7,000 $6,000 $4,815
$5,000 $3,898
$4,000 $3,000
$2,447 $1,940
$2,000 $1,000 $0 2000
2001
FAA Financing: Why Change is Needed April 11, 2006
2002 2003 Fiscal Year (Year-End)
2004
Federal Aviation Administration
2005
8
Cost Cutting Measures What we’re doing… • Reduced staffing by over 16 percent since 1992 • Completed largest outsourcing effort in government • Consolidated accounting and personnel functions • Renegotiated costly MOUs with our labor unions What may be done… • Consolidation (regional offices, TRACONS, staff) • Reduce hours at some facilities (towers with low traffic) • Discontinue some redundant Navaids (non-directional beacons) • Eliminate some runway approach procedures • Steps to lower labor costs and improve employee productivity FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
9
Aging FAA Infrastructure • Average en route facility condition index (FCI) currently rated “poor” and getting worse every year Age* 31 35 28 17 27 41 21
Towers TRACON Facilities Primary En Route Radars Primary Terminal Radars Secondary Radars En Route Control Centers Flight Service Stations *Average Age in Service
FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
10
Next Generation System • FAA must fund the “Next Generation” Air Traffic System – Need to handle projected aviation growth – Strong user support for next generation system – Necessary to provide capacity, reduce delays, and lower costs both for users and for FAA
• Substantial capital needs are difficult to support through current system – Mismatch between the timing of FAA appropriations and capital funding requirements – Mismatch between user payments for new capital investments and benefits from those investments – Uneven funding from year to year – Federal deficits limit funding flexibility – Price of airline tickets not connected to capital spending needs FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
11
Timing • Existing Trust Fund taxes expire at the end of Fiscal Year 2007 (September 30, 2007) • Due to low Trust Fund balances, it is critical that a new funding mechanism be in place before the expiration of the existing tax structure • If substantial changes are included in the financing reauthorization, lead time will be necessary to set up required collection mechanisms
FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
12
Bottom Line… • FAA and system users need a more stable, more equitable funding system that can also finance the Next Generation aviation system
FAA Financing: Why Change is Needed April 11, 2006
Federal Aviation Administration
13
