August 27, 2010

Members of the Subcommittee on Competition

Future of Aviation Advisory Committee

Airports Council International – North America (ACI-NA) fully supports the goals of the 

Future of Aviation Advisory Committee (FAAC) and the work of the Subcommittee on 

Competition. We understand that the Subcommittee has discussed and received a 

presentation on aviation taxes and fees which may ultimately be the subject of a 

recommendation to the FAA for inclusion in the final report to Secretary LaHood. It is 

critically important that the FAAC Subcommittee and full Committee base its 

recommendations on accurate information. Therefore, we are submitting this document 

to correct some misleading statements and inaccurate information presented by the Air 

Transport Association (ATA) at the August 4 meeting of the Competition Subcommittee 

in Chicago, Illinois.

In their presentation, “Analysis of Industry Tax Policy”, ATA incorrectly conflates the 

Passenger Facility Charge (PFC) with the federal taxes and fees which are charged to 

fund the Airport and Airway Trust Fund (AATF) and federal aviation security programs. 

The PFC is in fact not a tax but a locally imposed user fee. In fact, in the original 

preamble to the PFC regulations the FAA states: “The PFC will be a local charge 

generating local revenue to be used locally.” The Congressional Research Service 

concurs that the PFC is not a tax: ““Although the FAA oversees the PFC program, the 

agency does not impose the fee. The PFC is a state, local, or port authority fee, not a 

federally imposed tax.” The PFC is a project-based, time-limited user fee. It is only paid 

by users of the system who will benefit from the projects it finances. 

It is unfortunate that the airline industry has consistently attempted to paint the PFC as a 

tax on the industry. The latest example is on slide 4 of the ATA presentation where the 

PFC is lumped in with the federal ticket tax, waybill tax, segment fee and other federal 

taxes. What is never disclosed in the presentation is that airlines are compensated to 

collect the PFC from passengers. Each time an airline collects a PFC from a passenger 

and remits it to an airport, they keep $0.11. The airline is also entitled to any interest 

earned on PFC funds while they are held by the airline. In 2008, airlines retained about 

$78 million in PFC handling fees, plus any interest earned. 

It is also curious that airlines oppose the PFC publically when many of those same 

airlines, when dealing with individual airports, strongly support the use of PFCs to 

finance infrastructure or reduce debt costs. In fact, ninety-five percent of all PFC 

applications are submitted to the FAA without opposition. PFCs have proven to be very 

effective in keeping airline operating costs low. Data provided by the Port Authority of 

New York and New Jersey indicate that using PFCs to finance the $300 million Bay 
Runway project at New York’s John F. Kennedy International Airport will save airlines 

$25 million annually in reduced debt service payments for 30 years. At Seattle-Tacoma 

International Airport, a savings of $73 million annually was realized by using PFC 

funding, rather than issuing revenue bonds to cover construction expenses. 

The rhetoric from the airlines on the PFC is not only inaccurate, it is also hypocritical. 

PFCs are effective local user fees paid by passengers to fund infrastructure 

improvements to improve safety, reduce congestion and facilitate airline price and 

service competition. Airline charges for services provided to passengers are also user 

fees, which the airlines defend vigorously. The chart below shows the trend in airline fee 

revenue compared to airport PFC collections. 

$3.55

$5.48

$7.84

$1.98

$2.79 $2.66 $2.52

$0.70

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

2007 2008 2009 1Q2010

Billions

Total Ancillary Revenue* PFC Collections

* Ancillary revenue includes baggage fees, reservation change fees and miscellaneous operating revenue, including pet transportation, sale of frequent flyer award 

miles to airline business partners and standby passenger fees. Revenue from seating assignments and on-board sales of food, drink, pillows, blankets, 

entertainment, or any other ancillary items are reported as Transport Related Revenue and cannot be identified separately.

Figure 1 - ACI-NA analysis of BTS, FAA data.

As you can see, while airport PFC collections have actually gone down over the past 

several years, airlines have more than doubled the revenue they receive from passenger 

fees. 

Since its inception in 1990, the PFC has become recognized as one of the most efficient 

and effective financing mechanisms in municipal finance. When an airport proposes to 

impose a PFC, it must follow a rigorous application process to ensure transparency and 

need. PFC projects are extensively reviewed by the FAA and the process includes 

mandatory consultation with the airlines, and public comment. In the application the 

airport must demonstrate that the project is eligible and justified. In addition, PFCs 

cannot be used for revenue producing projects such as parking garages, terminal areas 

used for concessions or leased exclusively by a specific airline for more than five years, 

and projects that are incompatible with airport sponsor assurances agreed to with the 
receipt of federal grants. PFC applications are approved for a specific amount of 

collections with an end date. 

Additionally, the PFC helps airports of all sizes by freeing up Airport Improvement 

Program (AIP) funds for smaller airports which are more reliant on AIP for their capital 

funding. When a large or medium hub airport implements a PFC, they must forgo either 

50 or 75 percent of their 

AIP entitlements to the 

FAA (depending on the 

level of PFC). The “Small 

Airport Fund” is the 

recipient of 87.5 percent 

of these forgone 

entitlements with the 

remaining 12.5 percent 

going into the AIP 

discretionary program. In 

FY2008, the PFC 

turnback resulted in over 

$482 million additional dollars for small airports.

The purchasing power of the PFC has greatly diminished since the cap was increased to 

$4.50 by Congress in 2000, since it is not indexed to inflation. In the last 10 years, 

construction costs have increased, far surpassing consumer inflation. The current 

maximum PFC of $4.50 is worth only $2.46 today when construction cost inflation is 

applied. Fully adjusting the PFC to account for construction cost inflation would place 

the fee at $8.33. If no action is taken by 2011, the $3.00 PFC will have lost over half its 

value and the $4.50 PFC will have lost 45 percent of its value. In fact, ATA’s own 

presentation, on slide 18 includes the finding of the Mineta Commission (1997) which 

states: “The Commission recommends that the Congress look to AIP and Passenger 

Facility Charges (PFCs) as sources of additional revenues to finance future airport 

capital needs.”

ACI-NA appreciates the opportunity to provide complete and accurate information for the 

record and Subcommittee’s consideration. Please feel free to contact me should you 

have any questions.

Sincerely,

Greg Principato

President

Airports Council International – North America