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45–111—PDF 2007

S. HRG. 110–606

AVIATION FINANCING: INDUSTRY PERSPECTIVES

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES,

AND INFRASTRUCTURE

OF THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JULY 19, 2007

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, AND INFRASTRUCTURE

JEFF BINGAMAN, New Mexico, Chairman

KENT CONRAD, North Dakota

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CRAIG THOMAS, Wyoming

GORDON SMITH, Oregon

ORRIN G. HATCH, Utah

JIM BUNNING, Kentucky

TRENT LOTT, Mississippi

MIKE CRAPO, Idaho

(II)

C O N T E N T S

OPENING STATEMENTS

Page

Bingaman, Hon. Jeff, a U.S. Senator from New Mexico, chairman, Subcommittee on Energy, Natural Resources, and Infrastructure, Committee

on Finance ............................................................................................................ 1

Bunning, Hon. Jim, a U.S. Senator from Kentucky ............................................. 2

WITNESSES

Whitehurst, Jim, chief operating officer, Delta Air Lines, Atlanta, GA ............. 4

Smith, Frederick W., chairman and CEO, FedEx Corporation, Memphis, TN .. 6

Raburn, Vern, CEO and president, Eclipse Aviation Corp., Albuquerque, NM . 7

Hackett, David, president, Gulfstream International Airlines, Fort Lauderdale, FL ................................................................................................................. 9

Shine, Richard, CEO, Manitoba Recycling, Lancaster, NY .................................. 11

Olislagers, Robert, executive director, Colorado Centennial Airport, Englewood, CO ............................................................................................................... 13

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Bingaman, Hon. Jeff:

Opening statement ........................................................................................... 1

Bunning, Hon. Jim:

Opening statement ........................................................................................... 2

Hackett, David:

Testimony .......................................................................................................... 9

Prepared statement .......................................................................................... 31

Olislagers, Robert:

Testimony .......................................................................................................... 13

Prepared statement .......................................................................................... 39

Responses to questions from subcommittee members ................................... 45

Raburn, Vern:

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 50

Shine, Richard:

Testimony .......................................................................................................... 11

Prepared statement .......................................................................................... 56

Smith, Frederick W.:

Testimony .......................................................................................................... 6

Prepared statement .......................................................................................... 58

Whitehurst, Jim:

Testimony .......................................................................................................... 4

Prepared statements ........................................................................................ 65

COMMUNICATIONS

Aircraft Owners and Pilots Association ................................................................. 77

American Road and Transportation Builders Association ................................... 84

Cargo Airline Association ........................................................................................ 88

(III)

(1)

AVIATION FINANCING:

INDUSTRY PERSPECTIVES

THURSDAY, JULY 19, 2007

U.S. SENATE,

SUBCOMMITTEE ON ENERGY,

NATURAL RESOURCES, AND INFRASTRUCTURE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 2:15 p.m., in

room SD–215, Dirksen Senate Office Building, Hon. Jeff Bingaman

(chairman of the subcommittee) presiding.

Present: Senators Salazar, Smith, Bunning, Lott, Crapo, and

Roberts.

OPENING STATEMENT OF HON. JEFF BINGAMAN, A U.S. SENATOR FROM NEW MEXICO, CHAIRMAN, SUBCOMMITTEE ON

ENERGY, NATURAL RESOURCES, AND INFRASTRUCTURE,

COMMITTEE ON FINANCE

Senator BINGAMAN. Thank you all for coming and, particularly,

thank the witnesses. I know that we have a very distinguished

group of witnesses and they are busy people, and we appreciate

them taking time out of their busy schedules to be here.

This is the second hearing on the Aviation Trust Fund that we

have had under the auspices of the Finance Committee. Last week

at the full committee we heard from the administration and budget

experts. Today we will hear from industry about their perspective

on this Aviation Trust Fund and future revenue for the trust fund.

I also want to take a minute to acknowledge the good work on

aviation issues that Senators Rockefeller and Lott have done, both

as members of the Finance Committee, but especially in their roles

on the Commerce Committee as Chairman and Ranking Member of

the Aviation Subcommittee. I think we look forward to working

with them this year as we put together the legislation that is needed to guide the future of the aviation industry in the country.

As we heard very loud and clear last week at the hearing, there

is near-universal agreement about the need to modernize our air

traffic control system to improve safety and efficiency.

We also need to ensure a stable source of funding for the trust

fund in the face of the changing nature of aviation. One example

is the advent of a new generation of smaller commercial and business jets which will foster a whole new approach to air travel.

Along with these technological developments, there have been

changes in the way that we travel.

2

There has been an increase in the air travel both for leisure and

for business. The increasing reliance on air travel to cover distances in an efficient manner has given rise to more business aircraft, increases in charter flights, and new arrangements such as

air taxis.

Those of us who come from rural States also recognize the importance that aviation plays in small communities. We need to make

sure that all communities continue to have the airport infrastructure they need to support aviation and provide a base for air travel

in and out of those communities.

Here in the Senate, it is the responsibility of the Finance Committee to make sure that the tax system provides sufficient revenues to support the modification of the air traffic control system

and operate and maintain the basic infrastructure needed to support aviation across the country.

At the same time, we need to ensure that the burdens that are

placed on the various interests are fairly shared. This hearing will

be an opportunity to learn from industry their views on the existing structure, the proposed tax structure, as well as their views on

how to equitably allocate taxes among those groups that use the

system.

We know this issue has not been without controversy, but in this

committee we hope to be even-handed and come out with a series

of good public policies that are fair to everyone.

So, before we turn to the witnesses, let me call on Senator

Bunning for any opening statement that he would like to make.

OPENING STATEMENT OF HON. JIM BUNNING,

A U.S. SENATOR FROM KENTUCKY

Senator BUNNING. Thank you, Chairman Bingaman, for calling

this hearing. I would like to thank our panel of witnesses for taking their time to appear before this subcommittee today.

As all of you know, it is time to reauthorize the Federal Aviation

Administration, including how we pay for it. This present Congress

has an opportunity to make meaningful and lasting changes that

will help Americans travel by air.

America has a tradition of pioneering in aircraft traffic that it

can be proud of, yet the United States has been using a system for

air traffic control that has essentially been in place since the Eisenhower administration.

In fact, location of ground-based radio beacons used in the current system to guide aircraft, in many cases, are in the same spots

used by old-fashioned signal fires to guide mail delivery flights in

the 1920s.

The United States acted as a pioneer in the creation of the air

traffic control system during the dawn of commercial aviation, but

it is now stuck with the system it created. Many developing countries, which are for the first time setting up air traffic control systems, are implementing more advanced systems.

I would like to see the United States maintain its edge. Frankly,

we do not have much of a choice. The number of people flying is

still growing, even if the system of managing the planes that they

fly on is not.

3

According to the Air Transportation Association, there will be

about 61,000 flights per day in the year 2016. Sixty-one thousand

per day compared to 45,000 per day now. We must be able to handle this enormous increase.

Perhaps the greatest benefit deregulation of the commercial airline industry in 1978 had has been the fall in ticket prices. Now

almost anybody can afford to fly. Previously, flying was only possible for the wealthy. It appears obvious that demand for air travel

will continue to rise.

If supply of flights is limited because we cannot accommodate

any more planes on our outdated air traffic control system, then

perhaps we will backslide to the point where only the wealthiest

of Americans will be able to fly, and that would be a real shame.

I understand that there is some controversy about how to pay for

this upgrade. It is my hope that, with the help of our witnesses,

this hearing will be able to aid us in finding an equitable way to

do this. I look forward to the panel’s testimony, and I thank the

subcommittee for its time.

Senator BINGAMAN. All right. Let me just see if either Senator

Roberts or Senator Lott wishes to make a statement here.

Senator LOTT. Mr. Chairman, if I could, I will forego my opening

remarks and wait until I have the opportunity to ask some questions, because I think it is important we hear from this panel.

Thank you.

Senator BINGAMAN. Very good. Thank you very much.

Senator Crapo has indicated he does not need to make a statement.

Senator Roberts, did you need to make a statement?

Senator ROBERTS. Well, I always need to make a statement, but

I am not going to. [Laughter.] I just want to thank you. I am the

lonely end, which dates me. I am the Pete Dawkins of the subcommittee. Just a few out there, I guess, remember those Army

day teams and those teams of the lonely end.

I am not a member of the subcommittee, but I have a very strong

interest in this subject area. I agree with Senator Lott, we ought

to get on with the questions or the testimony of the witnesses. We

thank the witnesses for your time and effort.

Senator BINGAMAN. All right. Thank you very much.

Let me just indicate, I will go ahead and introduce all six witnesses here, and then we will just hear from them in this order:

Jim Whitehurst, who is the chief operating officer with Delta Air

Lines. Thank you very much for being here. Fred Smith, chairman

and CEO of Federal Express, in Memphis. We are very pleased to

have you here. Thank you. Vern Raburn, who is the CEO and

president of Eclipse Aviation in Albuquerque, NM. We are honored

to have you here. David Hackett, who is the president of Gulfstream International Airlines, thank you for coming. Richard

Shine, the CEO of Manitoba Recycling in Lancaster, NY. Thank

you for being here. And Robert Olislagers, executive director of the

Colorado Centennial Airport in Englewood, CO.

Thank you all very much for being here. We will include the full

statement that you have prepared as part of our committee record,

so you do not need to give us line-by-line on that. But if you could

4

give us about 6 minutes each of the main points that you think this

subcommittee needs to be aware of, we would greatly appreciate it.

Mr. Whitehurst, why don’t you go right ahead?

STATEMENT OF JIM WHITEHURST, CHIEF OPERATING

OFFICER, DELTA AIR LINES, ATLANTA, GA

Mr. WHITEHURST. All right. Good afternoon, and thank you. Mr.

Chairman and members of the subcommittee, it is a privilege to be

here today representing both Delta Air Lines and the Air Transport

Association. I would request that the statement of the ATA also be

included in the record.

[The prepared statement appears in the appendix on p. 69.]

Mr. WHITEHURST. Civil aviation in the United States is at a tipping point. The inescapable reality is that the demands of our customers cannot continue to be met by an outdated 1950s-era air

traffic control system.

Delays in the system are at record levels, and cancellations due

to the failure of the system to accommodate demand are up at an

alarming rate. Flight delays are costing our passengers $10 billion

a year, and airlines $7 billion annually.

Passenger and cargo airlines in this country operate more than

30,000 flights a day, carrying over 2 million passengers and 55,000

tons of cargo to cities in all 50 States. This activity draws $1.2 trillion in economic contribution to the economy and produces 11.4

million jobs. If we do not act now to modernize the ATC system,

airlines will be forced to curtail growth, and benefits associated

with a healthy, vibrant economy could be lost or severely diminished.

Furthermore, the Next Generation air traffic control system is

green. It is estimated that the deployment of Next Generation

would reduce CO2 emissions by 10 to 15 percent.

For example, in Atlanta alone the introduction of RMP procedures—that is basically a procedure we use to reduce how we fly—

is projected to eliminate 483 million tons of CO2 annually.

Frankly, today’s outdated system, relying on radar and analog

radio technologies, is only getting by due to a lot of hard work by

our dedicated employees, the FAA, committed air traffic controllers,

and others who make the system work despite many flaws and inefficiencies.

My concern, and that of my fellow airline executives and employees, is that the system has reached a saturation point. With passenger demand projected to grow from 745 million to 1 billion passengers by 2015, and with 10,000 to 12,000 new corporate jets expected to enter service in the next 10 years, the situation will only

get worse. The ATC system must be fixed to avoid gridlock.

Mr. Chairman, the ATA passenger carriers have come up with a

financing formula that would generate the revenue needed to fix

the system. It restores fairness to the funding system as it ends the

indefensible subsidy of business aviation that could, and should,

pay its fair share.

Certified FAA data concludes that airlines and their customers

pay more than 90 percent of the taxes and fees to fund the ATC

system, but airline operations drive less than 73 percent of the

costs.

5

High-performance turbine aircraft—that is jets, not piston—these

are corporate jets, air taxis, and fractional ownership jets that use

the same air space and ATC services as airlines, only pay 6 percent

of the taxes but drive about 16 percent of the cost.

The ATA proposal restores Congress’ original principles of fair

and cost-allocated excise taxes, provides more predictable revenue

to meet growing operational and capital requirements as the system use grows, ends airline passenger subsidies for corporate aviation, is simple and understandable with minimal administrative

costs, and accommodates the most important goal of ensuring affordable service to small communities.

The funding mechanism, a passenger tax, takes advantage of the

existing tax collection infrastructure but is tied to projected costs.

Our proposal is grounded in the principle that taxing departures

and distance is the best way to recover costs aircraft impose on the

air traffic and airport infrastructure.

In addition to these domestic taxes, the ATA proposes to maintain the current international arrival and departure tax. Unlike today’s current system, ATA’s proposal would generate revenues that

would increase as passenger growth climbs and more closely links

actual cost to the ticket tax.

The current excise tax structure is largely tied to the price of

tickets and bears no relationship to cost. If you think about it, a

typical flight from Atlanta to Washington, DC could cost a passenger $200, $400, or $1,200 depending on when the ticket was

bought, and other factors.

Based on the 7.5 percent ticket tax, passengers sitting next to

each other are paying vastly disparate taxes not even remotely related to the cost of the ATC services that that flight incurs. That

makes no sense. It especially punishes passengers from smaller cities that most often have to pay a segment fee to connect and higher

average fares than travelers from major metropolitan areas.

We estimate that the ATA’s fair, cost-based financing proposal

based on direct routings would reduce taxes for passengers in Montana by 26 percent, by 27 percent in Iowa, 30 percent in Mississippi, 36 percent in West Virginia, and 20 percent in New Mexico. The departures and distances of flights drive ATC costs, not

the price of the ticket.

In closing, we are asking that airlines pay their fair share—no

more, no less—of the costs necessary to pay for the airport and airway system. Business aviation should pay its fair share and quit

relying on airline passengers to make up the shortfall.

Thank you for this opportunity to share our views and recommendations, and I would be happy to answer questions.

Senator BINGAMAN. Thank you very much for your testimony.

[The prepared statement of Mr. Whitehurst appears in the appendix.]

Senator BINGAMAN. Mr. Smith, thank you for being here. Please

go right ahead.

6

STATEMENT OF FREDERICK W. SMITH, CHAIRMAN AND CEO,

FedEx CORPORATION, MEMPHIS, TN

Mr. SMITH. Thank you very much, Senator. On behalf of the

280,000 people who make their living with FedEx, we appreciate

your allowing us to express our views.

I will now read my testimony, and ask, as you noted, that it be

inserted in the record.

FedEx Express, our largest operating company, operates a fleet

of over 700 airplanes to every corner of the United States and to

every corner of the globe. It invented the modern time-definite air

express industry, and that makes this issue extremely important to

us because, being in the business of time-certain services, we cannot operate our time-definite services with a system currently as

volatile as the U.S. air traffic control system. So that is our first

point, that we very much support the modernization of the system.

The second major point is, quite frankly, we do not have an opinion on which system is used to finance matters. The important

thing to us is that we pay our fair share, but not be burdened beyond that.

In fact, on the basis of very extensive studies, including those of

the FAA and outside parties, we now more than pay our fair share,

in some cases in the study, up to 150 percent of the cost burden

we put on the ATC system.

We believe that the system needs to have oversight. The FAA

needs to have some sort of formal mechanism to oversee what they

are doing. It would be our strong suggestion that simply having

money spent according to the FAA’s agenda is not wise for them

or for the other constituents involved in this matter.

We believe that the general fund contribution should be continued and increased. One problem with S. 1300 is it calls for a declining Federal contribution, starting out below historic levels, usually

over 20 percent, and going down from that in outlying years.

Given the up-front demands for new infrastructure to reach Next

Generation status of the air traffic control situation, we believe it

would be wise if Congress stepped up to the plate for a portion of

the funding.

The reform of the national air space is too important an issue to

be subject to budgetary penny pinching, given its profound implications for the national economy.

And finally, we would respectfully suggest that unrelated issues

should not be included. I am speaking specifically about the labor

issues, and I am speaking even more specifically about the labor

provision inserted by the House, which deals with only one company and tries to overturn 80 years of legal precedent and years

of litigation that found the amendment that was being proposed to

be incorrect. And to try to do this with no hearings, no public interest considerations whatsoever, is just the height of bad public policy, in our opinion.

So, thank you very much for allowing us to make our views

known, and we appreciate being here.

Senator BINGAMAN. Thank you very much for your testimony.

[The prepared statement of Mr. Smith appears in the appendix.]

Senator BINGAMAN. Mr. Raburn, we are glad to have you here.

Go right ahead.

7

STATEMENT OF VERN RABURN, CEO AND PRESIDENT,

ECLIPSE AVIATION CORP., ALBUQUERQUE, NM

Mr. RABURN. Thank you, Mr. Chairman. Chairman Bingaman,

members of the subcommittee, I would like to thank you for the opportunity to testify today on the various legislative proposals to

fund the Airport and Airways Trust Fund and the need to modernize our air traffic control system.

I am president and founder of Eclipse Aviation, located in Albuquerque, NM. We have successfully designed, developed, and certified and are now manufacturing and delivering the world’s very

first Very Light Jet. In fact, to date we have delivered over 30 aircraft, and we are on track to deliver more than 200 aircraft by the

end of this year.

With the acquisition costs of less than half of today’s small jets,

significantly less than that of today’s business jets, and the lowest

operating cost per mile of any jet, the Eclipse 500 provides the lowest cost of jet ownership ever achieved.

This breakthrough has inspired an emerging generation of entrepreneurs to bring a new form of air travel to the flying public: the

air taxi concept. It has also opened up a whole new world of convenient air transportation to a majority of the communities in the

United States that today simply are not served by commercial airlines, and frankly will never be served by airlines, thereby enabling

significant economic and job growth.

Let me modify your opening comments, Mr. Chairman, by saying

there is not near-universal agreement, there is universal agreement among all participants in aviation, for the critical need of

transformation of our National air transportation system.

We have to get on to the specifics of modernization. Our system

and our economy simply cannot afford a system where gridlock is

inevitable. The opportunity is great for this change. Our system, as

has been pointed out by the other speakers, is really built on technologies from the 1940s and 1950s.

In fact, a good analogy, and one that the FAA has used, said it

is a bit like the old telephone system, where you had to ask for the

long-distance operator to be patched in to a long-distance line.

Imagine a system that is so unscalable as that, and yet that is the

system we have today.

So before I go any further, let me make one thing abundantly

clear. I believe we as an aviation community, both general aviation

and air carriers, need to be paying more to make this transformation to the NextGen happen.

I may not be completely in line with all of my GA colleagues on

this point, but I do believe general aviation needs to pay more into

the system. We should not be the only ones. Everyone using the

system needs to pay more.

In fact, I am in complete agreement with Senator Lott’s quote

from about a month and a half ago that says ‘‘every one of you has

to pay more, do more, give more. It is time we do something grand,

and you are all going to have to do more.’’ I am in total agreement

with that.

Unfortunately, the current funding debate is really being disguised as a NextGen debate, but it is more about shifting cost between the operating system from one user group to another. It is

8

precisely the hub-and-spoke system that drives the majority of system cost congestion, not the introduction of VLJs.

Just this last Sunday, I flew an Eclipse 500 from Albuquerque

to Boca Raton, stopping in heavily used airports such as Ardmore,

OK, Birmingham, AL, and there was no congestion. In fact, the

tower controller at Ardmore thanked me for landing on a Sunday

morning because it gave her somebody to talk to. I am not making

that up.

VLJ operators and pilots will use their aircraft to go where the

airlines do not, avoiding the congestion with hubs. So we are left

with the question: why should Eclipse and other VLJ operators be

required to subsidize a hub-and-spoke system when in reality VLJs

will neither require, nor seek, regular access to the major airports?

Unfortunately, the administration has passed up a unique opportunity to lay the foundation for the NextGen.

The FAA reauthorization bill is not welcome by many members

of Congress, and rightly so. It focuses too much attention on abolishment of the current funding system and too little on modernization. It failed to outline the technologies, timeline, or costs of the

next phase. I do compliment the Senate authors of S. 1300 in getting the bill out of the gate and dedicating funding to the NextGen

system.

Unfortunately, it falls short, in my view. Eclipse strongly opposed

the $25 per flight fee contained in S. 1300, as it will penalize the

Eclipse more than any other aircraft flying. We will be delivering

more than 1,200 aircraft by early 2009.

Under S. 1300, the first 1,200 Eclipse 500 operators would be

paying between $17 and $30 million annually in new fees. That is

roughly, based on a fairly conservative estimate, 5 percent of the

$400 million the FAA used to collect annually for the modernization project.

Now, as much as I would like to see Eclipse 500s populate the

system in this way, I can tell you with absolute certainty that our

aircraft will not be using anywhere near 5 percent of the system

or comprise 5 percent of the operations within the National Airspace System (NAS).

The $25 fee is regressive, as it treats all airplanes the same way,

whether they are a 6-seat Eclipse 500 flying on a short segment or

a Boeing 777 on a cross-country flight.

Overall, the $25 fee is extremely detrimental to Eclipse and its

customers, the vast majority of whom will, as I say, operate shorthaul flights into under-utilized airports and communities.

In summary, I believe S. 1300 does not meet the fairness and equity test. In addition to the $25 fee, it more than doubles the fuel

tax for Eclipse operators while phasing out the 4.3-cent-per-gallon

fuel tax for commercial operators. This simply is not following the

philosophy that everyone will need to pay more.

I am encouraged, though, by the provisions of H.R. 2881, the

FAA Reauthorization Act. This bill makes modest adjustments to

the Jet A fuel tax and aviation gas tax paid for GA operators. In

fact, fuel taxes, I believe, are the simplest and most efficient way

to pay for system use as they are paid at the pump using an existing collection system.

9

Just as Congress is debating an increase in the automotive

CAFE levels to encourage fuel conservation, a fuel tax would encourage users to modernize their fleets with more fuel-efficient aircraft.

This bill does not make any changes in the current fuel tax paid

by commercial carriers. While I would prefer to see all entities pay

more, H.R. 2881 is currently the most reasonable approach.

Let me be clear once more: Eclipse and its customers are willing

to pay more into the system for modernization. We believe strongly

in the need and importance of transforming our system. However,

we would like to see an increase administered through the fuel tax,

which we believe is an equitable proxy for the use of this system.

Let me also add that we have the opportunity here for a whole

new layer, a whole new form of transportation in this Nation. Included in this is increased passenger traffic, yet ironically a decrease in civil service levels throughout the Nation.

Our population is shifting to smaller communities as quality of

life and cost of living go up. On-demand, non-scheduled service is

key to providing these communities with getting them back on the

economic mainline of job creation and economic development. The

Eclipse 500 is an enabler to this, and I hope that this committee

and Congress will see fit to not halt this innovation in its earliest

stages.

Thank you for the opportunity to testify on this subject.

Senator BINGAMAN. Thank you very much for your testimony.

[The prepared statement of Mr. Raburn appears in the appendix.]

Senator BINGAMAN. Mr. Hackett, go right ahead.

STATEMENT OF DAVID HACKETT, PRESIDENT, GULFSTREAM

INTERNATIONAL AIRLINES, FORT LAUDERDALE, FL

Mr. HACKETT. Mr. Chairman, members of the subcommittee,

thank you very much for inviting me here today. You have my testimony. I would just kind of like to hit the highlights of it.

I am president of Gulfstream International Airlines. We are a

small, Ft. Lauderdale, Florida-based regional carrier. We operate a

fleet of 19- and 30-passenger turbo-prop aircraft currently throughout Florida and the Bahamas, most of that through co-chair agreements with major airlines. We carry just under a million passengers a year. We fly just over 200 flights a day.

I would just like to explain our role as we see it in the air transportation network, because I think it is a proxy for carriers like us

and something that needs to have important consideration as you

look at alternatives for funding air traffic control.

As we have heard here today, there is obviously no doubt that

investments need to be made. The question is, how do we finance

those investments and how do we do so to protect our Nation’s network?

The market that we fly in, we tend to be the low end of volume.

Our sort of business strategy is pretty simple. We take small turboprop aircraft and we fly markets that are thinner and smaller than

can be supported with larger aircraft.

We do that in two ways. One, we may be the only carrier that

operates in a city fare, not unusual for small equipment. Two,

10

there are also situations where we are not the only carrier in the

market, but we may complement the schedules of a bigger carrier,

so someone flying a large jet might only have two or three flights

in the market.

We tend to complement that, obviously in short-haul travel, with

increased frequency. I think as you look at what makes air transportation and air traffic work, it is an important formula in that.

About 50 percent of our flights that we operate on, we are the

only carrier. Another 25 percent, we do the complementary service.

We are a fairly successful regional carrier. We have been profitable

for the last number of years, marginally so.

But I will tell you, it is a tough business and it is not easy to

make it work, but we like to think of ourselves as kind of a last

line of defense in air service that is out there.

We watch very carefully the trends and the changes that go on

in the air transportation industry, and we like to think that we

react to those. Most often over the last few years, we have seen

large commercial carriers restructure their networks, do things to

make themselves more profitable, and many times that has resulted in more service to the big hubs and less service to either

small hubs or non-hub airports.

That is kind of where we come in. I use an example where, about

a year and a half ago, the market from West Palm Beach to Tallahassee, our State capital—and we are headquartered not too far

from West Palm, of course—one of the carriers flying it had three

flights a day. It did not work economically because of fuel and

other reasons, and they pulled out. Well, we rescheduled our services, found an airplane, and were able to introduce service virtually

the next day when that came out. And if you look at what we do

and where we do it, that is a common theme of what makes us important. That is, I think, a critical role in air transportation.

Now, clearly that is not unique to Florida or the Bahamas, where

we fly. Look anywhere on the East Coast where you have seen

major service change. Pittsburgh, as an example, has seen some

major reductions in air service over the past couple of years, fairly

continuous.

Well, as these cities like a Pittsburgh, Rochester—or take

Greensboro, NC, I noted—they have lost air service over the past

4 or 5 years to Baltimore, Pittsburgh, Cleveland, places like that.

Clearly these are not the biggest markets in the country, but if you

are a small business person or if you are a resident in these markets, we do think it is important to sustain that non-stop, convenient service.

The only way to do that without big hubs is with smaller equipment. That really lends its relevance to the air transportation funding question. We have seen a couple of proposals so far on how to

fund investments in air traffic modernization.

The original one, I did not see too many details from the administration. We were just given the highlights of it. And when you

added it up, it would equate to something like 30 percent of our

entire annual revenue base. Obviously, that did not work. The

more recent one we have seen, which includes the $25 user fee and

a possible reduction in excise taxes, is without question a move in

the right direction. But if you look at the impact on a small carrier

11

like us, $25 does not sound like a lot. But if we added it up, even

net of the fuel savings, it is substantially more money than we

made in the entire part of last year.

So I would ask you, as you review and assess these options, that

we think very carefully about the impact on small-capacity commercial aircraft, not just the essential air service program. We currently do not take a penny from it. We like to think of ourselves

as serving the markets that other people cannot serve profitably.

If we over-burden those niches with new expenses, we will not be

able to do it.

You can look anywhere in the industry where you have seen the

big airlines restructure, and I guarantee you, you will find these

niches that pop up. And whether it is Gulfstream that tries to fly

them or it is somebody else, it is an important role. I would simply

ask that that be taken into consideration.

For example, if they went forward with the $25 fee, we would

really need some kind of an exclusion or other protection for smallcapacity aircraft, because we do not have the ability to just pass

it on to our customers.

Fuel has gone crazy recently, and we do everything we can to

keep up with it. I am not sure we are being that successful. But

you just cannot pass on the costs directly, and it is obviously a

major impact when you have only 19- and 30-seat aircraft. It is a

very minor impact if you have large commercial aircraft or expensive corporate jets.

Thank you very much.

Senator BINGAMAN. Thank you very much.

[The prepared statement of Mr. Hackett appears in the appendix.]

Senator BINGAMAN. Mr. Shine, why don’t you go right ahead?

STATEMENT OF RICHARD SHINE, CEO,

MANITOBA RECYCLING, LANCASTER, NY

Mr. SHINE. Mr. Chairman and members of the subcommittee,

good afternoon. This is the first time I have spoken to a Congressional committee, and it is a privilege to be before you today.

My name is Richard Shine. I am here on behalf of the National

Business Aviation Association, but I am also a proud member of

the Aircraft Owners and Pilots Association.

I am the CEO of Manitoba, a family-owned metals recycling company headquartered in Lancaster, NY. My business employs 60

families in our community. When my grandfather founded Manitoba in 1916, the company collected all the metals it needed within

40 miles of our recycling plant.

But since I joined Manitoba in 1970, the 20 local manufacturers

that provided scrap metal to Manitoba had been reduced to one. At

some point we needed to expand our business base, and that is

where business aviation came in. I applied the flight training I received in the Air Force to fly to locations beyond Lancaster to find

scrap metal providers. Our plane got us in front of a lot of people.

We did not land every account, but we got enough to survive.

The aircraft we use today is a turbine-powered propeller plane,

or turbo-prop, called a Mitsubishi MU–2, like the model that I have

12

here. As much as ever, we rely on this plane to get outside of our

region and generate the metals that we need to stay in business.

So, basically, Mr. Chairman, I represent a small business that

operates a turbo-prop aircraft to help my company survive. My

story is not unique. Every member on this committee has businesses in their State with stories like mine.

In fact, most companies that use an aircraft are like mine, smalland mid-sized businesses that operate just one small plane. We

mostly use piston planes, turbo-props, or small jets that are about

the size of an SUV inside. They seat about six people and fly relatively short stage lengths, mostly using small community airports.

You do not often hear about companies like mine in discussions

of business aviation. Instead, the focus is always on big Fortune

500 companies. But I hope the members of this subcommittee understand that for every Fortune 500 company that relies on turbine-powered business aviation, there are eight or nine companies

like mine.

The reason you have asked me here today is not just to talk

about the benefits of business aviation, but how we should fund the

modernization of the aviation system. If there is anything I would

like you to take from my testimony, it is this: the general aviation

community, of which I am a part, supports modernization of our

aviation system and is willing to help pay for it.

But what I want this subcommittee and the rest of Congress to

understand is, we want to pay at the pump, not through user fees

or new taxes. The fuel tax is a simple and proven way to measure

and pay for system use by operators like me.

I pay my taxes at the point of service, that is, when I fuel up.

A company with a bigger airplane will burn more fuel and pay

more fuel taxes. Once the tax is paid at the pump, the government

has its money: no paperwork, no collection agents, and no bureaucracy.

Now, I am a businessman from Upstate New York and not a policy expert, but it seems to me that the proposal from the House

Transportation and Infrastructure Committee to fund the FAA and

modernize the system gets it right.

From what I have read, this proposal would generate additional

money from general aviation for system modernization, while letting general aviation continue to pay exclusively at the pump.

I do not understand why anyone would want to replace the simple payment system we have with one based on user fees or some

new unproven formula. I have personal experience with user fees.

Lancaster is close to Canada, so I have often flown into Canadian

airspace.

Here is how that system works. Some weeks after my flight,

NavCanada’s bureaucracy sends me an invoice. If I have made

multiple flights, I get multiple invoices. I have to review the invoices to make sure they have charged me correctly. If they have

not, I have to get on the phone to dispute any inaccuracies.

If the charges are correct, I need to fill out a purchase order, cut

a check, put the check and invoice back in the mail to NavCanada.

Obviously this imposes a significant and hidden administrative cost

to my business.

13

I cannot figure out why anyone would want to put this kind of

a burden on businesses like mine when we already have a better

and more efficient system in place.

Manitoba runs on a very narrow profit margin. As a businessman, I am always looking for ways to increase efficiencies, reduce

red tape, and decrease administrative overhead. User fees will run

counter to all that.

I hope Congress will reject user fees and oppose anything that

would take money from my business to give a tax break to someone

else. Asking me to pay for modernization is perfectly understandable. Asking me to pay for a tax break for some interest group is

not.

Mr. Chairman, let me close by reiterating that, if this committee

determines that additional revenue is necessary to modernize the

Nation’s aviation system, I am willing to make an additional contribution to that effort, but please let me continue to make that

contribution by paying at the pump exclusively through the fuel

tax.

I appreciate the invitation to testify. Speaking on behalf of the

business aviation community, I wish to express my willingness to

work with you and the members of this committee to draft a reasonable plan to reach our shared modernization goals.

I would be happy to answer any questions.

Senator BINGAMAN. Thank you very much.

[The prepared statement of Mr. Shine appears in the appendix.]

Senator BINGAMAN. Mr. Olislagers, go right ahead, please.

STATEMENT OF ROBERT OLISLAGERS, EXECUTIVE DIRECTOR,

COLORADO CENTENNIAL AIRPORT, ENGLEWOOD, CO

Mr. OLISLAGERS. Thank you, Senator. Good afternoon, Chairman

Bingaman and members of the subcommittee. On behalf of the

Arapahoe County Public Airport Authority and Centennial Airport,

I wish to thank you for this opportunity to appear before you today.

I am the executive director of the Arapahoe County Public Airport Authority, which is the operator of Centennial Airport. I wish

to begin my testimony today by stating that my colleagues and I

in the 3,200 airports in the National Plan of Integrated Airport

Systems (NPIAS) around the Nation deeply appreciate the funding

levels that are proposed in both the Senate and House bills for the

airport improvement program, of which we are a beneficiary.

Centennial Airport was founded in 1968 to serve general aviation, and it is located in the greater Denver metropolitan area. It

is the 3rd-busiest general aviation airport in the United States and

the 29th-busiest airport in the U.S., as measured in terms of takeoffs and landings.

The airport supports a wide variety of general aviation activities,

including, but not limited to, flight training, air ambulance, charter, fractional, cargo, business, and personal aircraft operations. In

addition, the airport supports military, homeland security, law enforcement, firefighting, and other critical government functions.

In fact, we have six ambulance companies at Centennial Airport,

one of which is responsible for fully one-fourth of all ambulance

flights in the United States.

14

Our airport is typical of others. It is a significant economic driver, with an estimated $1 billion in annual direct and indirect economic activity.

The airport is surrounded by 23 business parks, and, combined,

the south metro area is responsible for 25 percent of the State’s

GDP. The airport is recognized as a significant player.

In 2006, the airport recorded nearly 320,000 operations, or nearly one aircraft every minute between the hours of 6 a.m. and 10

p.m. However, total operations declined by 7.2 percent in 2006, a

substantial decrease from previous years.

We believe that the operational decline is almost exclusively attributable to the rise in gas fuel costs, which, on average, were 65

cents per gallon in 2006. This slide continues unabated to date, and

suggests extreme price sensitivity. Your deference to the piston

community in Senate Bill 1300 is very much appreciated.

Although jet fuel sales rose slightly, I also see evidence of price

sensitivity there, as outlined in my prepared remarks. I am concerned that the substantial increases in the excise tax will have a

detrimental impact on our industry.

As I see it, there are three primary questions in this debate. One,

what will NextGen look like? We know of bits and pieces, but there

is no coherent modernization plan in place to date, including the

technologies that it entails.

Changing safety-related protocols is an incremental business,

and the imbedded uncertainties require ongoing testing and evaluation. I am only reminded of the effort to introduce microwave

landing systems a number of years ago.

Two, how will the FAA pay for modernization? The GAO and the

current and past DOT Inspectors General have indicated that the

present system will generate sufficient funds to accomplish all of

the FAA’s objectives, including ATC modernization, therefore, the

system does not appear to be broken, as suggested. I am referring

to the collection of revenues.

Three, why, then, contemplate major structural changes? In the

interest of time I will pass on commenting on the general fund contribution, but suffice it to say that the airway system is a national

asset and every citizen benefits, and current contribution levels

should, at a minimum, be maintained.

Then there is the question of equity and user fees. The claim has

been made that general aviation is not paying its fair share. As

speakers before me, I would like to make it very clear for the

record that general aviation should pay its fair share.

The proposal to implement user fees, however, requires the establishment of a separate bureaucracy to collect the fees. Paying a

fair share is best accomplished at the pump through the excise tax

system. It is in place, it is efficient, and it is cost-effective.

Creating equity in one area often causes inequity in another.

Both GA and air carrier industries are price-sensitive, and we

know that every dollar counts. I like to say, no bucks, no Buck Rogers. As stated, GA is quite willing to pay its share, but there is disagreement as to what that share is.

In testimony last week, the Administrator recognized a distinction between the cost allocation of a flight over Montana versus one

15

going into O’Hare. The same could be said for general aviation

flights above and below the congested air carrier routes.

And in another example, only 4 percent of GA aircraft used ATC

services at the 10 busiest airports in the United States where cost

allocation is highest. Logic would dictate that, if the cost allocation

at the 10 busiest airports in the United States is highest, and GA

accounts for only 4 percent, then it would seem to be that the fair

share is closer to 4 percent than the 11 percent proposed by the

administration.

In closing, I do believe that the administration’s proposal significantly undermines general aviation as we know it. General aviation airports like Centennial Airport are critical to the economic

and social fabric of our country.

It is unique, and there is nothing like it anywhere else in the

world. GA will not shy away from paying its fair share, but I respectfully urge you to consider that in the context of existing mechanisms.

Mr. Chairman and members of the subcommittee, I wish to

thank you for your time and for inviting me to participate in this

important hearing. I would be happy to answer any questions.

Thank you.

Senator BINGAMAN. Well, thank you very much.

[The prepared statement of Mr. Olislagers appears in the appendix.]

Senator BINGAMAN. Why don’t we do 5-minute rounds here? The

order I am going to use is: myself, then Senator Bunning, then

Senator Lott, then Senator Crapo, and then Senator Roberts. Senator Roberts was here earlier, but since he is not officially part of

this subcommittee, we do not want to defer to him to any excessive

extent. [Laughter.]

Senator LOTT. Let us leave this lonesome end down there lonesome. Do not be throwing him the ball.

Senator BINGAMAN. We will give him the ball.

Senator ROBERTS. Mr. Chairman, I am ready to ride drag. I do

it a lot. [Laughter.]

Senator BINGAMAN. All right. That is an old Kansas expression,

right?

Senator ROBERTS. Yes, it is.

Senator BINGAMAN. Let me ask on this basic question. The FAA

claims that they have done a very sophisticated cost allocation, and

their proposal for how we should fund the Aviation Trust Fund

going forward is based on this, as I understand it. Their cost allocation assigns 73 percent of the air traffic control costs on commercial

aviation, and then it has different amounts for different sectors.

I notice in your testimony, Mr. Olislagers, you said there was disagreement about what the fair share is. You think they have not

necessarily calculated this right. Is there an alternative calculation

that someone has done that we can look at that would have some

claim to being independent?

I mean, frankly, I think we are trying to figure out, what is the

right allocation? That is a valid question if we are going to try to

base the different financial burdens on the basis of cost. But the

only one we have seen so far, the only one I have seen, is the one

16

the FAA came up with. Any of you have an idea? Mr. Smith, did

you have a thought about this?

Mr. SMITH. Well, there are two studies that we used to make the

statement that I did about the cargo industry’s relative share of

cost. One of them is almost certainly the FAA study that you were

just talking about, and the other one was done by Simat, Helliesen,

and Eichner (SH&E) in April of 2006.

Senator BINGAMAN. And who did they do that for, SH&E?

Mr. SMITH. The Cargo Airline Association.

Senator BINGAMAN. All right. Well, obviously we would like to

see if there is any other analysis that is out there that we could

look at. Any of the rest of you have a thought about this? Mr.

Whitehurst?

Mr. WHITEHURST. If I could clarify, the 73 percent that I mentioned, which is also from the FAA, does include cargo carriers, all

cargo carriers, in that. So, that 73 is commercial carriers, including

cargo carriers.

I do want to state, associated with that number, as far as we

know, that is the only fully comprehensive study, because frankly

only the FAA has the full data. It absolutely does recognize that

the majority of the costs are driven by the major hub airports.

It also recognizes the fact that the fixed costs associated with

those facilities are due to the major carriers. So, for instance, at

the major hub airports, the major carriers are 95 percent of the operations; GA represents 5 percent of the operations.

In the FAA study, only 3.6 percent of the costs of the major hub

operations were allocated to GA, even though they generate 5 percent of the operations, because, very simply, 100 percent of the

fixed costs of the major hub operations were allocated to the network carriers. So even though those fixed costs go to benefit GA,

they were not included in an allocation to GA because they would

exist anyway because of the major carriers.

In addition, 100 percent of the cost of the TRACON facilities,

which are the approach facilities for the major hub airports, were

allocated to the major carriers, even though, if we take the New

York TRACON, 30 percent of the activity of the New York

TRACON is for GA, not for the major airlines. But even so, because

those facilities needed to exist, 100 percent of the cost of the

TRACONs were allocated to the network carriers in the FAA study.

So we feel strongly that, yes, the major carriers generate the majority of the cost of the system, and yes, the fixed costs associated

with this system would reasonably exist just for the major carriers,

and we should pay that. The FAA has taken that into account in

its study. Price Waterhouse has certified that study. That is the 73

percent that we are talking about.

Senator BINGAMAN. Let me ask one other question of you, Mr.

Whitehurst. You testify about the ATA proposal here and how you

are going to allocate costs among the different airlines in your sector, as I understand it. You say that the proposal is simple and understandable. Why don’t you give us a simple explanation on it?

Mr. WHITEHURST. All right. At the highest level, we believe, after

looking at the FAA study, that about half the costs of the system

are relatively fixed based on departures, and roughly half the cost

of the system is variable based on distance flown in the system.

17

So what we have basically said is, on a per-passenger basis, we

will collect half the revenues based on a per-segment, per-passenger charge, and half the revenues based on a per-mileage

charge.

Now, technically the math is hard. What we do is, we take the

73 percent of the FAA’s cost. Then we look at the number of passenger departures and the number of miles flown, and we do the

simple math to calculate it out to get to the actual dollar amounts.

So the principles are very, very simple: half the cost is for departures, so half the revenue will be raised based on passenger departures; half the cost is based on time in the system, so we do that

on miles.

Now, that said, we are very sensitive to some of the comments

on smaller communities. And let us be clear: Delta serves more

small communities by far than any other airline. Through our restructuring, we increased the number of small communities we

serve. By the FAA’s definition, we serve 144 small communities. To

balance that, we very specifically put some things in place to help

ease the burden on small communities.

First off, we look at what we call Great Circle miles. So a flight

from Boise to Miami, we look at the miles between those two locations. We do not look at the total miles flown, which obviously

would require connecting through a hub.

Therefore, the total cost for someone in a small community flying, they will not be subsidizing the guys flying non-stop from New

York to L.A. So we tried to build into the system, in balancing

what we are doing, both being cost-based, but at the same time understanding our obligation to serve small communities.

Senator BINGAMAN. Thank you very much.

Senator Bunning?

Senator BUNNING. Thank you, Chairman Bingaman.

My question is for Mr. Whitehurst, first off. Do large commercial

airlines insist on a user fee, even if you could raise the same revenue by increasing the tax on general aviation fuel?

Mr. WHITEHURST. Our proposal that I summarized today is a

passenger tax, it is not a user fee. So our proposal is that we pay

for our share of the system via a passenger tax.

Senator BUNNING. It is not a user fee?

Mr. WHITEHURST. It is not a user fee. It is a passenger tax. That

is the proposal that the ATA has agreed to and that I have presented today, and we are happy to go through it in more detail.

It is a passenger tax, 50 percent based on a per-segment and 50

percent based on miles flown. We have no opinion as the ATA on

how others should pay for the remaining components of the air

traffic system.

I certainly understand the logic for the benefits that GA provides. We certainly do not support an increase for piston aircraft.

Piston aircraft have almost no impact on the system. They do not

fly in our air space. They do not use the TRACON services and the

other services. And while we do not advocate one way or another

on how others pay for it, for piston aircraft we do not see that they

drive any costs in the system.

How the high-performance general aviation aircraft pay is something obviously up to your wisdom, and certainly the opinions of

18

others. But we have no opinion on how others should pay their

share.

Senator BUNNING. Mr. Olislagers, in your testimony you mention

the harmful effects that you believe higher fuel prices have had on

your general aviation airport. You also mentioned your concern

with the proposed $25 user fee. It has been suggested that an increase in the general aviation fuel tax could replace the proposed

user fee. From the perspective of your airport, what do you think

of that idea?

Mr. OLISLAGERS. Thank you, Senator. As I mentioned in my

verbal testimony, as well as in my written testimony, other than

the FAA study, there are no other studies presently available.

However, the 4 percent that I mentioned in my remarks represents

actually what is currently used by business aircraft in the top 10

airports in the United States. This comes directly from the FAA’s

own numbers, so I am just simply relying on the FAA’s numbers.

The Administrator indicated last week that, in fact, a flight over

Montana, for example, would have much less of a burden, and also

in terms of cost allocation than, say, an aircraft going into Chicago

or any of the major hubs, so I simply based that on workload. So

if, in fact, the general aviation community only uses 4 percent in

the top 10 busiest markets, I can only assume that the burden elsewhere is, in fact, even less.

So my suggestion would be that it is probably closer to 4 percent.

I have heard numbers anywhere from 3 to 6 percent as to what

currently is being paid for by general aviation.

Senator BUNNING. All right.

Mr. Smith, as a representative of an all-cargo air industry, would

you say that you support or oppose the Rockefeller-Lott bill?

Mr. SMITH. Well, certainly we applaud Senator Lott and Senator

Rockefeller’s leadership on this matter. It would be, in general, perfectly all right for us, the funding that they have, with the one exception I mentioned that we would strongly support for the contribution from general funds to be kept at historic levels, whereas

the legislation that we have analyzed, we see that drifting down.

I mean, it is a national resource like the interstate highway system, and other things. So it seems to me that some component of

it, an appropriate component, should remain from the general fund.

Senator BUNNING. The general fund.

Mr. Raburn, in your testimony you mentioned that a fuel tax

could better promote fuel efficiency among users. Do you have any

thoughts on whether increased efficiency might lead to lower revenues for the trust fund? Would this be something that this committee should be concerned with?

Mr. RABURN. In terms of the incentive to re-equip the fleet to

achieve better fuel mileage or fuel efficiency, the interaction between total tax revenues versus the increase in efficiency is a difficult one to come to a conclusion on. I do not think I have enough

experience or knowledge to answer that question specifically.

It does seem to me that, in general, given the Nation’s predicament when it comes to fossil fuels, that this has to be fundamentally a good thing to encourage efficiency.

One of the best ways to encourage efficiency, in the same way

Congress is looking at the CAFE average for the auto manufacturVerDate 11-MAY-2000 14:58 Nov 24, 2008 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 45111.000 SFIN1 PsN: SFIN1
19

ers and for fuel prices, is to make it economically advantageous to

have more fuel-efficient aircraft. Will that drive down total tax revenues? Historically, it does not seem to have happened that way.

In fact, if anything it seems to drive tax revenues up.

Senator BUNNING. Thank you, Mr. Chairman. My time has expired.

Senator BINGAMAN. Thank you.

Senator Lott?

Senator LOTT. Thank you, Mr. Chairman, for having the hearing.

And thanks to all the panel for giving your time to be here and

give us the benefit of your thoughts on this.

We are trying to come up with an FAA reauthorization bill and

a way to get to modernization. All the testimony we have had in

the Commerce Committee, and I think you would all say the same

thing, is that we do need to have reauthorization and we need to

be thinking about this Next Generation.

When I go to other parts of the world, when I go to Europe, they

are moving in that direction. We do have an antiquated system and

we are going to have congestion, and so we are going to have to

deal with it.

I have worked with aviation now, going back to my years in the

House, but particularly in my years in the Senate in the last two

authorization bills. Fortunately, the last FAA reauthorization we

did, we did not have to come to the tax committee because the

taxes and fees were in place for 10 years. But this time, everything

expires come the end of September, the authorization, the taxes

and fees. So, we have to look at it in the whole sense.

I am involved in this because I think that aviation is very, very

important to our country, our infrastructure, and who we are, the

way we move around. So we are trying to make sure we come up

with something that is fair to everybody.

We have taken some of the recommendations of the administration in our bill that Senator Rockefeller and I developed, and we

have rejected some of them. They proposed cutting airport funds;

we put it back up to what they would have gotten, $1 billion. But

then the airports want an increase in the Passenger Facility

Charges (PFCs) from 3.5 to 7.5, or something like that.

So there are a lot of different views here. But I have found that

everybody is in agreement that we need a bill and we need modernization, but nobody wants to pay more. I can understand that.

I think maybe, Mr. Raburn, if you were not quoting me, it sounded

like something I would say: everybody is going to have to pay a little more if we are going to come up with more money to do the job.

So, that is what we tried to do.

For instance, in our proposal, commercial aviation actually would

pay more, even though we phase out or take away the 4.3-cent-agallon tax. Because of the fee, the net result is that the cost is up.

We do not give airports as much as they wanted, and we did not

get into a lot of labor fights, and we tried to be fair with general

aviation, specifically excluding AOPA, the piston-driven general

aviation aircraft, crop-dusters, and things like that. No tax increase

in aviation fuel, no fee increase.

But I have always said, look, this is not written in stone. We are

trying to get results here. So I am discouraged that we are going

20

to be able to get a result because nobody seems to really want to

go forward.

For instance, I commend ATA and the commercial airlines for

coming up with a proposal. I mean, it is not easy to get the members of the ATA, all the airlines who had lots of difficulties, partially because everybody has been riding on your back, to come to

agreement about how we can do this. I think what you have come

up with is certainly worth considering, and you should be commended for doing it.

Now, I do think that what you came up with means you would

pay a little less than you would under the current system, but I

think the formula you came up with is adjustable, where you could

actually get more. But a couple of interesting questions.

One, this measuring of distance. I think you said it, and I understood it this way. The way you measure distance on your formula

is not from—like, if you were flying from Jackson to New York or

Washington through Atlanta, you do not count that mileage, you

count the mileage from Jackson to Washington. Is that correct?

Mr. WHITEHURST. That is correct.

Senator LOTT. All right.

Mr. WHITEHURST. In our formula, we would do the actual miles

between the cities, not the miles flown. In fact, we would even reduce it by 250 miles.

Senator LOTT. Explain that. You exempt the first 250 miles?

Mr. WHITEHURST. We exempt the first 250 miles.

Senator LOTT. And what is your purpose for doing that?

Mr. WHITEHURST. It is purely, as we try to balance cost with the

impact on small communities which generally have to fly further,

we were trying to help benefit small communities by exempting the

first 250 miles.

Senator LOTT. Well, we certainly want you to do that. All of us

here on this panel, the Senators represent States with small communities. We are rural States. We want to make sure we are in

the network, we are in the system. I want these light jets flying.

I am concerned about how we are going to handle all this additional traffic in the system. That is why I want us to have modernization. But that raises the point for general aviation. You say

you want to pay your fair share, but I cannot ever get anybody to

tell me what that is.

We have had a nervous breakdown over the $25 fee. I do not

quite understand that, because it looks to me like, if you pay an

additional aviation fuel tax between Dallas and LaGuardia, it

would be a lot more than a $50 fee round trip. So, there is a hyperventilation and overreaction that, oh, this is a camel nose under

the tent. What do you mean? This is supposed to be a 5-year bill.

But here is my point. All right. So we take the fee away. How

do you then get the additional money to go into the system? Well,

you say we want aviation. Well, what you pay now is 29 cents a

gallon. Our proposal would take it to 39. So if you drop the fee, you

are probably going to have to come up with more than 39.

When I looked at general aviation’s proposal, I think you were

thinking only in terms of maybe 32. That is not going to quite get

it. So, sooner or later, through your representatives or somebody,

we have to come up with some honest assessment of how much you

21

use or you do not use, and how much you are now paying, and if

not a fee, then what.

I do thank you, Mr. Smith, for being here. I listened to your

points about the general funds. I do think there is a common good

involved here. But I think the drop in the formula is, like, from 21

percent to 19 percent, not much.

But we could maybe hold that harmless, hold it there, and that

would relieve us a little bit of the need to do more. But all I am

saying to you is, the clock is running. We are running out of time.

We need this bill. We need modernization. I do not know. I am

afraid we are not going to get it.

Mr. Chairman, if you will give me one more opportunity to ask

a question. Let me ask you, Mr. Smith. One of the things that has

discouraged me lately is the House bill that they passed. I was

floored by what came out of Mr. Oberstar’s committee. Mr. Smith,

I would be particularly interested in your observation of areas in

that House bill that you think are of particular concern.

Mr. SMITH. Well, as I mentioned, Senator, we object very much

to the insertion of language that affects only one company, and

that is FedEx Express. FedEx Express has been under the Railway

Labor Act since its inception when I formed the company in 1971.

The Railway Labor Act itself was built around a couple of important points, and most importantly was the fractious labor relations

in the essential rail services in the late 1800s and the early part

of last century, which brought, many times, farmers and people

who relied on those systems to their knees.

So the government said, the public interest is the primary interest here, and it did two things which are very important: it required system-wide bargaining agreements, and, second, it took

away the unilateral right from labor and management to engage in

lock-outs or strikes. It put that under the control of a governmental

agency, the National Mediation Board.

So there have been many attempts to say that FedEx Express’s

pick-up and delivery operations should not be under the Railway

Labor Act, and that issue was litigated and firmly decided in 1992

by the Ninth Circuit Court of Appeals, and the Supreme Court denied cert. That opinion is just crystal clear.

It says that FedEx Express’s pick-up and delivery operations are

an integral part of its air operations, and that is exactly what I had

in mind from my service in the Marine Corps. It was an air-ground

integrated system from the onset.

So, this bill is being pushed for the private interests of labor. We

do not have any opposition to organized labor. We have an excellent relationship with our unionized pilots, and that has nothing to

do with it. I think it is also fair to say that it is supported by one

of Senator Bunning’s constituents, UPS.

I will say this, a little bit immodestly, for which I apologize, Senator Bunning. But all those people would not be in Louisville if it

were not for FedEx, because we invented the industry. [Laughter.]

And UPS came in in 1982 with a genealogy very different from

ours, as a ground package delivery company, and they decided, for

their own reasons, to contract with their ground company, thinking

their efficiency would trump our orientation on service. The correct

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resolution of this matter in the public interest would be for UPS

to be put under the Railway Labor Act.

And, in fact, UPS tried to have that happen after they had a

strike in 1998. And sooner or later, that will happen because my

best estimate is, between UPS and FedEx, probably 25 percent of

the Nation’s GDP is in our trucks and in our planes every day.

Twenty-five percent. That would be my best estimate.

I can tell you, we are in the ground package business too, but

we are not organized the way UPS is. We have a completely separate ground operation. It does not pick up any air express packages. Every FedEx Express pick-up and delivery vehicle picks up

air express packages going to every address in the United States

and 229 countries around the world.

So, it is a bad thing directed at one company to disadvantage us.

It is terrible public policy based on the four failed pieces of legislation that Congress enacted from 1888 until they finally resolved it

in 1926. It is certainly inappropriate, in our opinion, to do this

without any public hearings, without any consideration of the public interest.

Senator LOTT. Thank you, Mr. Chairman.

Senator BINGAMAN. Thank you.

Let me call on Senator Roberts. He has been waiting patiently

here.

Senator ROBERTS. Mr. Smith, my dad was an air/ground officer

in the Marine Corps on Iwo Jima. I sure as hell hope that your job

is a little easier than his was.

Good news. [Reading.] ‘‘Delta Air Lines, Inc., the Nation’s thirdlargest carrier, cited a 5.5-percent gain in sales, as it reported

Wednesday that it swung to a profit in the second quarter, which

saw it emerge from bankruptcy after shaving billions of dollars in

costs. The Atlanta-based company, as a result, beat Wall Street’s

expectations. When one-time items are excluded, Delta’s shares

rose 5 cents, to $21.24, in morning trading. In bankruptcy, Delta

shed billions in costs, restructured the carrier’s operations, survived a hostile take-over, and even repainted the airplanes’ tails.’’

So, Mr. Whitehurst, I think congratulations are in order. We sort

of take parentage of that to some degree with H.R. 4, and we were

happy to do that.

Now I understand, with the 17 years that you have to repay the

under-funding of the pension plan, that American-Continental

would like the same thing. I understand that. I also supported it

because we had some pension problems with rural cooperatives.

So, Mr. Chairman, that rather controversial bill—or at least in

the eyes of some—actually worked out, and we were to happy to

support it, and we were happy to see the success here. We offer you

our congratulations.

Mr. WHITEHURST. Thank you. And we just put $75 million so far

this year in to fund the pension plan, so we appreciate having the

opportunity to live up to our commitments.

Senator ROBERTS. Now for page two. [Laughter.] Your testimony

claims that airlines and their customers pay in excess of 90 percent

of the taxes and fees that go into the trust fund, sir. In your own

breakdown, only $7.9 billion is actually attributed to U.S. passenger airlines, which include the regional airlines. If we would

23

take out the regional airlines, the U.S. commercial carrier’s percent

drops to 64.1 percent.

So we are all clear, the passenger ticket taxes which you collect

are paid by passengers and only the fuel tax is paid by the airline.

So of the 77 percent or $7.9 billion, how much do U.S. commercial

airlines actually pay in the fuel tax?

I happen to have the chart here from the FAA. We have totaled

up lines 5 and 6 and find out it is $382 million, or 4.8 percent. Is

that about right in terms of what you think would be fair? Is that

a fair statement?

Mr. WHITEHURST. That is about right. I would argue, though,

since all of our revenues come from our passengers, actually, the

fuel tax as well is paid by our passengers.

Senator ROBERTS. Well, we can note that for the record.

Now, we have heard the Chairman talk about the GAO’s testimony last week as to whether costs as designed reasonably reflect

the services received by the various users. You referenced Pricewaterhouse, but they simply followed the methodology used. They

did not say if it was right or wrong. The FAA stated that they

abandoned economic principles when developing the study. So, that

is a statement I do not quite understand.

Why, then, should this committee use a study with so much

question surrounding it as a basis for determining tax levels? This

question has already been asked by Senator Bunning. Has the FAA

released their data so any independent groups could conduct their

own study? Do we know that?

Mr. WHITEHURST. My understanding is that the detailed, 600

line item study, it has not.

Senator ROBERTS. That it has not? Mr. Chairman, I really think,

while I am not ready to go over 600 pages of it—staff is. [Laughter.] Maybe we could go from that.

There was a Wall Street Journal article in March that said commercial carriers are using sophisticated routing software when flying internationally in order to minimize user fees levied by some

countries to pay for their air traffic controllers.

In fact, it said that United is using the software to re-route

planes so as to avoid $146 million in user fees per year. If carriers

are now trying to avoid user fees internationally, why would we

want to impose such a system here, and would the same thing happen?

Mr. WHITEHURST. I will start. We are not proposing, as the ATA,

any user fee at all. We are proposing a passenger ticket tax that

is based on a combination of departures and miles flown. I will say,

that said, a $25 user fee, we think, has a lot of merit, and we

would fully support the $25 approach.

Not only does it move towards a fairer cost-based system, it also

provides a predictable revenue stream that could be bonded, therefore, being able to help smooth out the natural CapEx lumpiness

that occurs.

Finally—and I run a business every day, so I will speak for us,

and I am sure this is true in most businesses—when times get

tough, you cut out the long-term CapEx to fund operating needs.

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By having a separate capital stream like that, we would be able

to ensure that dollars are spent on modernization and not crowded

out due to day-to-day short-term operating cost pressures.

Senator ROBERTS. Well, I can tell you, in Wichita, KS, in the general aviation industry, in terms of research and development—and

you folks are just trying to keep up just to keep out of bankruptcy

and continue your quarterly reports—it largely comes from the general aviation industry. That is an investment that we have to take

a look at.

I have to take you out to Dodge City, because in Dodge City, the

Kansas cattlemen told me this. That is my hometown, by the way.

We were at the coffee klatch. Actually, they came into town and basically said they have opposition to the user fee situation.

One of the cowboys said that the airline’s justification for this

new tax is that somehow a small turbo-prop carrying three passengers from Garden City, KS, America to Manhattan, KS, home

of the ever-optimistic Wildcats, imposes the same cost on the air

traffic control system as a jumbo jet carrying 300 passengers from

L.A. to New York. Now, that is their view. I know that is not your

view, but I think you have to consider that.

Mr. Shine, can you tell Senator Lott why you are very close to

a nervous breakdown? [Laughter.]

Mr. SHINE. You will have to talk to my psychiatrist. [Laughter.]

Senator ROBERTS. No. But go into it. I am a minute 50 over, but

he was 5, so I have another 3 to go. Except he is senior to me, and

I would not dare do that.

But I am just trying to say that everybody talks about corporate

aircraft. CEO corporate aircraft, i.e., Donald Trump, Paris Hilton,

whoever, as opposed to a whole series of alliances of people of small

business operators.

And I am not going to go into farmers, ranchers, and the heart

transplant people who fly, and all of that. But you are a darned

good example in terms of your testimony, and you have said, sir—

who does this paperwork? Do you have a paperwork facilitator in

regards to the Canadian system?

Mr. SHINE. Well, it is me and my person who opens the mail, and

my person who writes the checks.

Senator ROBERTS. Does that make you nervous?

Mr. SHINE. It does not make me nervous, but it adds cost.

Senator ROBERTS. It is just a pain in some area of your anatomy.

Mr. SHINE. Anatomy. Yes.

Senator ROBERTS. Yes.

Mr. SHINE. Yes, Senator, it is. My point is that we already have

a system. We do not mind paying more for the modernization of the

air traffic system. We are happy to do that.

But I represent corporate aviation, or general aviation. I am flying an airplane that is 27 years old that carries a maximum of 6

people. I am using it for my business. I would not be in business

today in Western New York, because of the loss of manufacturing

jobs up there, if I had not been able to get in the airplane and go

out and find things in other places. It is a business tool. This airplane is used in a much different way than the airlines use their

airplanes.

25

If we need to help pay—and we agree that we want to modernize

the air traffic system, and we are willing to pay our fair share to

do that—we feel that it is an administrative burden on the FAA

to try to collect user fees.

We feel it is an administrative burden on businesses like mine

to pay, and possibly dispute inaccurate, invoices, mail, cut a check.

I mean, all that is very, very burdensome. We do not think it is

necessary to utilize that kind of a system. We think we have a system in place and we should continue to use it. If we have to raise

the fuel tax to people like myself, so be it.

Senator ROBERTS. Thank you, Mr. Chairman.

Senator BINGAMAN. Thank you very much.

Senator Salazar?

Senator SALAZAR. Thank you very much, Chairman Bingaman.

Let me, first, welcome Mr. Olislagers for being here. I have flown

in and out of Centennial Airport, I am certain, thousands of times

since I have been flying around the State.

Let me just ask a question of you, Mr. Olislagers, and Mr. Shine.

That is, for most of us from the huge geographic States of the West,

we obviously use general aviation a lot, frankly, because we do not

have commercial access to many of the places that we fly to.

What impact do you see in terms of transportation availability

through the air out into rural and far-flung communities if the proposal that came out of the Commerce Committee were to be adopted by this Congress?

Mr. SHINE. You are referring, Senator, to the $25 per-flight fee

proposal?

Senator SALAZAR. That, among the rest. I mean, the comprehensive proposal which Senator Lott and Senator Rockefeller, I think,

shepherded through the Commerce Committee.

Mr. SHINE. All right. One of the problems with that, in my view,

is that we do not have the range capability that an airliner, a modern airliner, has.

Senator SALAZAR. I do not want the problems. I want you to tell

me what the impact would be in terms of the ability of any of us

as Senators, or anyone else, to make sure that we have the ability,

through general aviation aircraft, to reach far and rural remote

areas. What would be the impact?

Mr. SHINE. Well, currently it is far easier to do that. We have

the system that is in place. We pay taxes on that. We pay at the

pump. It is simple, it is easy. I give them my credit card, they

charge me the tax, and I pay for the air traffic control system on

that basis. If we go to a new proposal, a new system, I believe it

is going to cost money to administer it. Every dollar I pay in tax

will not end up in the FAA. To pay whatever the fee happens to be, whether it is $25, $100, or $5, there are administrative costs on my side. Why not go to a

system to support the modernization that will actually result in

every dollar of tax that is paid getting to the FAA?

Senator SALAZAR. All right. Do you have some comments on that,

Mr. Olislagers?

Mr. OLISLAGERS. Thank you. Senator, Statewide last year the

price of avgas, for example, went up by about 65 cents per gallon,

on average. It caused a 26-percent drop in use by piston aircraft.

26

Now, I recognize in S. 1300 piston aircraft are exempt from the

user fee, the $25.

Frankly, many of our clients believed that once a user fee issue

is actually in place, that it will just be a matter of time before the

piston aircraft users will also be paying into that system. The fact

is, there is, even among the jet operators, a great deal of price sensitivity. We have been seeing that across the board, especially at

Centennial Airport. Just last week, a new Fixed Base Operator

(FBO) opened up which decided to basically sell fuel at cost. They

are essentially about——

Senator SALAZAR. So what would happen? What would happen if

this legislation that came out of Commerce were to become law?

What would be the impact to your operations at Centennial?

Mr. OLISLAGERS. Well, I think at Centennial Airport, it is a very

robust airport, but I think we are just as affected as many of the

smaller airports, except I think the delta for the smaller airports

is much greater because they do not have the ability to absorb significant losses.

But I do believe that the proposal on the table would reduce the

number of people using the system. That creates a ratchet effect,

which would then in turn require additional fees to pay for the

shortfall. I think principally the smaller airports will suffer.

We will only see a concentration of a few airports that will remain in the system. I know for a fact, and I have managed a number of airports that only have 10, 12 airplanes in very rural communities, that would not be able to continue to operate. They are

already part of the general fund.

Senator SALAZAR. Thank you.

Mr. OLISLAGERS. Thank you.

Senator SALAZAR. Thank you very much.

Now, Mr. Whitehurst, first, congratulations on the success of

your company and the reports that came out yesterday.

Mr. WHITEHURST. Thank you.

Senator SALAZAR. It is good news for the airline industry everywhere.

Now, I assume you have the position of most commercial carriers, and that is that you support the proposal that came out of

Commerce. Is that correct?

Mr. WHITEHURST. We have put forward our own proposal. The

proposal coming out of Commerce is not complete, so it is hard for

us to say we support it. Something like the $25, while not in the

proposal that we put forward, we generally feel moves in the right

direction because it moves more towards a more fair, cost-based

system. We want to move to a more fair, cost-based system.

Senator SALAZAR. You are generally supportive of the thrust and

direction of that proposal?

Mr. WHITEHURST. Yes.

Senator SALAZAR. All right.

And Mr. Smith, I know your company. And by the way, I congratulate you in terms of what you are doing with respect to energy

efficiency at FedEx. The view of cargo carriers like yourselves in

terms of this proposal: can you summarize that for me?

Mr. SMITH. Well, Senator, we do not have any issue with whatever proposal is adopted. The only two points that are important

27

to us are, one, that we pay our fair share, not subsidize other folks.

As I mentioned, there are two independent studies that show that

the all-cargo industry is more than paying its burden on the ATC

system already.

Secondarily, that modernization occur. We are in the time-certain

delivery business, and the volatility and unpredictability of the air

traffic control system today is simply unacceptable, for many reasons.

Senator SALAZAR. Thank you, Mr. Smith.

My time is up, but I just want to make a comment. Senator Lott

has been very eloquent in terms of the need for the modernization

of the system, and I would imagine that everyone who is sitting at

the table today as witnesses would come to an agreement that

says, yes, we absolutely need to modernize the system.

So I think that on your first point, Mr. Smith, everybody would

be in agreement. I think the big debate, obviously, is who is going

to pay for it, and how are we going to fairly and equitably share

the burden.

I expect that there will be much debate beyond this hearing on

how exactly we do that, and I very much look forward to your

thoughts and guidance on how we achieve the modernization goal,

and at the same time make sure we have a fair and equitable system of distributing those costs.

Thank you very much, Mr. Chairman.

Senator BINGAMAN. Thank you very much.

Senator Smith?

Senator SMITH. Thank you, Mr. Chairman. My other committee,

among others, is the Commerce Committee. I am glad Senator Lott

has left. He is my friend, and I voted against his bill. [Laughter.]

I voted against it for three reasons, and I would be interested in

the responses of any of you to my three concerns.

First of all, perhaps expressed by Senator Bunning, is the idea

of setting up another bureaucracy to manage funds that could be

more efficiently raised through this committee rather than if we

did it on some other basis. I am open to ideas.

Second was the idea that if we are purchasing a capital asset,

which is something we need to do—everybody recognizes that,

whether they are for the Commerce bill or not—why is there not

a sunset on it after it is ended, to end the bureaucracy, and end

the fee?

Third, it does seem to me—and I represent Oregon. Portland

International does not need any more traffic. Pendleton, where I

am from, could really use some, and yet the fee is the same.

It does seem to me that there ought to be some distinction made

between Portland and Pendleton, if there is going to be a fee for

one versus another. They should not be the same. There may be

some good public policy that could drive small aircraft to go elsewhere and not get in the way of the FedExes, and the Deltas, and

whatnot. So, I just felt like the Commerce bill was half-baked, and

hopefully this committee can come up with something better.

I wonder if any of you would have a thought on my position,

which is, yes, we need the system, I am willing to help provide the

financing for it. But the idea of some distinction between big hubs

28

and little towns, and the idea of a sunset if there is going to be

a fee program.

Mr. RABURN. Well, Senator, I think you make a very good point

about the aircraft and the facilities that they use. Let me draw an

example similar to yours. If I were to file a flight plan from Albuquerque to Santa Fe, 75 miles, I would pay $25. Conversely, if I

file a flight plan from LaGuardia to, say, Dulles, I would pay $25.

There seems to be no correlation in the Act with the fee-based

system to the actual cost that is incurred in the system. There is

very little cost incurred to fly from Albuquerque to Santa Fe, or

maybe even from Santa Fe to Las Vegas, NM, not Nevada.

So it does seem that the approach of a fixed fee per segment is

totally inequitable. Also, the issue of the size of the aircraft is a

very, very important issue, because once again, an aircraft that

costs—you can pick almost any kind of number or accounting system you want to—but that costs a couple thousand bucks an hour

to operate, $25. That has minimal impact. An aircraft that costs $300 or $400 an hour to operate, that has

a lot of impact. So, back to your question, Senator. It has to do, I

think, with price elasticity. The less expensive the aircraft is to operate, the more impact this fixed fee is going to have on the potential operations of that aircraft; the more expensive the aircraft it

is, the less impact it will have.

So you cannot draw this conclusion of one size fits all, particularly along the line of propulsion. To say all turbine aircraft cost

the same to operate is just plain, flat not right.

To say that all piston aircraft do not impose a cost is also plain,

flat not right. Piston aircraft use TRACONs. Piston aircraft operate

in the system. Piston aircraft operate above 18,000 feet.

Not as much as turbine aircraft, but a turbine aircraft that consumes, as in the case of the Eclipse 500, less than 50 gallons an

hour of fuel when it is operating, does not have the same impact

as an aircraft that consumes, say, 1,000 gallons an hour of fuel.

There is no recognition in the current bill of these differences.

To your question, Senator, about other cost accounting, part of

the problem is, the FAA has never released the data, so there is

a difficult time of actually understanding how to analyze or how to

allocate cost.

I will point out that, internationally, in other countries that have

some type of user fee-based system—and it is endorsed by the

International Civil Aviation Organization (ICAO), the U.N. agency—it is based on distance and weight.

That seems to be universally acknowledged outside of the United

States as the most equitable system of assigning costs or a fair cost

within the system, yet none of the proposals on the table recognize

the differences in airplane sizes and the differences that they impose.

The simple reality is that a 777 on approach into JFK takes up

a heck of a lot more air space than an Eclipse 500 on an approach

to Republic Airport 15 miles away, and it has to do with physics.

That is all it has to do with, is physics.

Senator SMITH. Mr. Smith, I wonder. I mean, your great company delivers to Portland and Pendleton. Would you like to see a

difference in the fee structure?

29

Mr. SMITH. Well, Senator, based on my 30-some odd years of experience in the business, it comes down to this. What drives the

delays and the volatility of the air traffic control system today is

peak scheduling at 25 or 30 airports around the country. Punctuation period. There was a good article in the Wall Street Journal

yesterday about the proliferation of regional jets and so forth.

Now, if you ask my opinion on this outside the realm of this debate, because I do not think this will happen this go-around, but

sooner or later two things have to happen. The ATC system has to

be modernized so that you can create more capacity, particularly

in those peak locations, and more runways, if you can build them.

At many of these top 30 airports, there is no way to put another

runway in—Newark, for example, LaGuardia, for example. So you

get the most out of the technology that you can. But we will reach

a point where you will have to have slot controls and you will have

to have congestion pricing.

What that will do is to make it monetarily make sense to move

some operations to other airports, because what has really happened over the last few years is there has been more concentration

at those major airports, not less. It is particularly egregious in the

local areas.

Now, slot controls are not a new thing. They have been put in

before. They are just an unpopular thing. It is more and more difficult, as you folks know a lot better than I, to do something sensible that has real organized opposition to it. But that will happen

because there is not an infinite amount of air space at those key

airports at key times. That is my view.

Now, the problem is how you do that at the Federal level when

the airports are basically operated by authorities and local entities

like we have at Memphis—our biggest hub is operated by a separate authority—and get some of that money. I do not know. But I

do know that that is going to be an equal part some day of solving

this problem, because the system is broken today. It does not work.

Senator SMITH. All right.

Mr. WHITEHURST. If I could also add, in terms of your question

about cost and system, anything that makes the system closer to

cost-based, we would support. Your question about Pendleton

versus Portland, you are exactly right. Pendleton would cost much

less to fly into than Portland.

The large, congested airports drive the system cost. That said,

the way the system currently works is primarily based on an excise

tax. A percentage of the ticket price is an excise tax to fund the

system. That absolutely biases and lowers costs for those largest facilities, so JFK to Orlando, where multiple carriers, including us,

run big airplanes non-stop every day, is relatively low-cost for us

to operate and the ticket prices are relatively low, versus flying to

small communities.

So, small communities paying a percentage of the ticket price,

because the ticket prices are higher, pay substantially more into

the system in the costs they drive than flying from JFK to Orlando,

or JFK to L.A. Just to contextualize a $25 fee versus how the system actually works for us day in and day out, our average flight

from DCA to Jackson, MS is on a 50-seat regional jet.

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That average flight segment, we pay $697 into the air traffic control system. Jackson, MS is not driving that kind of cost, but because of the relative ticket prices on a 50-seat regional jet—it is

people in that community—this is paid for by the passengers.

Passengers in that community are paying much more than their

fair share into a system because it is based on the ticket price

versus anything close to the cost to serve. We are very supportive

of anything that shows a greater reflection to cost to serve.

Senator SMITH. Great. Thank you.

Senator BINGAMAN. Thank you very much.

Did anybody have another burning question here?

[No response.]

Senator BINGAMAN. If not, we will just stop with that. I think

this has been very good testimony. We appreciate you all coming

and giving us the benefit of your views.

That will conclude our hearing. Thank you.

[Whereupon, at 3:50 p.m., the hearing was concluded.]

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