I first became aware of this as I watched the new airport in Branson, Missouri, attract carriers with a federal subsidy. Branson is a small town with a population of about 7,000 people--not really the ideal place to build an airport to bring in a major carrier, especially when Springfield Branson National Airport is less than an hour away. Yet, the tiny tourist town felt they needed to break up the inconvenience of the drive from Springfield to Branson for tourists, so they built and airport and used federal airline subsidies. These subsidies pay the airline to provide service to Branson.
These subsidies are everywhere in the airline industry. They are used to encourage airlines to fly to small towns, where they are not likely to make a profit and may actually lose money. The New York Times pointed out, there are "more than 100 locales around the country that receive federally subsidized airline service, and the average number of passengers on each flight is about three."
A quick search for federal aviation subsidies finds the federal government's influence in the aviation industry is massive. Make no doubt, these subsidies are the reason the federal government has taken so much control at the airports--control that forces you to go through a naked body scanner or have your genitalia groped up in the name of national security.
I learned this week from Byron York, airports had the ability to opt out of the TSA's presence at the airport after the first two years. However, to this date, only the Orlando Airport has even talked about it to my knowledge. Why?
Well because there is too much federal money to lose. Take a look at how federal subsidies are working to kill freedom at the airport, keep the airlines flying, keep the airports maintained, and most importantly encourage every airport without question to allow the TSA to install naked body scanners and allow embarrassing groping of genitalia at the airport. In fact, you will see how the airline industry was loaned money to survive as the result of 9/11. Do you think they were going to complain about the TSA's formation?
Here is the list of subsidies that have encouraged the airports to turn over their control to the federal government and the TSA. Is it any wonder airports didn't opt out after two years?
Many claim that our aviation system is self-sustaining. That could not be further from the truth. There are, of course, also substantial subsidies for other levels of government, but this document refutes this specific argument.
FAA Operations get general funds as well as funding from the aviation trust fund. The general fund level was $3.01 billion in FY 2004. The FY 2007 enacted level is $2.703 billion, or 32.4% of the FAA Operations total of $8.331 billion. DOD and other government aircraft are often assumed to be responsible for just 15% of FAA Operations costs—that would be $1.25 billion in FY 2007, implying for this year a subsidy of $1.453 billion to private sector aviation (2.703 less 1.25). More than half of all control tower take offs and landings are general aviation (including business aircraft) and almost half of en route control center traffic is general aviation.
Airports benefit from tax-free financing. Robert J. Aaronson, then Director of Aviation at the Port Authority of New York and New Jersey, said “It is inconceivable that a modern airport, which under the existing tax code includes such public service accommodations as terminals and their related retail stores, runways, hangars, loading facilities, cargo buildings, parking areas and maintenance bases, as well as appropriately sized in-flight meal facilities, hotels and meeting facilities, could be provided on any adequate scale by taxable financing” (Aviation Week & Space Technology, Sept. 16, 1985).
The FAA’s Airport Improvement Program includes noise mitigation funds given directly to homeowners who live within certain footprints near airports where noise exceeds a designated decibel level. These funds are used to improve the sound-proofing of homes through window replacements and other noise mitigation procedures – basically a program to allow noisier jets and more frequent flights.
The Essential Air Services program, funded through the Office of the Secretary, provides about $110 million a year to subsidize scheduled air service to small communities that otherwise would go without.
As a consequence of 9/11, the FAA Aviation Insurance Program offers below-market rates for airlines’ war risk, hull loss and passenger, crew, and third-party liability insurance. The sunset date for this program has been postponed several times, most recently from August 31, 2007, to December 31, 2007.
The federal Air Transportation Stabilization Board was formed after the Sept. 11, 2001, attacks “to oversee $10 billion in assistance [loan guarantees] earmarked by Congress to help the struggling [airline] industry” (NYT, Mar. 2, 2004). The largest loan, $900 million, went to US Airways, Inc., in March 2003, enabling the airline to close on a $1 billion loan. ATSB’s last news release (May 31, 2006) states that it “still holds warrants in World Airways. The ATSB currently has no outstanding loan guarantees, but the Board has a direct loan of $86 million to ATA Airlines as a result of the airline’s bankruptcy.”
Federal airline security takes about $3 billion a year in general funds:
- TSA spends about $5 billion (out of its $6.4 billion budget) on aviation, of which general funds cover about $2.3 billion, and passenger and airline fees the remaining $2.7 billion.
- Federal Air Marshal Service’s budget is $722 million.
Federal subsidies for airline pensions have taken at least two forms—federal takeover of some airlines’ plans, and special breaks for most of the other airlines.
- The federal Pension Benefit Guaranty Corporation in recent years absorbed terminated pension plans from UAL Corp., parent of United Airlines, and US Airways Group Inc. (WSJ, July 31, 2006). The US Airways pension takeover involved PBGC taking over $2.3 billion in unfunded pension liabilities (WSJ, Nov. 3, 2005). As for UAL, “by the time the airline turned over its plan to the pension agency, the shortfall was $10.2 billion” (NYT, July 31, 2005). This was “the largest corporate pension default in history” (Washington Post, May 11, 2005). Even before these two takeovers, “claims by airlines accounted for 20% of [PBGC’s] total claims, according to the agency, and five of the 10 largest claims have come from struggling airlines” (San Francisco Chronicle, Dec. 31, 2004).
- The 2006 pension reform law gave special breaks to airlines. “Northwest and Delta are getting an astonishing 17 years in which to fund their pension promises, and they are allowed to assume that the investment returns on their pension assets will be 8.85%—about a third higher than other companies are permitted to assume. American and Continental are being treated less generously, though they still get away with looser provisions than companies in other industries” (Washington Post editorial, August 2, 2006).
- This year, “a pension measure tucked into last month’s Iraq war spending bill is causing some leading members of Congress to complain that American Airlines got a break worth almost $2 billion without proper scrutiny. The measure will allow American to greatly reduce its payments into its pension fund over next 10 years; at end of 2006, fund had assets of $8.5 billion and needed additional $2.5 billion to cover all obligations; new provision will allow American to recalculate those numbers, so that shortfall disappears and plan looks fully funded; Continental, along with small number of regional airlines, will also be able to take advantage of provision” (New York Times, June 21, 2007).
