WASHINGTON, Aug. 1, 2007 – Delta Air Lines (NYSE: DAL) Chief Operating Officer Jim Whitehurst today addressed the need for modernization of the nation’s air traffic control system and the need to restore fairness to air traffic control funding before the Select Revenue Subcommittee of the House Ways and Means Committee. Whitehurst’s testimony – as prepared, not necessarily as delivered – follows:
“Good afternoon. 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.
The current tax system used to finance our nation’s airports and airways is badly broken, and in desperate need of a serious makeover. It is an outdated system developed in the 1970s that has become extremely unfair to commercial aviation consumers – your constituents. The excise taxes our passengers pay bear almost no relationship to the cost or use of the Air Traffic Control system. The fundamental principle underlying the original user finance system developed by Congress was that users pay for the cost they generate. Unfortunately, today’s aviation tax system is not cost driven.
The user cost linkage for the current tax structure disappeared for very understandable reasons. First, airline deregulation in 1978 severed the linkage between ticket price and length of trip under the Civil Aeronautics Board ratemaking system. The ad valorem ticket tax Congress created in 1970 to finance the Trust Fund was established to reflect an equitable tax related to the distance traveled and cost per mile of air travel.
After 1978 the Civil Aeronautics Board ceased to set fares based on distance, and competitive market forces took over in setting prices. As a result, a typical flight from Atlanta to Washington, DC today could cost a passenger $200, $500 or $1,200 depending on when the ticket was purchased and other factors. Based on the 7.5 percent ad valorem ticket tax, passengers sitting next to each other are paying widely disparate taxes not even remotely related to the Air Traffic Control costs the flight incurs. That makes no sense.
The second reason the existing financing system needs an overhaul is that a rapidly growing new class of users, business jets, grew tenfold since 1970, and uses the same airspace as commercial users. As the chart shows, corporate and business jets are major users with their share representing 17 percent of ATC costs. According to FAA projections, business jet hours flown will continue to expand over the next 10 years from 3.9 million in 2006 to 10.7 million in 2016.
It is our hope that this committee will restore the principles of fairness and predictability and the relationship between cost and use in our aviation tax system. In our view, a cost-based, predictable funding stream is not only needed to give nearly 700 million passengers some equitable tax relief but it is also essential to finance modernization of our 1950s-era ATC system.
Mr. Chairman, the ATA passenger carriers have come up with a replacement financing formula for commercial passenger carriers that restores Congress’ original principles of fair and cost-allocated excise taxes; provides more predictable revenue to meet growing operational and capital requirements as system use grows; ends airline passenger subsidy of corporate aviation; is simple and understandable with minimal administrative costs; and accommodates the most important goal of ensuring affordable services to small communities. It does not, however, make any recommendations on how general aviation should pay. We defer that to the committee to make that decision.
As you heard Administrator Blakey testify, 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 66 percent of the costs. High-performance turbine aircraft (that’s jets, not piston) – corporate jets, air taxis and fractional ownership jets that use the same airspace and ATC services as airlines – only pay about 8 percent of the taxes but drive around 17 percent of the costs.
Our funding mechanism – a passenger tax – takes advantage of the existing tax collection infrastructure but is tied to projected costs. The proposal is grounded in the principle that taxing departures and distance is the best way to recover the costs aircraft impose on the air traffic and airport infrastructure. In addition to these domestic taxes, we propose to maintain the current international arrival and departure tax.
Unlike today’s system, ATA’s proposal would also eliminate the disproportionate burden borne by passengers from small and medium communities. Often times, these consumers pay a $3.50 segment fee to connect and a 7.5 percent excise tax on higher average fares than travelers from major metropolitan areas. We estimate that ATA’s fairer, cost-based financing proposal based on direct routings would reduce taxes by up to 40 percent for passengers from smaller cities.
There is another fundamental reason that the Committee should replace the current set of commercial passenger taxes. It would give aviation consumers tax relief. Today, the average aviation consumer is already heavily taxed. For example, the average family of four flying on Delta from Bradley International to Orlando pays just over $1500 roundtrip for all four tickets. Of that total, more than $200 is taxes. A high performance corporate jet flying the same routing only pays $131. It is wrong to have a tax structure that makes families pay for corporate jet flying!
In closing, we are asking that airline passengers 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. It is a matter of basic fairness and equity.
Thank you for the opportunity to share my views and recommendations. I would be pleased to answer any questions that you may have.”
Additional information on the need for FAA modernization can be found online at www.airlines.org, including a link to the Air Transport Association’s press release on today’s hearing.
Delta Air Lines offers customers service to more destinations than any global airline with Delta and Delta Connection carrier service to 333 destinations in 57 countries. With more than 60 new international routes introduced in the last year, Delta has added more international capacity than all other U.S. airlines combined and is the leader across the Atlantic with flights to 36 trans-Atlantic destinations. To Latin America and the Caribbean, Delta offers nearly 700 weekly flights to more than 60 destinations. Delta's marketing alliances also allow customers to earn and redeem SkyMiles on nearly 15,000 flights offered by SkyTeam and other partners. Delta is a founding member of SkyTeam, a global airline alliance that provides customers with extensive worldwide destinations, flights and services. Including its SkyTeam and worldwide codeshare partners, Delta offers flights to 479 worldwide destinations in 105 countries. Customers can check in for flights, print boarding passes and check flight status at delta.com.
