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Airport Funding, Research Paper Example

Pages: 4

Words: 1125

Research Paper

Airports are crucial economic tools for any given economy. As such, the maintenance and improvement of airports is a crucial determinant of the level of productivity and profitability realized. Airport ownership in the United States has considerably changed in the last 70 plus years. A larger portion of the total number of airports have since been privatized. Amid increasing operational and maintenance costs for airports, the question of funding has become a topic for debate.

Federal Fuels Tax

This tax is levied on aviation gasoline that is used to power piston-powered propeller aircraft and jet fuel/ the tax levies 19.3% per gallon of Avgas and 21.8% of Jet-A fuel. Proceeds from this tax are directed to the Airport and Airway Trust Fund. 10% of the proceeds from this tax is directed to environmental protection programs (Young & Wells, 2014).

The Airport and Airway Trust Fund

This fund was created in 1971 under the US Department of the Treasury. This fund was created to improve the air transportation system by providing financial resources for the modernization of air traffic control system, airport repair project and airport improvements. Resources for this fund come from two sources; (1) tax on jet fuel and aviation gasoline, and (2) tax on domestic and overseas tickets as well as on the air freight shipments

The government has in the recent past been forced to cut down on its expenditure by cutting down on all discretionary programs. This would affect the federal Air Improvement Program (AIP) and other programs.

Airport Improvement Program (AIP)

This is a federal grant program that provides financial resources to airports that would like to improve their efficiency and security. There are a number of improvement programs that make an airport legible for receiving the grant. They include;

  • Runways
  • Lighting
  • Taxiways
  • Land acquisition
  • Ramps
  • Weather stations
  • NavAids
  • Signage
  • Snow removal equipment
  • Some areas of planning(Lawrence, 2013)

Financial resources for this grant come from two taxes levied on passengers and on fuel. The first tax is levied on air travel tickets that are sold to the general public. The second tax is levied on the use of aviation fuel.

A successful grant from AIP would cater for 90% of the total value of any of the listed projects. The remaining 10% is a bill taken care of by the respective county. As of 1995, this federal grant program catered for 14% of all the capital expenditure of all commercial airports, 41% at small commercial airports including general and reliever aviation facilities and 28% at medium-sized airports (Young & Wells, 2014).

As of 2009, the AIP federal grant program covered 389 airline airports and 1,121 General Aviation airports. At this time, the 389 airline airports received a collective $2.2 billion, while the 1,121 General Aviation airports received a collective $0.831 billion. This funding comprised about 16% of the FAA budget. However, by the 2011 financial year, the FAA budget received 31% of funding from the AIP federal grant program. This highlights the increasing dependency of the FAA on the AIP federal grant program.

Federal grant programs now face the risk of experiencing considerable cutbacks as a means of reducing government expenditure. Of particular interest is the fact that the Air ImprovementProgram is one of the highest ranked grant programs to possibly experience cutbacks. This is evident in the manner I which this federal grant program has grown over a relatively short period of time.

Inefficiency of AIP

The AIP Federal grant program can be seen to be largely inefficient in realizing its intended goals and objectives. While the program has been setup and designed to help improve the state of American airports, the US aviation structure has been found to be considerably lagging behind other economies such as Chile and Panama. US Aviation was ranked in the 32nd position globally (Graham, 2013). This placed the US behind Malaysia, Panama and Chile. This is despite the increasing need for investment in the improvement of airports. According to ACI-NA (Airport Council International-North America), there is need for an additional $80 billion investment in American airports to make them more competitive in the international market. This would also ensure high quality standards and levels of security.

Alternative to AIP

There is an increasing consensus in the aviation industry that there is need for deregulation of airports the same way that airline were deregulated. Through the deregulation of airports, government can bridge the investment gap required to improve quality and security within American airports.For the past 33 years, the government has employed a financial regulation framework that is largely outdated. This system dates back from the era of total government control where flights destinations and ticket prices were predetermined by the government.

Decontrolling PFCs

The Passenger Facility Charge (PFC) is a charge that is levied on every boarded passenger in a commercial airport managed by public agencies. This charge is usually $4.50 per boarded passenger (Molar Barry;National Research Council (U.S.). Transportation Research Board.; Airport Cooperative Research Program.; United States. Federal Aviation Administration, 2011). Airport managers have now found an alternative solution to the AIP federal grant program. By receiving exemption from the passenger facility charge, airports will have to forego a considerable portion, if not all, of their AIP funding.

Airport groups have now found it more efficient to stop incurring the PFC charged, as opposed to receiving AIP funding. This is evident by the fact that larger airports, such as Los Angeles LAX and Boston, tend to receive a much lower rate of return compared to medium sized airports such as Memphis. The more crowded an airport is, the more its PFC charge. It is for this reason that the largest airports are pushing the agenda to receive autonomy from PFC. the tradeoff between PFC autonomy and AIP funding has led to the creation of airport groups in different states within the US.

In conclusion, the airport improvement program is the largest source of funding for most airports in the United States. However growing dependency on this fund has made the fund largely untenable. With impending government cutbacks on federal funding programs, the AIP federal funding program is at increasing risk of receiving cutbacks. It is vital to the success of airports that alternative sources of funding be generated. One alternative is the exemption of airports from the passenger facility charge (PFC) autonomy from PFC would significantly reduce cost and eliminate the need for the airport improvement program. The tradeoff between PFC autonomy and AIP funding would considerably favor the efficient management of airports by significantly reducing operational costs.

References

Graham, A. (2013). Managing Airports: An International Perspective (4th ed.). Hoboken: Talyor & Francis.

Lawrence, H. (2013). Aviation & the Role of Government. Dubuque: Kendall/Hunt Pub. Co.

Molar Barry;National Research Council (U.S.). Transportation Research Board.; Airport Cooperative Research Program.; United States. Federal Aviation Administration. (2011). Strategies and financing opportunities for airport environmental programs. Washongton: Transportation Research Board.

Young, S. B., & Wells, A. (2014). Airport planning and management. New York: McGraw-Hill.

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