Headwinds Aloft
July 30, 2009
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  • By Carol Marshall


    Tax shift threatens general aviation growth

    A federal proposal to shift $2 billion in taxes from airlines to general aviation could hit smaller carriers – corporate and recreational fliers, and flight schools – right on the bottom line.

    “It’s getting expensive to fly. They’re putting smaller operations right out of business,” said Rory Tarp, a dispatcher for Royal Air, one of the150 businesses operating from Oakland County International Airport in Pontiac.

    The Senate in May proposed a bill that would institute user fees of $25 per flight for jets or turbine-powered aircraft to help pay for general aviation’s use of the Air Traffic Control system. Under the current structure, general aviation’s contribution to ATC has been by way of jet fuel taxes and levies on aviation gas, which is used in smaller aircraft. The proposal also calls for tripling fuel tax on general aviation – from the current 21.8 cents per gallon to 70 cents.

    The $25 per flight will add up quickly for Royal Air, which logs 80 flights per week to and from Oakland County.

    Most Oakland County International users would be affected. The airport has 500,000 flights in and out every year, including some 1,200 international flights, according to Dave Vanderveen, director of Oakland County Central Services, which oversees the airport.

    Vanderveen is skeptical about the shift in funding, and calls it the handiwork of a powerful airline lobby.

    “The way it has been funded in the past has been done well, and it’s fair. It’s mostly been done with a passenger tax which distributes the cost among all users,” Vanderveen said. The proposed system could place a burden on Michigan businesses at a time when those businesses already are fragile.

    “We’re still in a single-state recession, and this has a serious impact on aviation,” Vanderveen said.

    The proposal comes as Detroit regional business leaders ponder a plan to develop an aviation complex – a so-called aerotropolis – including airports and associated businesses in southeastern Michigan. (See OBR edition of June 7-13 for more information.)

    The new fees’ impacts on aviation would spill over to the state’s economy, observers said. Oakland County International fliers are mainly air freight, business and corporate travelers, plus air shuttles for companies that do business in Europe, Asia and Canada.

    “We’re in the air age and moving into the global economy,” Vanderveen said. “This is not the time to be taxing this industry out of business.”

    The current system puts the cost burden on airlines, they complain. But the National Business Aviation Association argues that $25 per flight, no matter the size or purpose, also is unfair.

    “A 747 flying 400 people from JFK to LA would have a new $25 fee as would a plane with three people flying from Grand Rapids to Lincoln, Neb.,” said Edward Bolen, president of NBAA in Washington, D.C.

    The House of Representatives is expected to produce a bill without user fees, Bolen said, raising the possibility of a compromise approach issued from a House-Senate conference committee.

    The Bush Administration in February proposed a change in Federal Aviation Administration funding. The current structure has been in place for 10 years and ends Sept. 30. Some 80 percent of the agency’s $14.1 billion budget comes from excise taxes, two-thirds of which are paid by airline carriers through taxes on tickets, fuel, cargo and more.

    While flight schools won’t likely get hit with the user fee, they will fell the increased fuel tax, said Larry Bowron, manager of the W.K. Kellogg Airport in Battle Creek.

    Airport users for fiscal year 2007 purchased 256,842 gallons of fuel. If the tax increases to 70 cents, that would add $180,000 to their costs, Bowron said.

    “For some reason airline carriers are the gods of aviation. People need to understand general aviation makes a huge impact on our economy,” Bowron said.

    Business Review Western Michigan Associate Editor B. Candace Beeke contributed to this report.

    Date: 2007-06-28