Annual aviation frenzy stirs up Washington - CAPA Commentary, Part I


If it is February it means Washington DC is abuzz with all kinds of aviation news - the President’s budget, hearings on the long-overdue Federal Aviation Administration (FAA) reauthorization bill. Then there is the FAA forecast conference telling us once again that traffic will rise exponentially over the next 20 years while the skies blacken with more aircraft than can be handled by air traffic control, unless we get NextGen.

Despite the robust projections from the FAA forecasts, some remain skeptical given the current run up in fuel costs. Some oil analysts are projecting USD300-per barrel oil by 2020, which would mean huge cancellations in order books along with similar capacity cuts and a huge toll on the economy.

Even so, it is easy to get caught up in this annual ritual. Indeed, this is usually the only time infrastructure and aviation get any attention at all in Washington. Congress is now on its 17th continuing resolution (CR), and with new legislation in the House and the Senate, Congress is picking up FAA reauthorization for the 18th time since the last one expired in 2007. The current CR expires on 31-Mar-2011 and the betting is on the necessity for another CR before the House finishes with its measure and House and Senate go to conference.

This time may be different

The march toward passage of the reauthorization legislation rarely goes anywhere so for most observers the ritual is full of sound and fury, signifying nothing or, at least, very little.

This year, however, the issue has a several new wrinkles that conspire to give the opportunity for passage of both bills the best chance they have had in years. On the distaff side, there are also new obstacles, the deficit being the largest one.

One new wrinkle is the speed with which Congress is acting. The Senate is working at jet-like speed with its reauthorization having just passed the floor vote. Usually it is the House that is waiting on the Senate but this year, the House is lagging having only passed reauthorization out of the House Transportation and Infrastructure Committee. Then there is the President’s infrastructure agenda and his olive branch to business. In addition, there is his pledge at regulatory reform which has already seen the headline that suggests that regulators have found most of the regulations are necessary. No surprise there.

The President’s overture to business is evidenced by the many changes in his administration appointing people with strong business ties -- former Clinton Secretary of Commerce William Daley and GE CEO Jeffrey Immelt to name just two. Mr Immelt now heads the replacement for the banker-led Economic Recovery Advisory Board with the manufacturer-led Council on Jobs and Competitiveness. The manufacturer, GE, has as big a stake in aviation, energy and healthcare as it does new technology jobs of the future. More importantly, Immelt’s appointment replaces the Ivory Tower thinking of the old Obama Administration with clear business thinking. Nowhere was this more clear than in the State of the Union which traded Obama’s traditional anti-business rhetoric for pro-business.

In addition, Mr Obama’s recent visit to the Chamber of Commerce reflects a massive and very welcome change in policy. He now has the opportunity to forge a new dynamic in Washington, one that weaves traditional Democratic principles with a recognition that, without strong business, Democratic principles count for very little.

This is an exciting turn of events, with much potential but it remains to be seen whether it will translate into solid programs that help aviation. Certainly, the fact that JetBlue CEO David Barger is part of his business executive circle bodes well.

Infrastructure is in but runs up against deficit hawks

While one can be forgiven for passing off the President’s USD50 billion infrastructure push as only so much politics, it is refreshing to see the spotlight on something so critical that has been ignored for so long. Announced in what is now believed to be a Hail-Mary Pass just before the election, the plan will refurbish 150,000 miles of road, build or maintain 4,000 miles of track and refurbish 150 miles of runways.

In actuality this was less about aviation, than it is about jobs and was offered because a second stimulus package was unsellable with current deficits. Even so, it is the jobs that has Congress working so fast. Senate Democrats proclaimed FAA reauthorization as the first jobs bill of the 112th Congress, one expected to produce 280,000 jobs. It was impressive as was the overwhelming support at 87 to eight deficit hawks. Advocates of the House bill say it creates and protects more than 600,000 jobs. President Obama suggests the USD50 billion investment will create 1.7 million jobs based on current DoT formulas calling for 35,000 jobs for each USD1 billion invested.

Everything is now cast through the prism of deficit and job creation but that is the wrong prism. Instead everything should be cast through the prism of long-term economic benefit which is what is advocated by three new infrastructure studies. The first is An Economic Analysis of Infrastructure Investment published by the Department of the Treasury and the Council of Economic Advisors and the second is Well Within Reach, America’s New Transportation Agenda. The latter was developed from the David R. Good National Policy Conference which included such luminaries as former secretaries of transportation Norman Mineta and Samuel Skinner along with aviation gurus Gerald Baliles and Jeffrey Shane. Finally, the bipartisan National Transportation Policy Projects issued Strengthening Connections Between and Economic Growth last month.

After reviewing all three studies and a host of other material, however, it is clear that most of the rhetoric focuses on surface transportation -- road and rail -- with only a small obeisance paid to aviation. Indeed, that was repeated with the President’s USD3.73 trillion budget that is largely counterproductive to the aviation infrastructure agenda and highly doubtful of passage.

Still, it is clear that many are desperate to prove the link between infrastructure investment and the economy as if this were something new. Consider this. There has always been a business case for infrastructure spending and these studies only repeat the conclusions of many previous studies. While these events signal the potential of what can be done, current proposals fall short. The Mineta/Skinner study estimated that between USD134-194 billion is needed annually just to maintain existing transportation infrastructure. Another USD134-262 billion is also needed each year through 2035 for road and rail improvement and rebuilding as well as air transportation.

Given the budget and deficit pressures, it is little wonder that Mr Skinner pleaded for the powers that be to look at infrastructure spending as an investment rather than an expense. The important thing to remember here is a broad-based marketing push to link infrastructure spending to the health of the economy has not been done precisely because infrastructure has been ignored for so long.

But this smacks up against deficit reduction and the Republican-controlled house needs political cover, thus making its infrastructure initiatives all about saving money while ostensibly helping the economy. But the proposed USD4 billion in savings suggested in the House is penny wise and pound foolish since it cuts airport grants at a time when construction costs are dropping. Likewise, the President’s budget proposal ignores the fact that this is actually the best time to build since statistics show that as a result of lower resource costs, including labor, 367 runway and airport improvement projects were accomplished with monies intended for only 300. The same results occurred in the transit and highway sectors and allowed 2,000 more projects to be funded under the recovery act.

They also ignore a key factor. Aviation infrastructure improvements are paid for by users. That means, spending on aviation projects should be that much easier. Not so. As with his infrastructure initiative itself, the President’s budget, lacks a critical component and that is what has kept aviation at a legislative standstill for years.

How to fund such investment is a key question given the fact that the so-called transportation Trust Funds have long outlived their usefulness as their balances have been borrowed to make the deficit look smaller or to pay for other government spending. While the money is there on paper, these coffers are really filled with yellowed IOUs. This is not a new problem, given the fact that it was in the 1980s that Senator Daniel Patrick Moynihan revealed the truth about what have now become cobweb-filled coffers. The sad truth is user fees have not led to more stable funding for infrastructure initiatives. Witness the lack of infrastructure funding over the last three decades or more.

New metric for funding projects

Refreshingly, the studies suggest that instead of just throwing money at the issue, Congress and the Administration -- with the help of state and local authorities -- should determine the long-term costs and benefits, not to the locality or to transportation, but to the economic health of the nation.

In other words, we need to go beyond standard economics to include all sorts of other benefits that may or may not be in current analysis. That would go beyond wages and productivity to include health, pollution, higher maintenance costs for roads, the cost of accidents and other public policy agendas such as the environment, fuel efficiency and alternative fuels.

By this measure, aviation funding should be a slam dunk. But no so fast. Instead, aviation, absurdly, must go well beyond its usual rhetoric. The standard, oft-repeated line is aviation contributes USD1.2 trillion to the economy, accounts for more than 5% of GDP, supports 11.5 million jobs and USD400 billion in wages. Unfortunately, it is indeed frustrating that these stunning statistics have never worked to bring the aviation agenda out from under its legislative rock.

However good these statistics are, industry must now concentrate on developing a statistic that does not now exist. Every dollar invested in aviation infrastructure equals X number of long-term, high-value jobs and will grow the economy by X. After polling all the aviation alphabet soup groups in Washington as well as aviation consultants, CAPA has found no one who can provide that statistic.

It is no longer sufficient to rely on the Department of Transportation’s tired statistic that for every USD1 billion spent on transportation infrastructure there are 35,000 jobs created. That is all well and good but what increase in economic activity results? What are those 35,000 jobs? Are they construction or are they longer term?

Not investing costs, too

We already know that our failure to modernize results in USD31 billion in delays and lost productivity. Recently, US Travel Association President Roger Dow, in calling for the passage of FAA reauthorization, pointed out that reducing delays could add USD17 billion in travel spending to the economy which would support 155,000 travel-related jobs.

There is much more to it than that. We know, for instance that the growing hassle factor with aviation has driven 41 million trips out of the bottom line. According to the US Bureau of Transportation Statistics, the number of short-haul passengers (500 miles or less) declined by 80 million to USD541 million between 2000 and 2010. While email and teleconferencing can be a factor, it is likely that hassle is a larger component in the change, especially for security and especially since the body scanners were deployed in November.

These travelers are trading short-haul flights for their cars or train. Train travel, however, comes with USD1 billion in rail subsidies for a system that, after 40 years, has yet to become self sustainable. Most travelers are opting for the car. If we should be counting the true cost of failure to modernize we must go beyond productivity, as Mineta/Skinner suggests, to the cost of accidents, the health impairment of the increased pollution and the threat to national security from increasing fuel usage. Suddenly, aviation becomes an even more compelling argument.

Aviation knows its contribution and its importance to the economy in its gut but, frustratingly, still has to prove it in a new way with no guarantee this will work either.

Consequently, the call for a new measure for the worthiness of a project is a new and welcome dynamic on a tired budget debate and brings us back to a time when we were selling the worth of the interstate highways system. Today’s investment debate mirrors that of the 1950s and brings another factor into consideration. The highway debate was not only about the economy but about national security.

For the past several years, aviation has tried and failed to get development of the aviation infrastructure to the level of the highway system. It has failed, as suggested by Fred Pease, executive director of the Department of Defense Policy Board on FAA. Indeed, his participation in the FAA Forecast Conference a few years ago signaled a new idea in Washington. Rather than retaining the various departmental silo thinking, Pease advocated bringing together all the federal departments and agencies with a dog in the fight. That goes far beyond the traditional aviation interests to include defense, commerce, homeland security, interior, Coast Guard and agriculture. The reason aviation failed in the past is they lacked the national security angle that Pease wanted. It is not so much the defense/national security angle that should be brought to bear but the combined push of all these federal agencies who all want a more efficient -- read that fuel saving -- national airspace system. Unfortunately, aviation dropped the ball on his suggestion.

Today, however, the health of the economy has been brought to national security levels, as it should be, and a key factor in that health is infrastructure. Aviation did not accomplish this, the specter of Chinese ownership of our debt, did that. What is nice about today’s debate is that those beyond the beltway get that, even if voters are still on the fence that infrastructure investment is a matter of national security. After all, deficits resonate louder with voters than spending projects and that means the public still needs convincing that infrastructure spending will help them personally.

For that reason the marketing strategy for selling the new programs is one seldom heard outside the beltway, despite the fact that business, and Congress, has offered this argument for decades. That is maintaining America’s competitiveness in the world. So it comes as no surprise that the treasury’s infrastructure report on how far we’ve fallen in investing in infrastructure compares our 2% to the 9% of GDP invested on Chinese infrastructure and 5% in Europe.

“In my State of the Union Address, I spoke about how America can win the future by out-educating, out-innovating and out-building the rest of the world,” said Mr Obama recently, appealing to the best in a jingoist Congress and electorate. He added he intends to use transportation to help American businesses out-succeed international competitors.

Still, voters need to know why this will put food on their tables.

One has only to look at the immediate post-war period to understand what transportation spending can accomplish. Indeed, the return on investment from the building of the Interstate Highway System is estimated at 35% annually.

“Much of the backbone of this network was built in the decades after World War II, when the nation embarked on a series of major investments in transportation infrastructure,” wrote the authors of the Mineta/Skinner study. “Not coincidentally, the same post-war era saw enormous gains in productivity, wealth, and industrial capacity. These gains catapulted the United States to a position of global pre-eminence that has lasted to this day.”

Well, not really, America has been on a steady decline as to its position in the world since at least the ‘90s. That is what makes the infrastructure spending so important. So we have common ground and agree that infrastructure spending is needed and spending must have a return on investment that goes beyond construction. The question is: will this translate into actual infrastructure spending? The jury is still out.

Aviation remains a step child

While infrastructure is now in the national security agenda, most of the spending remains on the surface, with rail and road. Aviation looks as if it is included as an afterthought as a just-remembered step child despite the fact that studies have shown investment in aviation gains the biggest bang for the buck.

“With job creation the nation’s No. 1 priority and infrastructure acknowledged as critical to that ambition, our leaders in Washington have the opportunity to unleash the true economic power of commercial aviation,” said newly invested Air Transport Association President Nicholas Calio. “While improvements to roads and building high-speed rail seem to be getting a lot of air time—and they certainly can advance domestic infrastructure—it is aviation infrastructure that will advance our nation’s stated ambition of doubling our exports in the next five years.”

Aviation interests might well wonder why legislators and the executive branch alike nearlky ignore thembut they are likely so used to it, it’s hard to notice. Some might suggest it is because our lobbyists are not as effective as road and rail. Certainly, their failure in the stimulus suggests that and could be behind the recent reorganization of the Air Transport Association into a more effective lobby organization.

Others may suggest it is because aviation is still considered a rich-man’s pursuit which does not play to the strengths of a populist agenda. Certainly, the anti-aviation rhetoric that brought both commercial and business aviation as well as the entire travel industry to its knees in 2009 is an example of that. This despite its criticality to the economy and to business. Thankfully, the President’s new concern for business is a reflection that he finally gets that there is a nexus between Wall Street and Main Street that means millions of well-paying, US airline and manufacturing jobs, many of which were lost in the wake of his statements in 2009.

Perhaps Aerotropolis: The Way We’ll Live Next Co-Author Greg Lindsay said it best. “In fact, of all the transportation options available, aviation is the one with the greatest potential to improve the economy and Americans’ well-being.” Sadly, that is rarely reflected in the Washington machinations. Certainly the fact that the vast majority is paid by the user still holds little weight when it comes to budgeting or appropriations.

What does fit in the populist agenda is the fact that transportation is second only to housing in the makeup of the household budget. The theory is, according to the Mineta/Skinner study, if household transportation can be reduced, there is more spending available for the economy which explains the emphasis on surface transport.

Barrier to success

There is another problem and it, too, is an interesting twist in the debate, albeit one that has the potential to stall aviation infrastructure again. The Republicans were swept in on a promise of cutting government, one they intend to keep. The new twist, however, is the Tea Party. Normally, when new folks come to Washington, they spend time learning its ways before pushing their agendas. Those that did not usually lost big -- witness the early Carter, Clinton and Obama years.

Not this time and this has caught even the Republicans off guard. The newcomers are flexing their cost-cutting muscle much to the chagrin of traditional Republicans who may otherwise think investment in infrastructure a good idea. This is playing out in the House where the latest reauthorization bill is currently in play with cuts the Tea Party favors. In the current climate, the USD4 billion reduction in spending the House bill includes, may not be enough. Pleas to treat infrastructure spending as an investment rather than a cost may go unheard, no matter how much national security is at stake.

That means, the best chance for effective aviation legislation remains at risk and is certainly no slam dunk. Even so, those in Congress who would bring spending down to 2008 levels as Republicans want are ignoring a history that links national decline with failure to invest in its own future. That is why Mr Obama’s focus on the future and strengthening America played so well. However, it remains to be seen whether he can overcome voter concerns about profligate government spending with more spending.

Click here to read Part II: The bills and the budget

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