In calling for the industry, the Department of Transportation and Congress to develop a national airline policy, the Air Transport Association is promoting something that is long overdue, and, according to ATA, comes after more than 20 years of discussion.
This is not the first call for such a policy as former AMR Chair Bob Crandall has been calling for just that for many years. However, ATA’s timing may be more critical today than it has ever been, given the changed landscape of competitors on the world scene. What is getting the attention of C Suites around the world is the growth and potential of Gulf-based airlines.
Emirates' Senior Vice President Public, International and Industry Affairs Andrew Parker brought the issue into high relief recently when he suggested that, instead of complaining about the new, powerful competition from the Middle East, European and US airlines should use Gulf airlines as examples of what can be accomplished by not burdening the airlines with heavy taxes which distort airline costs, as is regularly done in Europe, Canada and the US.
“Our government is very pro aviation,” Mr Parker said. “When you look at Europe and the APD (UK's Air Passenger Duty) and the ticket taxes in the UK and Germany, the Canadian charges, for us it is extraordinary. We will be a threat as long as government policies continue to harm carriers.”
See related story: Travel taxes under scrutiny as travelers change plans to avoid them
Obama administration could definitely help
The Obama administration has already signalled its desire to help US business become more internationally competitive. Mr Obama has suggested changes in the tax code and invited businesses to discuss how regulatory reform could eliminate duplication and rid the pressure for industry to accede to rules that are of little or no safety value but were created only for a political purpose. The biggest issue for airlines so far is derailing rules for fuel inerting on B747s in the wake of TWA Flight 800 where fuel vapours caused the explosion of the centre wing tank.
But these are long-term efforts which must get underway right away if US companies are to compete successfully on the new world stage. Mr Parker’s comments on taxation could not be more meaningful.
ATA CEO Nick Calio cast back to the recommendations from numerous commissions designed to develop policies to help the industry’s competitive position in the world. Last year’s recommendation by the DOT Future of Aviation Advisory Committee (FAAC) echoed the others in laying the groundwork on the to-do list. Despite Transportation Secretary Ray LaHood’s protestations that the recommendations would not gather dust on his watch, nothing has been done. That means, ATA is right in taking the administration at is word as well as for goosing it into action.
“We already have years of good work and a solid blueprint,” said ATA CEO Nicholas Calio during the National Chamber Foundation’s Annual Aviation Summit at the US Chamber of Commerce. “We now need a focussed and coordinated commitment from everyone involved to turn multiple commission recommendations into real policy with a measurable timeline of accomplishments. ATA is committed to help lead the development of this timeline, which will turn aspirations into reality, and to work cooperatively with any willing partner to make that happen.”
Note to Congress, the Administration and DOT: That means you can’t punt the issue and form another commission because its already been done, a lot. Given the changes in the marketplace and in world competition, we don’t have time for that. We need action now.
Mr Calio pointed to at least four separate federal commissions, beginning in 1993, which were formed and worked to develop policy recommendations to strengthen the US airline industry. Most recently, FAAC produced a report that outlines many important components needed for a successful policy, he said.
“The issues examined over the years have remained largely the same and have been discussed in remarkably similar language,” Mr Calio said.
He reiterated the industry’s wish list as defined by study recommendations including addressing the rising tax burden. The House reauthorisation bill contains fees that would only exacerbate the situation.
Reducing the regulatory burden is probably a good idea. But, how to do that and what regulations, are the questions along with how we avoid having science overwhelmed by politics? That has already happened with the new rules on regionals last year and the proposed rules on flight and duty time.
Of course, modernisation is at the top of the list but critics across the industry suggest more can be wrung out of the system without waiting for all the NextGen bells and whistles. That means a tandem effort is in order, as suggested by Delta CEO Richard Anderson during last week’s earnings call
See related story: Delta makes best argument yet for waiting to equip for NextGen
ATA also cited expanding access to global markets. The US is marching in lock step to expand open skies and already inked more than 100 deals, so it has made progress there.
But ATA’s call for enabling US airline industry to attract investment really strikes at the heart of an effort that will likely not happen on the Obama watch – removing the prohibition on foreign ownership. Truth be told, it never was all that popular during Republican administrations either but that could be because aviation has never wafted to the top of the to-do pile under any administration. Mr Calio is right when he describes the current policy as one of benign neglect over shadowed by too much regulation.
The reason it won’t happen on Obama’s watch is the administration has bent over backwards, proving, by many actions, it will not cross unions and who can blame it, given the support it received in the 2008 election. The greatest illustration of its work on behalf of unions can be seen when it appointed a new member to the National Mediation Board and the subsequent overturning of 75 years of labour law in making it easier to win union representation. Instead of assuming that those who don’t vote should be counted as “no” votes, representation elections now only count those who vote. What it did not do is make it easier for unions to be de-certified, something that rankles the industry.
“While the work has been done on paper, we need to turn these aspirations into measurable actions,” said Mr Calio of the numerous recommendations. “A policy, more accurately recommendations written on paper but not put into practice, is no policy at all. Talking about it is not going to make it happen. We need to prioritise funding currently available to the most critical elements, which will create the most benefits in the short term.”
US being eclipsed
However, American aviation is much more than airlines, as evidenced by the disastrous impact of the overwhelming criticism of the business aviation industry in the wake of the financial meltdown and the subsequent condemnation of automakers who flew, hat in hand, to ask for Washington bailouts.
What is needed is a national aviation policy. President Obama succumbed to populist politics without understanding the industry at all and the results ensured good, solid US aircraft manufacturing jobs were lost wholesale. Why should airlines call for a national aviation policy instead of a national airline policy? The people who held those manufacturing jobs were their passengers and the use of business aviation is small compared to what these same businesses spend on airlines, according to statistics.
What Mr Obama failed to understand is the nexus between business aviation and Wall Street lands squarely on Main Street jobs. He has also failed to understand the US is losing its place as the epicentre of world commerce. For airlines, efforts are centred on replacement, not growth, aircraft, making it less attractive than the torrid airline growth markets of the east.
Changes in government policies for manufacturers and airlines could drive higher US growth rates as Air China Vice President and General Manager North America Dr Zhihang Chi suggested when he said that high growth rates in Asia will drive US domestic growth. Consequently, those government policy changes are needed to prepare US companies to take their place on the world stage.
Nor is the US the sole source of aircraft. Manufacturers are facing competition from China, Japan, Russia and Brazil. If anything should give the Administration pause, is the market power represented by the trillions invested by the Chinese across the globe. That should give its programmes a leg-up on others. Certainly, CIT Group President Transportation Finance Jeff Knittel thinks so. This was supported by lessors at the recent International Society of Aircraft Traders Conference who noted that China and Asia are developing financing powerhouses that will connect investors to aircraft purchasers and they will be far more comfortable with these aircraft than will the west.
Failure to act, not an option
While the business aviation community can be rightly and roundly condemned for coming to its industry’s defence too late, the costs to the industry were in the billions and that cannot be tolerated any more than it can be tolerated in the commercial sector. After all, the airline’s USD20 billion tax bill does not even include property or income taxes. Wags can well ask what income and they would be right given the long-time failure of the industry to turn profits. The record is a string of losses punctuated by a few good years of profitability.
But, to its credit, the airline industry has changed and that will likely make its sorry record a thing of the past. The new mantras running throughout the C Suites – return on invested capital and ancillaries – are ample evidence of that change. Its quest to lower taxes is timely because unless things go terribly, terribly wrong, the industry will eventually become consistently profitable over the life of the business cycle. And if things do go terribly wrong – USD150 p/barrel of fuel or USD200 as some predict, for instance – there will be a lot more to worry about than just the airline industry. The point is, the industry is doing all it can to make losses the punctuation mark in a string of profitable years and there is much government can do to help.
Good time for change
The fact is, despite the inability to gain administration and congressional attention, except during crises, now is an especially auspicious time to develop a national aviation policy – a 21st century policy – that recognises that the US and Europe are no longer the only powerful players in the international market place.
Developing a national aviation policy has never had a better chance than it does today, given all the changes since the last time we managed to develop a national aviation policy when it was called deregulation. Having accomplished the painful work of restructuring the industry several times since then, it is now time to position it for the realities of a global market. Much of what needs to be done is outside the control of the industry itself.
The urgency of implementation and action is due to the current inflection point of airlines and aviation in the US, said Mr Calio, who described the conflicting conditions of neglect in the system and overbearing scrutiny.
“We can continue the course we are on as an economy and accept the consequences,” he said. “Or we can take practical, positive steps, based on the urgency and opportunity of this inflection point, and regain our country’s global competitive position. If the administration really means what it says about making US business more competitive, there is no better time to establish new national policies that would help American legacies by tackling tax and regulatory policies.”
But the administration cannot do it alone which means that the task will be very difficult. As with the Administration, Congress has been seduced again and again by politics, driving regulation by legislation. It also spends a lot of time calling on federal agencies, including the FAA, to cut costs only to nix agency plans to consolidate – control towers, for instance – because they want to save jobs in their district. The only way to handle this is by developing what the military did when it developed its base-closure list and that work should start immediately, if Congress is really interested in cutting the budget. As with the air traffic control system, there is likely much that can be wrung out of the budget before more drastic actions are necessary.
So it is that the industry can no longer wait for government to take action. For decades, the industry, FAA/DOT and Congress seemed to be waiting for the other to take action. Now it is time for the industry, FAA/DOT and Congress to get together to forge a national aviation policy, one designed to keep consumers safe and protected, to position US aviation for a more competitive and unbalanced world marketplace, to base regulatory actions on science not politics and to support aviation companies in their restructuring for profitability.
The industry will know it is making progress when Congress and the Administration understand in their guts what the aviation industry already knows. Aviation is a huge economic driver and for airlines alone it represents a USD1.2 trillion contribution. Unbelievably, that argument has had little impact but it should.