Wingman: How About Rallying Around Fuel Taxes?

Anyone who isn't aware of the ATC funding brouhaha in the U.S. these days, either won't be affected, or hasn't been paying attention.  Those who are aware, likely also know that the FAA is concerned about how to pay for needed airspace modernization; the airlines are complaining that they proportionately pay too much; and virtually every other civil user worries that they will somehow be disadvantaged.

All of this came to the forefront again this week, as the new FAA Budget became public, and every major civil aviation interest group stepped up their efforts to promote their position on the matter.  Basically the airlines, through their main lobbying group, the Air Transport Association, wants general aviation to contribute more by some sort of "user fees," and virtually all general aviation interests want to keep their present aviation fuel taxes as a funding status quo.

Last week, Ed Bolen, the president and CEO of the National Business Aviation Association (NBAA) summarized his organization's position this way: "The general aviation fuel tax is a very simple, accurate and efficient way to tie revenues to costs," Mr. Bolen said. "GA fuel taxes reflect how much people fly - the more you fly, the more fuel you burn, the more taxes you pay... [T]hey don't involve complicated formulas, require a big bureaucracy or turn the FAA Administrator into a tax czar. It is difficult to imagine a better funding mechanism."

Wingman largely agrees with Mr. Bolen. Here's why:

Wingman believes revenues paid to an ANSP (air navigation service provider), such as the FAA, to support its ongoing operations and to provide for its capital requirements, should have at least these three characteristics:

1. Equity. It should treat each paying party fairly.

2. Collection Efficiency. Its process should be as easy to carry out as possible, both for the payer and the payee.

3. Create Desired Incentives. It should cause users to conserve what is considered "precious," such as energy, and reduce what is considered "harmful," such as emissions.  And it should encourage what is "desired," such as economic activity.

Wingman believes it should also be competitive, but that entails arguments of market forces versus political control, which will have to wait for a later Wingman piece.

Equity

There probably wouldn't be much debate over the proposition that all civil airspace users should pay for air traffic services in proportion to what they use.  But these days, affected airspace operators would quickly demand details about how "use" is determined, and how that translates into a workable formula.

Wingman suggests we start with this proposition:  What airspace users pay for air traffic control services should be related as closely as possible to the number of people being served, either directly as passengers, or indirectly in the form of goods (baggage, cargo, mail, etc.).

A metric that is probably as closely associated as possible with the number of people being served by the air traffic control system is the amount of fuel burned, because fuel burn is largely proportional to an aircraft's takeoff weight, and that value relates closely to how people use the system. We'll get into some assumption nuances, but for now, let's generally agree that a large number of people carried a long distance, consumes more fuel than a smaller number of people carried a shorter distance.  In other words, fuel burn is good proxy of how much value people are receiving by using airspace resources, and what should be paid in return.

The equity argument broadly assumes the following:

• All civil airplane and engine combinations tend to be as fuel efficient as is feasible, technically and economically, at any point in time. Outside of military aircraft and their special missions, there are exceptions but they are rare.

• Weight per passenger is a function of individual preferences relating to space and amenities.

• Cargo weight and volume are also related to fuel burn.  The weight of cargo is directly proportional, and cargo volume is indirectly so, since more bulk requires a larger, and therefore less aerodynamically efficient airframe.

• Large, high-density airports, where airlines generally operate more frequently than business and personal general aviation aircraft, are less fuel efficient than smaller, less used ones, because their traffic level often requires more taxi time and terminal maneuvering.

• Fuel burn is also a function of distance flown.  Put another way, fuel is burned in order to carry payload over a given distance, but fuel also needs to be burned to carry its own weight as well, until it is consumed.

Collection Efficiency

The arguments made by general aviation groups regarding efficient collection are compelling.  The current fuel tax is the most straightforward and economical collection mechanism either in use or being proposed.

Fuel use is already carefully measured by fuel vendors for obvious reasons, and is certainly easier to track and administer than independently tracking variables such as distance flown, or an aircraft's gross weight, or even the number of flights flown.  And it is certainly easier to account for than ATC contacts, IFR flight plans filed, approaches flown, or other specific activities.

Because it is the most efficient method for collecting revenue from all users of airspace resources, Wingman believes a fee based on fuel consumption should be seriously considered for all operators, including airlines not just general aviation, to collect needed revenues.  (Notice the use of the word fee, rather than tax.  This is an important distinction and will be discussed further below).

Create Desired Incentives

All users, but airlines especially, will see a greater benefit from supporting airspace modernization if fuel is taxed.  Fuel is already one of an airline's largest expenses, so if it is taxed, airlines will have even a greater incentive to reduce their direct operational costs investing in fuel saving technologies, and in supporting the FAA's effort to do the same.

Many airspace modernization programs directly reduce aircraft flight distance and time, which are directly correlated to fuel burn. Other improvements positively affect fuel usage by allowing greater optimization of flight levels, and reduced taxi times.

Of course this creates a paradox: Won't the FAA have less incentive to make airspace more fuel efficient if it reduces its fuel-tax revenue?  The answer is yes, but it still would be advantageous overall.  First, there are many public policy reasons to reduce fuel consumption, such as less dependence on hydro-carbon resources, and their resulting emissions. Second, greater air transportation efficiency will have a salutatory effect on the larger overall economy.

How a Fuel Fee Might Be Applied

The fuel fee system that Wingman is proposing would work something like this:

• All operators, airlines, business aviation, and all other categories of general aviation, would pay for the privilege of using U.S. airspace only via a fee based on fuel consumed.  This means that other long-standing revenue generating mechanisms, such as ticket taxes, would be eliminated.
• The fee would be based on gallons metered by third party vendors, who essentially act as the system's bookkeepers, and would be paid by the FAA, or future private ANSP, for providing the service.
• The FAA, or future private ANSP, could get its money either from the operator or the fuel vendor in a number of ways, but Wingman suggests that the ingenuity of the private sector should be tapped to discover the most efficient and efficacious method.

Will it Work?

Some will ask whether a fee system based only on fuel usage will generate enough revenue to support the FAA's needs.  Of course fuel fees can be set at a level sufficient to support the FAA's needs - theoretically.  But every user group will look hard at how any proposed level of fee assessment affects them, and whether they relatively win or lose in the anticipated outcome.

So, the answer to the question of "will it work?" is really about what can be agreed on as acceptable rather than what is possible.  Nevertheless, using the same collection scheme for all civil airspace users - especially between airlines and general aviation - should eliminate one of their most difficult, and contentious intramural differences.  02-09-2007.

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