Minority Statement

• Ted Stevens

  Senator
  Read statement

  Minority Statement

  Ted Stevens

  Senator Stevens Calls for Continued Funding for Essential Air Service
  
  WASHINGTON, D.C. – Senator Ted Stevens (R-Alaska), Vice Chairman of the Senate Commerce, Science, and Transportation Committee, today called for continued funding of the Essential Air Service (EAS) program during the Commerce Committee hearing on improving air service to small and rural communities.  
  
  Senator Stevens gave the following statement:
  
  “I want to thank everyone for being here.  Thank you to Senator Rockefeller and Senator Lott for holding this hearing at my request. 
  
  “I would like to extend a special welcome to John Torgerson from Alaska.  John is the Deputy Commissioner of Aviation for the State of Alaska and we appreciate him taking the time to testify.
  
  “Rural air service is a vital component of Alaska’s transportation system.  Alaska depends on aviation more than any other state.  More than 70 percent of our cities, towns, and villages can be reached only by air.  Instead of cars and buses, we have airplanes. 
  
  “Maintaining service to small and rural communities through the Essential Air Service program was a key element of deregulation.  This Committee created Essential Air Service.  In Alaska, we have 41 subsidized communities which rely on the Essential Air Service program for access to hospitals, mail service, food, and basic supplies and to transport teams back and forth to play basketball.
  
  “Rural air service funding and reform is an annual challenge for Congress.  In addition to finding a funding solution for the future air traffic control system, the Committee is also looking for innovative reforms for the program.
  
  “New innovation in the marketplace may hold great promise for rural air service.  There is great interest in the emergence of very light jets.  These new aircraft may prove to be a unique opportunity for small communities in Alaska to maintain and improve aviation access. 
  
  “However, Congress must remain vigilant in funding the Essential Air Service program. Rural air service is literally the life line for many Alaskans, and a healthy Essential Air Service program nationally, makes for a healthy program in Alaska.”

Testimony

• The Honorable Karen Miller

  Boone County Commissioner

  representing the National Association of Counties (NACo)
  Read statement

  Testimony

  The Honorable Karen Miller

  STATEMENT OF

   

   

  THE HONORABLE KAREN MILLER

  CoMMISSIONER

  BOONE County, MISSOURI

   

   

  ON BEHALF OF THE

  NATIONAL ASSOCIATION OF COUNTIES

   

   

  ON

  IMPROVING AIR SERVICE TO SMALL AND RURAL COMMUNITIES

   

   

  BEFORE THE

  SUBCOMMITTEE ON AVIATION

  SENATE COMMITTEE ON COMMERCE, SCIENCE AND TRANSPORTATION

   

  July 17, 2007

  WASHINGTON, D.C.

  
  

  Good morning, Chairman Rockefeller, Senator Lott and members of the Subcommittee on Aviation. My name is Karen Miller and I am a County Commissioner in Boone County, Missouri. I am here representing the National Association of Counties (NACo).  I want to thank you for the invitation to testify on Improving Air Service to Small and Rural Communities.

   

  Essential Air Service (EAS) is extremely important to NACo members in small and rural communities, to Boone County, Missouri and to approximately 143 other rural communities served by EAS in 36 states.   The other EAS communities in Missouri include Fort Leonard Wood, Joplin, Kirksville and Cape Girardeau.

   

  In a nutshell, EAS keeps all these communities connected to the rest of America.  It provides a link for citizens to travel to the larger communities plus a link to the nation and world through the hub airports to which EAS connects.  EAS plays a key role in local communities by attracting and retaining businesses that depend on commercial air service and in health care by enabling our citizens to more easily access sophisticated healthcare that is often absent in rural communities.  NACo hopes that the final aviation reauthorization legislation will extend EAS and provide an authorized level of funding and dedicated source of funding that is adequate for meeting the demands and costs of the program and make a number of reforms to the program. 

   

  Columbia Regional Airport, located in Boone County, Missouri began receiving EAS service in October 2006 when Trans State Airlines pulled out of the market.  Mr. Chairman, please note that this occurred not because of a decrease in enplanements but because Trans State decided to change from turbo prop planes to regional jets and that made Columbia uneconomic to serve.  Columbia Regional Airport serves an area of about 428,000 people and includes the University of Missouri and the state capital in Jefferson City.  We also have a strong business community that is always looking for more employers.  Believe when I say one of the first questions we get from businesses looking to relocate to our area is, “How far are you from a commercial airport.”  It dramatically improves our competitiveness to say 10 miles rather than 115 miles to St. Louis or 135 miles to Kansas City.    

   

  While having EAS has been important to our region, the result of the change from non-subsidized to subsidized service has not been without challenges and we have seen a reduction in enplanements—from almost 20,000 in 2005 to 13,673 in 2006 to a projected level of less than 10,000 in 2007.   Until July 7, 2007, Columbia received four EAS flights per day during the week and two flight per day on the weekend, all provided by Air Midwest. The flights were split evenly between Kansas City and St. Louis. Due to the unreliability of the flights and the schedule, we agreed to a change in service. Many of Air Midwest’s flights were leaving 1-3 hours late and this lack of reliability was driving away passengers.  Furthermore, the ability of business travelers to complete a one day return trip was not very practical.  The first flights out of Columbia to St. Louis left too late for the first round of connecting flights from St. Louis and the last flight back to Colombia from St. Louis left too early for the connecting returning flights, and the last flight from Kansas City created a long wait for returning travelers.  Effective July 8, all these flights will go to Kansas City where Air Midwest has its own gate and maintenance operation.  We hope moving all flights to Kansas City will improve reliability, make our service more attractive and increase enplanements.

   

  NACo has a number of suggestions for improving the Essential Air Service Program.  The goal of a number of these recommendations is to build up the enplanements in a community so that air carriers can offer service without an EAS subsidy.    There needs to be more funding.  It is certainly fair to say that the cost of fuel, equipment and operations of air service has increased.  We applaud the Commerce Committee for increasing EAS funding to $133 million.  Certainly, the Administration’s proposal to reduce the program to $50 million and limit EAS to 78 communities makes little sense as does proposing limiting eligibility for EAS to those communities currently in the program.  We also need more funds so we can subsidize better service.  Like any other product or service, EAS has to be attractive to the customer.  Hopefully with more funds, the issues often raised by EAS communities concerning frequency, convenience, and type of aircraft can be better addressed.   In the last Congress, both the House and Senate recognized the increasing needs and funded EAS at $117 million only to have the final funding reduced to $109 million, the same figure as FY2006.

   

  We also ask this subcommittee to help identify an additional dedicated or guaranteed source of revenue for the EAS program. The Airport Improvement Program has it, the highway program and transit program both have it.  While the international over flight fee generates $50 million annually for EAS, the remainder currently has to come from the General Fund and this creates an uncertainty for the communities and the air carriers.  An additional dependable source, such as the Airport and Airway Trust Fund, which assures communities and air carriers that the program will be fully funded, would make EAS a stronger program.  Another option would be to require the Trust Fund to help fund EAS to the extent that the over flight fee and general fund contribution failed to reach the fully authorized level.

   

  We believe the Local Participation Program, currently in law but never implemented, which requires a 10% match requirement in ten communities should be repealed.  Many of the small and rural communities that would be required to provide a local match are not able to find the tens of thousands of dollars the match would require. 

   

  The $200 subsidy cap should be increased and indexed.  It has been in place since 1989 and while we are not opposed to the concept of a cap, one that hasn’t been changed in 18 years needs adjustment.     

   

  We believe that there needs to be either an incentive for improved service or a penalty for those air carriers who provide unreliable service.  Carriers get paid for completed service, whether on time or three hours late.   Section 405 of S. 1300 moves in the right direction but we would recommend requiring the Secretary of Transportation to provide incentives for carriers to improve air service, as opposed to this being discretionary, and include penalties for poor service.  

   

  There needs to be more marketing of EAS service to the community.  Marketing funding should be provided directly through the EAS program.  NACo supports the provision now included in S. 1300 requiring airlines who are bidding on EAS service to include a funded marketing plan in their proposal. 

   

  One final suggestion to improve EAS service is that we need to study approaches to encouraging more airlines to bid on providing EAS service.  More competition may result in better service. 

   

  As I conclude, let me also indicate NACo’s support for the Small Community Air Service Development Program. This program needs to be funded at a level that comes close to meeting the demand and the $35 million annual authorized level in S.1300 is a positive step.  Every year grant applications exceed the available funding by a substantial margin and the $10 million appropriated for FY2007 is inadequate.  In particular, small communities need marketing dollars to help them get the word out to their residents that airline service is available.  We also believe the match requirement for this program need to be modified, perhaps to reflect community size. 

   

  This concludes my testimony and I would be happy to answer any questions subcommittee members may have.

• The Honorable Andrew B. Steinberg

  Assistant Secretary for Aviation and International Affairs

  U.S. Department of Transportation
  Read statement

  Testimony

  The Honorable Andrew B. Steinberg

  STATEMENT OF

  ANDREW B. STEINBERG

  ASSISTANT SECRETARY FOR

  AVIATION and INTERNATIONAL AFFAIRS

  U.S. DEPARTMENT OF TRANSPORTATION

  before the

  SUBCOMMITTEE ON

  AVIATION OPERATIONS, SAFETY, AND SECURITY

  COMMITTEE ON COMMERCE, SCIENCE AND TRANSPORTATION

  UNITED STATES SENATE

  on

  Improving Air Service to Small and Rural Communities

   

  July 17, 2007

   

   

  Mr. Chairman, thank you for inviting me to this hearing.  I appreciate the opportunity to discuss with you and the Subcommittee two programs administered by the Department of Transportation that affect air service to small communities, namely the Essential Air Service (EAS) program and the Small Community Air Service Development Program.  I can assure you that the Department is committed to implementing its small community air service programs in the best and most efficient manner and thereby help smaller communities meet the challenges that they face in obtaining and retaining air service. 

   

  It is clear that air service in this country has changed dramatically over the past several years.  Many of these changes have been very positive.  The growth of low-fare carriers, for example, has made affordable air transportation available to millions of people across the country.  The number of air travelers has expanded dramatically, as hundreds of passengers have taken advantage of the low fares that have become more widely available.  While this is a good development overall for consumers, we recognize that it can create new challenges for some small communities.  With a greater number of service choices available, particularly those involving lower fares, many consumers are willing to drive to places with a broader array of air service options, making it more difficult for some individual airports to sustain their own traffic levels.  There are, for example, some communities receiving EAS assistance within ready driving distance of two or three major airports.  This can result in a struggling community airport, but not necessarily consumers who lack access to the national air transportation system.  Let me give you an example, just a few years ago Utica, New York generated about 24,000 passengers a year and was served profitably without EAS subsidy.  Then Southwest began flying to Albany and JetBlue started service to Syracuse-- both of which are near to Utica.  The number of passengers using Utica airport fell to 3,500, and the federal government was paying over $1 million in EAS subsidy in attempt to compete with low-fare, jet service in nearby cities.  The subsidy per passenger finally exceeded the $200 statutorily-determined ceiling thus ending the community’s eligibility for EAS. 

   

  Another challenge is the change in aircraft used by carriers that serve small communities.  Many commuter carriers have been replacing their 19-seat aircraft with 30-seat aircraft, due to the increased costs of operating the smaller planes and larger carriers’ reluctance to offer code sharing on 19-seaters.  This trend began at least 10 years ago and has continued.  There are now fewer and fewer 19-seat aircraft in operation as many carriers have upgauged to 30-seat aircraft, and, in some cases, even regional jets.  As a result, many small communities that cannot support this larger size of aircraft are being left without air service.  Additionally, the rise in the cost of aviation fuel has made all carriers more cost-conscious and more selective in initiating new service and maintaining service where yields and traffic are low.  Also, some changes have occurred in response to the terrorist attacks of September 11, 2001.  Many consumers, leisure and business, have changed their travel patterns and carriers have altered the structure of their airline services in both large and small markets.  

   

  The recent financial difficulties of the network carriers have contributed to the dearth of air service to small communities.  As network-airlines have worked hard to cut costs and become more efficient in order to weather very difficult economic conditions, they have resorted to canceling service on their thinnest routes—many of which are small communities.  Thus in the long-term, an important factor for comprehensive air transportation in the United States is the sound financial health of network airlines. 

   

  The challenge that we face is one of adjusting the programs, to the extent we are able, to account for these changes in an efficient and effective manner, giving appropriate and balanced recognition to the reasonable needs of the communities, the carriers, the consumers, and the taxpaying public at large.   Mr. Chairman, I do not use the word “challenge” lightly.  All of us -- the federal government that manages programs affecting service at small communities, as well as the States and the communities themselves -- need to reexamine the way we approach small community air service. 

   

  We at the Department of Transportation have recognized for a while now that the way the federal government helps small communities has not kept pace with the changes in the industry and the way service is now provided in this country.  For that reason, we have initiated some important reevaluations of the programs that we manage.  I want to share with you today what we have done and are doing to address this issue.

   

  As you know, the Department administers two programs dealing with air service at small communities.  The EAS program provides subsidies to air carriers to provide air service at certain statutorily mandated communities.  The Small Community Air Service Development Program, which was established by Congress in 2000 under the AIR-21 legislation, provides federal grants-in-aid to help small communities address their air service and airfare issues.  While initially established as a pilot program, it was reauthorized through FY 2008 in Vision 100.

   

  Essential Air Service Program

   

  Let me first address the EAS program.  The laws governing our administration of the EAS program have not changed significantly since its inception 28 years ago, notwithstanding the dramatic changes that have taken place in the airline industry.  As currently structured, the EAS program acts only as a safety net for small communities receiving subsidized air service by providing threshold levels of air service.  While ensuring some service, this approach does little to help communities attract self-sustaining unsubsidized air service, as evidenced by the fact that once a community receives subsidized air service it is rare for an air carrier to come in offering to provide unsubsidized air service.  

   

  The goal of our proposed changes to the EAS program is to focus the program’s resources on the most isolated communities, i.e., those with the fewest driving alternatives.  Our current proposal to accomplish this is quite different from those made in past years.  The first change we propose is to cap EAS communities at those that currently receive subsidized air service.  Second, we would rank all the subsidized communities by isolation, i.e., by driving miles to the nearest large or medium hub airport, with the most isolated getting service first.  Last, we are proposing a maximum $50 million funding level. 

   

  Congress has also recognized the need for reform and created a few pilot programs in Vision 100.  One program is the Community Flexibility Pilot Program.  It allows up to ten communities to receive a grant equal to two years’ worth of subsidy in exchange for their forgoing their EAS for ten years.  The funds would have to be used for a project on the airport property or to improve the facilities for general aviation, but no communities have volunteered for that program.  Another program is the Alternate Essential Air Service Program.  The thrust of this program is that, instead of paying an air carrier to serve a community as we typically do under EAS, communities could apply to receive the funds directly -- provided that they have a plan as to exactly how they would use the funds to the benefit of the communities’ access to air service.  The law gives great flexibility in that regard.  For example, funds could be used for smaller aircraft but more frequent service, for on-demand air taxi service, for on-demand surface transportation, for regionalized service, or to purchase an aircraft to be used to serve the community.  The Department issued an order establishing that program in the summer of 2004, but to date no communities have applied.  I cannot tell you for sure why, but my guess is that part of it is that it is just human nature to resist both risk and change. 

   

  With regard to the EAS program, it is important to note the continued growth of the program’s size and cost to taxpayers over time.  As a point of reference, before the terrorist attacks of September 11, the Department was paying subsidy for 107 communities (including 32 in Alaska).  We are now subsidizing service at 145 communities (including 41 in Alaska).   Further, EAS is often viewed as an absolute entitlement whether the communities invest any time and effort in supporting the service or not.  We have proposed reforms to EAS to better focus its resources on the most isolated communities. 

   

  Small Community Air Service Development Program

   

  The Department is now in its sixth year of administering the Small Community Air Service Development Program (Small Community Program).  Under the law, the Department can make a maximum of 40 grants in each fiscal year to address air service and airfare issues, although no more than four grants each year can be in any one State.  Until 2006, Congress had provided $20 million in each year for this program.  In 2006, the funding for the program was $10 million, and the Revised Continuing Appropriations Resolution, 2007 (P.L. 110-5), provides the Department with $10 million in Fiscal Year 2007 to administer the Small Community Program.  On February 26, the Department issued a Request for Proposals for 2007 applications and proposals are due April 27. 

   

  Given the many and varying priorities facing the Department, this program was not accommodated within the President’s 2008 Budget.  Nonetheless, it is important to note the extensive support that the Department provides for small airports in terms of supporting the infrastructure that make any service possible.  In the last two years (FY2005 and FY2006), the FAA has provided over $4 billion in grants for small airports, or nearly 2/3 of the Airport Improvement Program (AIP).  Furthermore, the Department's reauthorization proposal would continue to direct AIP to small airports.  The reauthorization proposal would also add new AIP eligibility for ADS-B ground stations and expanded eligibility for revenue producing projects at small airports that will help their financial stability.

   

  With respect to the Small Community Program, the Department has made many awards to communities throughout the country and authorized a wide variety of projects, seeking to address the diverse types of problems presented and test different ideas about how to solve them.  Some of these projects include a new business model to provide ground handling for carriers at the airport to reduce station costs, seed money for a new airline to provide regional service, expansion of low-fare services, a ground service transportation alternative for access to the Nation’s air transportation system, aggressive marketing and promotional campaigns to increase ridership at airports, and revenue guarantees, subsidies, and other financial incentives to reduce the risk to airlines of initiating or expanding service at a community.  For the most part, these projects extend over a period of two to four years.

   

  This program differs from the traditional EAS program in a number of respects.  First, the funds go to the communities rather than directly to an airline serving the community.  Second, the financial assistance is not limited to air carrier subsidy, but can be used for a number of other efforts to enhance a community’s service, including advertising and promotional activities, studies, and ground service initiatives.  Third, communities design their own solutions to their air service and airfare problems and seek financial assistance under the program to help them implement their plans. 

   

  Over the past five years, the Department has made more than 180 grant awards.  Overall, more than 90% of the grant recipients have implemented their authorized projects. 

   

  For example, new services have been inaugurated at many communities; others have received increased frequencies or service with larger aircraft.  Several communities have begun targeted and comprehensive marketing campaigns to increase use of the service at the local airport and to attract additional air carrier service.  We have been monitoring the progress of all of the communities as they proceed with the implementation of their projects.   However, because the majority of the projects involve activities over a two-to-four-year period, and many communities have sought and received extensions for their grants, only now are some of them at the point of completion. 

   

  As you know, the Government Accountability Office (GAO) concluded a review of the Small Community Program in 2005.  GAO too recognized that it is difficult to draw any firm conclusions as to the effectiveness of the Small Community Program in helping communities address their service issues because many grant projects are still in process.  Of the grant projects that had been completed, the GAO concluded that the results were mixed because not all of the grants resulted in improvements that were achieved and sustained after the grant funding was exhausted. 

   

  In this regard, since the end of March 2007, the Department’s Inspector General (IG) has been reviewing the outcomes of the limited number of projects that have been completed to date.  Evaluation of the program will consist of two phases including a quantitative and qualitative analysis of a selected sample of all completed projects.

   

  The Federal Government, however, is only one piece of the equation.  States and communities will also need to review their air service in the context of the changed industry structure and service patterns to seek fresh, new solutions to maximize their air service potential, including regional and intermodal approaches and expansion of public/private partnerships to meet these challenges. 

   

  The fundamental problem with air service to many small communities is insufficient demand to justify scheduled service purely on market terms.  However, recent technological advances may offer a new market solution to the problems of small community air service.  The most dramatic innovation is the Very Light Jet (or VLJ) which represents a breakthrough in jet aircraft operating economics.  Another very important innovation is information-technology that allows demand for air service to be aggregated over the internet.   The combination of VLJ with internet-enabled information technology could potentially facilitate the provision of on-demand, jet air taxi service at these small communities.  Companies such as DayJet have already begun operations employing these technologies. 

   

  In that regard, our office looks forward to continuing discussions with your staff on finding ways to better enable the marketplace to supply air service to small communities.  We have discussed a range of ideas that carriers could consider, including  new  per-seat, on-demand service business models using the new generation of very light jets (VLJ) as well as alternative ways to create market-based incentives for airlines to add and sustain service to small communities.  

   

  In closing, Mr. Chairman, let me reaffirm the Department’s commitment to implementing the DOT’s small community air service programs in the best and most efficient manner.  We look forward to working with you and the members of this subcommittee and the full committee as we continue to work toward these objectives.  Thank you again.  This concludes my prepared statement.  I will be happy to answer any of your questions.

   

   

• Ms. Faye Malarkey

  Vice President of Legislative Affairs

  Regional Airline Association (RAA)
  Read statement

  Testimony

  Ms. Faye Malarkey

   

   

   

   

   

   

   

   

  Statement of Faye Malarkey

  Vice President, Legislative Affairs

  Regional Airline Association

  Before the

   

  U.S. Senate

  Committee on Commerce

  Aviation Operations, Safety, and Security Subcommittee

   

  Improving Air Service to Small and Rural Communities

   

   

  July 17, 2007

   

   

   

   

   

   

   

  
  

  Chairman Rockefeller, Senator Lott, and Members of the Subcommittee, thank you for the opportunity to testify before you today.  I am pleased to testify on behalf of the Regional Airline Association.  We thank you for holding this important hearing. 

  RAA represents 41 U.S. regional airlines transporting 97 percent of regional airline passengers.  Our member airlines operate 9 to 68-seat turboprop aircraft and 30 to 108-seat regional jets and link together more than 600 communities in the United States. 

  At more than 70 percent of these communities, regional airlines provide the only source of scheduled airline service.  Nowhere is the importance of regional airline service more apparent than at the more than 140 rural communities across the country that receive scheduled air service through the Department of Transportation’s Essential Air Service Program (EAS). 

   

  Background

  Because of continuing financial pressures in the post 9/11 aviation industry, at least 40 additional communities have been forced onto the EAS roles and 17 EAS communities have been dropped from the program altogether in the past five years.  The smallest airports -- those with between one and three daily departures -- have seen a 21 percent decline in daily departures between September 2001 and September 2006.  Thirteen of these airports have lost service altogether.  Airports with between three and six daily flights in September 2001 have experienced a 33 percent decline in departures since then, with eight such airports losing service altogether. 

  As Members of this Subcommittee know, EAS was initially created as part of the Airline Deregulation Act of 1978.  The program has been in effect each year since under various funding proposals.  Many members of this Subcommittee will remember that, in 1999, DOT issued several service termination orders, triggering broad opposition from communities and air carriers.  This highlighted the need for a sufficient and stable funding stream for EAS. 

   

  Thanks in large part to the strong leadership of this Committee, EAS has received funding increases which have helped it keep pace with changing market realities. 

   

  Department of Transportation and Federal Aviation Administration Proposals

  Unfortunately, the proposal contained in the FAA’s own reauthorization bill this year would severely cut and potentially dismantle the EAS program as funding would fall by $59 million from current enacted levels, effectively forcing out a third or more of the communities that now use the program.  The proposal further caps EAS subsidies at current levels and prohibits the addition of new EAS points for communities that lose air service in the future, telling residents of these communities that convenient, reliable air service is a luxury, and one they can't have.  For the others, DOT would set up a tiered system to grant reduced subsidies to communities in descending order of distance from nearby hub airports, starting in Alaska and continuing until the funding runs out, which is sure to happen long before DOT’s obligation to EAS communities has been met. 

   

  If enacted, this proposal would jeopardize rural air service in an unprecedented way because it fails to reflect the fact that, of 140 current EAS communities, 85 -- 36 in Alaska alone -- are further than 210 miles away from a medium or large hub airport.  Dozens more are further than 150 miles away from the nearest medium or large hub airport.  Yet, under the DOT’s proposal, even many remote communities would lose air service as the funding level proposed by DOT is simply too low to continue the program in any meaningful way.

   

  Congress promised small communities, back in 1978, that deregulation would not leave them behind; rather, communities receiving scheduled air service before deregulation would continue to receive scheduled air service after deregulation.  The vehicle for this promise has been EAS, and while we recognize the usefulness of reform, we urge Congress to reject proposals that significantly cut, eliminate, or undermine this important program. 

  Rather than accept proposals to cut the program in half, this Committee has elected instead to increase funding by $6 million per year in its FAA proposal, bringing authorized appropriations to $133 million next year.  We are deeply grateful for your leadership.

   

  Carrier Costs and Real-Time Rate Indexing

  One of the greatest factors contributing to diminishing small community air service is the continuous and staggering affect of fuel cost increases.  Turboprop aircraft are among the most fuel efficient aircraft for short-haul routes and, like our major airline counterparts, regional airlines have sought to minimize fuel burn by tankering fuel, lowering cruise speeds, safely altering approach procedures, and reducing onboard weight.  We are making every effort to manage escalating fuel costs with an eye toward conservation.  Nonetheless, fuel is now the highest cost for many regional airlines.

  As part of the competitive EAS application process, carriers negotiate in good faith with DOT on subsidy rates that remain in effect for two years.  In doing so, EAS carriers must project revenues and costs over this same two-year timeframe – no easy task in today’s volatile cost environment.  In cases of unexpected cost increases, EAS carriers lack a mechanism to renegotiate rates and must instead enter into the unpalatable process of filing 90 day service termination notices in order to begin the convoluted process of seeking rates that cover increased costs.  This inevitably causes ill-will between airline and community and fosters a sense of unreliability that undermines community trust in and use of the air service. 

  One of the fundamental tenets of the EAS program held that no carrier should be expected to serve any market at a loss.  Yet, in cases of unexpected cost increases, carriers are unable to provoke rate changes without filing such service termination notices, after which each carrier must continue to provide the service, at a loss, for 180 days while DOT undertakes the competitive bidding process. 

  In recent months, crude oil has risen dramatically.  For example, one EAS carrier, Great Lakes Aviation, has experienced annualized, system-wide fuel cost increases of over $4 million.  To put these numbers into perspective, please consider this:  EAS contracts currently have a two-year lifetime.  A winning carrier who negotiated a competitive contract one year ago would have based cost projections on then-current fuel rates of $1.80 per gallon.  That same carrier would now be providing the service with fuel costs at nearly $3 per gallon.  Because EAS carriers are strictly limited to five percent profit margins, climbing fuel costs can quickly turn once-profitable routes into losses.  

  Congress has already addressed this issue.  In Section 402 of Vision 100, this Committee worked to include a rate-indexing mechanism where DOT could make real-time rate adjustments during periods of significantly increased carrier costs.  In order to prevent deliberate cost underestimation, Congress required carriers to demonstrate “significant increases,” and defined these as 10 percent increases in unit costs persisting for two or more consecutive months.

  DOT has been unwilling to implement the program to date, citing a lack of funds.  RAA therefore respectfully asks this Committee to include language in its FAA bill to require DOT to make these real-time rate adjustments. 

   

  Program Management 

  Recently, DOT has stated that the Essential Air Service program is not facing any crisis in funding.  RAA respectfully disagrees.  The demonstrability of funding needs and expenditures related to the EAS program is closely tied to management of the program.  When DOT cuts service levels or eliminates points in order to lower programmatic expenditures without reinvesting in the program, it generates excess cash in the EAS coffers.  This practice produces balance sheets that suggest the program is over-funded.  In order to fully explore these issues, RAA requests that Congress require an audit on unspent, obligated EAS funds currently retained on the EAS balance sheets.  Further, RAA requests that leftover funds be reinvested in the EAS program to raise service levels at more viable routes, thereby allowing passengers to best utilize service that has been granted. 

  As Congress considers potential eligibility criteria changes, we also ask that the same standard is applied.  Reforms to the program should be aimed at enhancing the program and protecting rural air service; not gutting the program. 

   

   

  Date Certain for Market Exit  

   

  Part of the nature of the Essential Air Service program, as you know, is that carriers compete rigorously for contracts.  Even in cases where an incumbent carrier desires to continue serving a given market, DOT has the right to select another carrier.  In cases where DOT awards service to a new carrier, RAA believes DOT should be required to give the incumbent carrier a date certain when it may exit the market, without exception. 

   

  The current practice, where DOT holds the carrier in markets in 30 day increments, is untenable.  This practice means a carrier cannot sell tickets in the EAS market beyond 30 days, nor can it make plans to utilize its aircraft elsewhere.  We urge Congress to end this unfair situation by mandating that DOT adopt a date certain component for incumbent carrier market exits when it selects an alternate carrier to serve the market.

   

   

  DOT Term Length Upgrade

   

  As you know, DOT contracts have a two-year lifespan.  Post 9/11, carriers possessed excess aircraft inventory sufficient to facilitate competitive bidding on new EAS routes.  With more and more turboprop aircraft being sold overseas, there are fewer aircraft available in the United States for this type of service. 

   

  Unfortunately, airlines’ ability to commit aircraft in a diminishing market has likewise grown more difficult.  Aircraft financing models are ill-suited to short, two year-year commitments.  In fact, one reason there are so few new-entrant EAS carriers, may be attributed to the lack of financing for aircraft with short-term commitment levels.  

   

  We are pleased that this Committee has expressed interest in upgrading EAS contract terms beyond the current, two-year program.  By upgrading the EAS contract terms to four or five-year service commitments, existing carriers would be better able to renew current contracts, a significant barrier to market-entry would be removed, and all carriers would better able to finance aircraft for longer-term obligations. 

   

   

  Smaller Aircraft and Very Light Jets 

   

  There has been some recent discussion about the use of Very Light Jets as rising operating costs of current EAS carriers have translated to higher program costs.  Ironically, the rising costs in question have occurred as a result of compliance with single-level-of safety standards imposed on the industry in 1997.  While RAA does not advocate a return to separate regulatory standards for 19 seat operators, the government should not forget that the bulk of increased operating costs on these aircraft have resulted from this regulatory change. 

   

  Further, the business models of those smaller aircraft remain unproven.  The VLJ business models that do exist promise direct, non-stop service to destinations that would bypass the hub and spoke system.  They would therefore fail to connect passengers to the existing air transportation system in favor of limited service.  The fares for VLJs are another great unknown, with most advocates acknowledging that they are fairly expensive.

   

  We strongly caution the Congress against advancing this unproven technology as a solution to EAS shortfalls.  The Congressional commitment to rural communities during deregulation was a continuation of scheduled air service.  It is inappropriate to place the burden on passengers and communities to secure air service through expensive, untested, and potentially unreliable sources.   

   

  FAA Reauthorization and User Fee Proposals

  The FAA proposal, which treats commercial airline passengers differently based on size or type of aircraft, discriminates against passengers from smaller communities.  Further, the proposal undermines the notion of a national system of commercial aviation.  Regional airlines provide 14,000 flights daily. To ignore the crucial service regional airlines provide in smaller communities by dismissing regional airline flights and passengers as a mere “blip” on a radar screen represents more than an oversimplification.  With respect to commercial air service, one blip can contain 250 cost bearing sources while another contains only 19.  

   

  Looking beyond EAS, we share an important goal with this Committee.  That goal is advancing an FAA Reauthorization bill that makes modernization of the ATC system a priority.  We applaud this Committee for its work on this shared objective. 

   

  As you know, we do have concerns about policy impacts stemming from the proposed user fee element, which we believe will prove harmful to small and medium-sized communities if not adjusted. 

   

  We are therefore truly appreciative of this Committee’s invitation to work with us further on those issues and we pledge to work hard to find common ground.  We are willing to pay our fair share for the extremely important objective of modernizing our ATC system.  We simply seek an adjustment to the user fee language to ensure it treats passengers equally, regardless of the point at which they access the system.  We are confident that, together with this Committee, we can address these specific concerns while moving forward with FAA reauthorization this year. 

   

  Conclusion

  Mr. Chairman, thank you for the opportunity to testify on this important issue today.  I look forward to responding to your questions at the conclusion of the panel.

• Mr. Mark F. Courtney

  Airport Director

  Lynchburg Regional Airport
  Download Testimony (230.10 KB)

• Mr. John Torgerson

  Deputy Commissioner of Aviation

  Alaska Department of Transportation and Public Facilities
  Download Testimony (164.74 KB)