Higher Passenger Facility Charges Are Unlikely to Fly

WASHINGTON — Prospects look dim for U.S. airports to obtain the authority to charge higher passenger facility charges, which would generate more revenue to back bond issues.

The PFCs are added to the airfare along with taxes in the total ticket price. They were capped by Congress at $4.50 in 2000. Airports would like to see the cap removed, and lobbied unsuccessfully to get an increase to $7 in the pending House and Senate reauthorization bills for theFederal Aviation Administration.

The airports ran up against a heavy lobbying campaign by airlines to prevent any PFC increase. Though airlines and airports have a symbiotic relationship, their financial interests are not identical. The Washington lobbying is a classic contest of which side will get the better deal from Congress.

“The presumption is that it’s set,” said Seth Lehman, an airports analyst at Fitch Ratings. In other words, no PFC increase this year.

The House and Senate FAA reauthorization bills are now before a conference committee that will work out differences. But neither bill contains a PFC increase. That doesn’t necessarily mean it couldn’t be added by the conference, and both sides are still pushing their positions.

Airports Council International spokeswoman Morgan Dye said the airports haven’t given up hope. “We are still lobbying and lobbying hard,” she said.

Airports want more PFC revenue because bond raters and investors prefer to see that revenue backing bonds over other funding sources, such as landing fees, gate leases, or concessions. PFCs are seen as the airports’ most stable source of income. Meanwhile, airport officials ask just who are the airlines, with their $25 baggage fees, to complain about a $7 airport fee?

First and foremost, airlines see higher PFCs as a pricing problem. “An increase in the PFC tax would raise the cost of travel, harming consumers and the entire travel and tourism industry during a time when policymakers are trying to stimulate the economy,” said Air Transport Association spokesman Steve Lott. “PFCs, like any other tax, ultimately will reduce demand.”

The ATA figures that a $7 PFC, along with the charges passengers pay at connecting airports, could raise a four-person family’s flying costs by $112.

There is also the issue of what airports would do with new PFC-backed bonds. Historically, these bonds have been “used to build additional gates for new and increased service, airline competition, and lowering fares,” the Airports Council International said in a position paper. But increased competition is not something airlines currently want to see.

The House FAA bill allows the secretary of transportation to authorize a pilot program for five airports to use higher PFCs for an “intermodal ground access project.” That money would stop at the terminal and would not be used for new gates.

The FAA authorization bills would require the General Accountability Office to conduct a study of how airports could collect their PFCs without having to add them to the ticket price. The Senate bill contains its own pilot program for collecting higher PFCs “from the passenger at the facility, via the Internet, or in any other reasonable manner,” but not through the ticket price.

Something along those lines is about all the airports can reasonably expect from this Congress, according to market participants and analysts. However, there could be, in the context of transportation programs or tax reform, another possible kind of financial aid for the airports: exemption from the alternative minimum tax for their bonds.

Airport bonds are private-activity bonds that are subject to the AMT, which was designed to prevent the wealthy from taking an excessive amount of tax deductions. Investors who may be subject to the AMT do not want to risk buying them.

PABs typically have higher yields. The stimulus law exempted PABs issued in 2009 and 2010 from the AMT, but the exemption expired on Dec. 31. During that period, the industry sold an unprecedented $11 billion of private-activity bonds, saving $1 billion in financing costs, according to the Airports Council International.

Airports support pending legislative proposals that would either exempt municipal bonds from the AMT or eliminate the AMT for individuals.

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