Applications to Levy New Airline Passenger Fee Will Be Promptly Processed, FAA Official Vows

NEW ORLEANS -- A senior Federal Aviation Administration official has promised airport operators that the FAA will expedite applications to impose the newly created passenger facility charge, predicting the new revenue could be collected as early as next May.

At a meeting here of the Airport Operators Council International, Col. Leonard Griggs, assistant administrator for airports, said his staff would not delay applications beyond 60 days. Airports could start collecting the new fee of up to $3 per person on each leg of a flight next year.

When Congress authorized airports to collect the passenger facility charge last fall, it directed that each facility apply to the FAA for approval to levy and use the tax.

"This is probably the single-most important thing in years in terms of getting a new stream of revenue to airports," Mr. Griggs said. "We want to get these applications out, we don't want them delayed. We want this stream turned on by May or June."

When the new tax was proposed, bankers predicted that it could back as much as $10 billion of new tax-exempt bonds. They now agree that it will be somewhat less.

"Nobody can say how much airports will be able to do with this new revenue source," said one banker attending the conference. "It seems apparent that this will be best used for pay-as-you-go financing or to double-barrel some debt."

Mr. Griggs said he was not certain of how much in capital projects the passenger facility charge could support, but said it would play a key role in financing an estimated $40 billion to $45 billion in airport expansion and renovation this decade. "The whole idea behind the PFC is to help pay for expanded capacity that we need," he said.

Airports nationwide have eagerly applied for authorization to levy the tax, but they have pointed to resistance from airlines that are concerned about a backlash from passengers. And they say they are not yet certain how to deal with the local political implications of directly taxing passengers who use their airports.

The resistance by the airlines, airport executives say, stems from the fear that passengers will blame them for the additional ticket cost and will deter some price-sensitive travel.

Robert Broadbent, director of the Clark County Department of Aviation in Las Vegas, said he negotiated the right to impose the $3 charge into airline agreements five years ago, but noted that the carriers have opposed the fee even if it curbs higher rates and charges to use the airport.

Mr. Broadbent, whose airport was the first to apply for authorization to impose the charge, said some of the 37 projects expected to be funded with the new money would otherwise be financed through higher fees or rents paid by carriers.

At the local level, observers say, airports, their boards, and politicians are concerned over a backlash for imposing what will be perceived as a tax on air travelers -- many of whom are local residents.

"There is some risk of the PFC being perceived as a hidden tax," said Kenneth Pott, vice president at Morgan Stanley & Co. in New York.

The possibility of a backlash is a new challenge for airports, which have long quieted opponents of their projects by pointing out that expansion or renovation is funded by users. While that will continue to be true, officials say the passenger facility charge will be the first visible sign that consumers are paying for their airport through the cost of their ticket.

Steve Twohey, who is overseeing an expansion at the Portland, Ore., airport, said four high-profile projects have been designated for PFC funding. "We wanted people to see where their PFC dollars were being spent," he said.

Mr. Twohey added that the airport authority chose not to use the projected PFC revenues to back a long-term bond issue because of uncertainty over the estimated $9 million a year Portland expects the fee to generate.

"We don't know what the tenure of the program is," he said. "This is not a proven product in the markets."

Rating analysts have said the passenger facility charge is a passive tax -- one that can only be raised by Congress -- and is not as secure as other revenue sources. The FAA has the power to cancel an airport's authorization to collect the charge at any time.

"We can't think of another revenue source that can be canceled by a third party," said Adam Whiteman, vice president at Moody's Investors Service. "None of us feel we are going to see a whole lot of stand-alone deals using this."

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