Rural-Flight Payments May End Under Republican Plan

A $200 million federal program that subsidizes rural air service would end in almost all U.S. states in 2013, hurting a revenue stream for regional airlines led by Great Lakes Aviation Ltd., under a proposal by House Transportation and Infrastructure Chairman John Mica.

The proposal is included in a $59.7 billion bill introduced today to finance the Federal Aviation Administration through fiscal 2014. Mica, a Florida Republican, took leadership of the committee in January from Democratic Representative James Oberstar of Minnesota, a defender of the rural-air subsidy program called Essential Air Service.

The subsidies have quadrupled since 2001 and have become a target for Republican lawmakers who say the government can no longer afford the program at a time of high deficits. Congress created the EAS in 1978 to prevent towns from losing flights following airline deregulation. Carriers including Pinnacle Airlines Corp., based in Memphis, Tennessee, and closely held Cape Air, based in Hyannis, Massachusetts, also get the aid.

Mica is trying to enact legislation to fund oversight of the world’s busiest airspace before the latest of Congress’ 17 temporary extensions of the current law expires March 31. A $34.6 billion Senate version of the bill, which protects Essential Air Service, is pending on the floor of that body.

The Senate bill is two-year legislation while the House version funds the FAA for four years.

Delta, FedEx

The House proposal would make it more difficult for workers at carriers such as Delta Air Lines Inc. and FedEx Corp. to form unions. It would scuttle a rule put in place last May by a Democratic majority of the National Mediation Board that lets workers form unions with majority approval of those who vote, rather than support from most workers in a class.

The plan also keeps ticket charges at $4.50 per passenger to help fund airport construction, which would be a victory for airlines. The Senate version of the FAA bill also keeps the charges at $4.50. Airports have sought an increase to $7, which President Barack Obama may support in his Feb. 14 budget plan, according to people familiar with the matter who declined to be identified because the proposal isn’t public.

The Essential Air Service program paid airlines to serve 153 U.S. communities as of May 1. Subsidies were as high as $5,223 per passenger to serve Ely, Nevada, and as low as $9.21 for flights to Sault Ste. Marie, Michigan, according to the department.

Great Lakes, based in Cheyenne, Wyoming, relied on the subsidies for almost half of its $93.3 million in revenue for the nine months ended Sept. 30, according to a company filing with the Securities and Exchange Commission.

Mica’s proposal would allow subsidies to continue for flights in Alaska, which accounted for 44 markets served, the most of any state, according to the most recent Transportation Department data. The department has contracts for $12.6 million in subsidies for Alaska flights, according to the department’s web site.

Senator John McCain, an Arizona Republican, has proposed an amendment to the Senate’s FAA bill that would repeal EAS. That proposal hasn’t yet been acted on. The Senate, with dozens of lawmakers representing rural states, has turned back efforts to cut the program in the past.

The separate versions of the FAA legislation, when passed by the full House and Senate, would have to be reconciled in a conference committee.

The FAA law would have lapsed on Sept. 30, 2007, without action by Congress. Disputes in both bodies have held up a long- term extension, with issues including how many flights should be allowed from the western U.S. into the federally controlled Ronald Reagan Washington National Airport.

To contact the reporter on this story: John Hughes in Washington at jhughes5@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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