Aug. 13 (Bloomberg) -- Automatic U.S. government-spending cuts scheduled to take effect next year could reduce airline traffic by as much as 10 percent or impose crippling delays for decades, according to a study commissioned by industry groups.
The cuts, known as sequestration, would take effect Jan. 2 if Congress can’t agree on a deficit-reduction plan. It would prompt thousands of job losses and billions of dollars in economic losses to the civilian aviation industry, the report released today by the Aerospace Industries Association and other groups said.
“I just hope we don’t go off the cliff,” Norman Mineta, a former U.S. transportation secretary, said in an interview. “There’s got to be some collective effort by the executive branch and the legislative branch to forestall the total impact of sequestration.”
The report predicted that the U.S. Federal Aviation Administration’s $15.9 billion budget would be cut by $1 billion a year under sequestration, a 6.3 percent reduction from current levels.
“We forecast significant negative economic impacts generated by the sequestration,” the report by Philadelphia-based Econsult Corp. said.
The study was released by AIA in Washington at an event that included several dozen representatives of industry groups, such as the Airports Council International and aviation unions. Marion Blakey, president of the aerospace group and a former FAA administrator, introduced the report with Mineta.
Across-the-board cuts of $1.2 trillion over a decade were mandated last year after Democrats and Republicans couldn’t agree on a plan to reduce the deficit. Cuts of about $110 billion -- half from defense and half from non-defense agencies -- would be imposed for fiscal 2013 unless Congress acts.
Because the industry-sponsored report assumes that nothing will be done to head off the cuts, it’s possible that the outcome could be less dire, Ken Mead, a former Transportation Department inspector general who’s now special counsel at the law firm Baker Botts LLP, said in an interview.
“There is a lot of uncertainty about how it will play out, but there is going to be a lot of pain unless they unravel this,” Mead said. “A lot of this will be indiscriminate pain. They better get on with it. Time is running out.”
The administration of President Barack Obama hasn’t specified how the cuts will be made, so the Econsult study considered two scenarios.
In one case, the FAA would spread reductions evenly across all its accounts. If that happened, the agency’s air-traffic division would be forced to reduce staff and that would trigger flight reductions, according to the study.
The number of passengers would fall by five to 10 percent, or 36.5 million to 73 million, according to the study. The amount of freight that planes carry would fall by the same amount, a decrease of 1 to 2 billion pounds, the firm said in the report.
Those cuts would cause a loss of between $500 million to $1 billion a year in U.S. and state tax revenue. In addition, it would prompt losses of as many as 131,000 jobs in the aviation industry and another 132,000 in the broader economy, according to the report.
In the second scenario, the FAA would minimize the impact on air travel by cutting budgets for research, equipment and building upkeep, the firm said in the report. This would push back air-traffic improvements known as NextGen by as much as a decade, it said.
Slowing NextGen would cause increased flight delays because the air-traffic system won’t be able to cope with increasing demand. It will also harm firms developing the NextGen system, which is forecast by the FAA to cost $42 billion.
The study predicted economic losses under this scenario of $40 billion and as many as 700,000 lost jobs by 2021.
“I don’t like it, but you can count on it if sequestration goes through,” Blakey said.
The $1 billion in cuts was estimated based on the non-partisan Congressional Budget Office’s projection that 7.8 percent would have to be cut in fiscal year 2013 under sequestration, Stephen Mullin, who did the study for Econsult, said in an interview.
The proposed 2013 budget for FAA is $15.2 billion. Grants to airports, totaling $2.4 billion, are exempt from the cuts, leaving $12.8 billion from which to cut, Mullin said.
The cuts would also inconvenience air travelers in other ways because a projected 9,000 airport screeners and 1,600 customs officers might lose their jobs, according to the report.
A separate study released Aug. 1 by the Center for American Progress predicted that the FAA would focus cuts on smaller airports to spare larger airline hubs. The result would be an end of air-traffic services at as many as 106 airports, the study by Scott Lilly said.
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