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  Home > Newsletter > FAA Project Suspension — What It Means to the Aviation Industry, September 2011

FAA Project Suspension — What It Means to the Aviation Industry

Most people tied to the aviation industry are aware of Congress’ recent failure to pass a bill to fund the FAA, and as a result, the agency’s partial suspension of many projects nationwide. But why did it happen and what does it mean to the aviation industry?

House and Senate at an Impasse

When the House and Senate went on summer recess on August 2, they did so without reaching an agreement to renew the Federal Aviation Administration’s (FAA) operating authority, which had expired July 22.

The crux of the standoff between the House Republicans and Senate Democrats was over rules that govern union elections at airlines and other transportation companies. The republicans want to make it more difficult to form unions, the Democrats disagree.
The two parties also disagreed over proposed budget cuts of $16.5 million in airline service subsidies to rural communities.

Airport Projects Put on Hold

The result of Congress not renewing a bill to federally fund the FAA was that the FAA put a halt on more than 200 airport expansion and renovation projects around the country. The resulting suspension put 4,000 FAA employees and — by some estimates — as many as 90,000 construction workers out of work without a paycheck.

The suspended projects did not involve air traffic control operations, but did include airport modernization projects worth $2.5 billion such as radar systems to prevent runway and taxiway collisions, installation of runway safety lights and construction of air-traffic control towers. The project suspension also puts an estimated 46,000 other related industry jobs at risk.

No Taxes for Government, Refunds for Passengers

In addition to leaving thousands of American workers without a job and pay, the FAA project suspension stands to cost the government millions in uncollected airline ticket taxes. The ticket tax is generally 7.5 percent of an airline ticket's base fare. That adds up to $30 million a day and about $200 million every week.

Now that the tax has been suspended, some airlines elected to keep their base fares the same saving airline passengers a few dollars. Other airlines increased their base fares, saving passengers nothing.

The IRS released a statement saying that airline passengers who purchased tickets before the airlines had to stop collecting ticket taxes for travel on or after July 23 may be entitled to a refund of tax paid. On its website IRS.gov, the IRS asked the airlines to repay eligible customers who request refunds. Those who don’t receive one from the airlines can submit claims to the IRS under procedures being developed.

Temporary Truce until Mid-September

The budget standoff only lasted a few weeks. By mid-August, the House Republicans and Senate Democrats reached a truce allowing the FAA to resume full operations. However, full funding for the FAA was only approved to mid-September. Until then, the two parties will be working to find a longer-term resolution or risk further project suspensions, industry unemployment and lost airline tax revenues estimated in the millions. When airline taxes were reinstated, airlines that had increased their base fares reduced them again to avoid increased prices for passengers.

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