Congressional Research Service IN11267 (COVID-19 and Funding for Civil Aviation)

Summary

CRS Insight IN11267, COVID-19 and Funding for Civil Aviation, by Rachel Y. Tang, Analyst in Transportation and Industry, dated March 23, 2020. It describes the sharp drop in air travel caused by the COVID-19 pandemic and the possible implications for civil aviation programs. It cites a March 17 projection by the International Air Transport Association that global industry losses would exceed $113 billion, more than 19% of annual revenue. The Insight notes that passenger carriers have cancelled services, furloughed workers and grounded aircraft, that belly cargo on passenger aircraft was 1.6% of airlines' total revenue in 2019, and that Fedex suspended its 2020 earnings forecast.

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INSIGHTi

COVID-19 and Funding for Civil Aviation

Rachel Y. Tang
Analyst in Transportation and Industry

March 23, 2020
The COVID-19 pandemic has created headwinds for the airline industry. Out of health concerns,
customers were canceling international air travel to China and other affected countries in Asia as early as
January 2020. Since then, travel restrictions imposed by governments around the world as well as
suspension of nonessential travel by businesses and organizations have led to a sharp drop in air travel.
These developments could also have significant implications for civil aviation programs.
The International Air Transport Association, an airline industry group, projected on March 17 that the
industry’s losses globally due to COVID-19 would exceed $113 billion—more than 19% of the annual
revenue—and warned that numerous airlines around the world were running out of cash. Many passenger
carriers have canceled services in the face of reduced demand, and have sought to conserve cash by
offering voluntary leaves of absence, placing workers on furlough, and grounding or accelerating
retirement of some aircraft.
Cargo airliners are not subject to travel restrictions at this point. However, a considerable proportion of air
cargo normally moves in the bellies of passenger aircraft. While this accounted for a modest 1.6% of
airlines’ total revenue in 2019, cancellations of passenger flights may disrupt air cargo flows. Some
airlines have indicated they will convert otherwise unused passenger planes into cargo planes to meet
shipper demand. On March 17, Fedex, a major air and ground logistics company, suspended its earnings
forecast for 2020 but did not offer an estimate of the financial impact of COVID-19. Package carrier UPS
told investors on March 3 that its financial results for the current quarter “would be impacted” by
COVID-19, but offered no details.
A U.S. industry trade association, Airlines for America, said on March 16 that “U.S. carriers are in need of
immediate assistance as the current economic environment is simply not sustainable,” and called for the
federal government to provide grants, loans, and tax relief to both passenger and cargo carriers.
Separately, the Federal Aviation Administration (FAA) has temporarily waived minimum slot-use
requirements that required airlines at slot-controlled airports to use their slots at least 80% of the time or
risk losing them. This benefits airlines that otherwise might have been disadvantaged as a result of

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IN11267

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canceling flights at the three slot-controlled airports—Ronald Reagan National Airport in Washington,
DC, and LaGuardia Airport and John F. Kennedy International Airport in New York.

Impact on Funding of Civil Aviation Activities
The reduction in air traffic as a consequence of the COVID-19 pandemic is likely to have significant
effects on the amount of funds available for civil aviation infrastructure and activities.
 The federal government provides grants to eligible airports for infrastructure projects
through the Airport Improvement Program (AIP) that provides federal grants to airport
infrastructure projects. The program is primarily funded through the Airport and Airways
Trust Fund, which receives revenue from passenger ticket taxes, segment fees, air cargo
fees, and fuel taxes paid by both commercial and general aviation aircraft. The drop in
passenger air travel will reduce revenue from ticket taxes and segment fees, while flight
cancellations will affect fuel tax receipts. The decline in trust fund revenue could affect
the availability of AIP grants to airports. According to the Congressional Budget Office
estimate, the uncommitted balance in the trust fund was $7 billion at the end of FY2019.
The AIP program receives annual funding of $3.5 billion from the trust fund.
 Annual funding for FAA is about $19 billion. Part of the cost of FAA’s operations and
programs, such as its air traffic operations and aviation safety program, is paid from the
same trust fund that supports AIP. A substantial decrease in revenue from aviation taxes
and fees would require Congress to increase general fund appropriations or find other
funding sources if it sought to sustain these programs at their currently funded levels.
 Federal law authorizes airports to impose a local passenger facility charge (PFC) on each
boarding passenger to fund airport infrastructure, including some types of projects not
eligible for AIP funding, such as passenger terminals and on-airport rail systems. PFCs
are included in air ticket prices and collected by the airlines on behalf of airports. The
decline in airline traffic would unavoidably lead to a decrease in airports’ receipts from
PFCs. This may delay some planned infrastructure improvements, and may lead to calls
for Congress to increase the limit on PFCs, currently capped at $4.50 per boarded
passenger, with a maximum charge of $18 per round trip.
 The Essential Air Service program, which provides subsidies to airlines to serve over 170
small communities, receives nearly half its funding from overflight fees paid to the FAA
by foreign aircraft that transit U.S. airspace without landing in or taking off from the
United States. The sharp reduction in the number of international flights is likely to lead
to lower receipts from overflight fees, potentially reducing the amount available to
subsidize Essential Air Service flights. If it seeks to maintain the current number of
subsidized flights to all currently eligible communities, Congress may need to increase
discretionary appropriations to make up for the shortfall.

IN11267 · VERSION 1 · NEW
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