"FAA investigates Pennsylvania airport subsidizing airline"

Friday, July 23, 2004

FAA investigates airport subsidizing airline
BY DAVID B. CARUSO
The Associated Press


PHILADELPHIA - The officials who oversee Wilkes-Barre/Scranton
International Airport believed they were investing in the airfield's
future this year when they agreed to subsidize startup costs for a new
airline offering discount flights to Orlando, Fla. and Myrtle Beach,
S.C.

But with $600,000 in taxpayer dollars already spent, the Federal
Aviation Administration is looking into whether the arrangement violates
U.S. law.

For years, FAA rules designed to protect airport finances have expressly
prohibited them from using their own revenue to subsidize individual
airlines.

That would seem to fly in the face of a deal struck last year between
Wilkes-Barre/Scranton International and a fledgling carrier operating
under the name Vacation Express.

As part of an effort to increase traffic at the airport, the board that
oversees the airfield voted to cover at least $350,000 of the airline's
losses during its initial months flying from northeast Pennsylvania. A
second payment of $250,000 was approved in June.

FAA spokesman Jim Peters declined to comment specifically on the
arrangement's legality, but said it raised enough concern to prompt an
inquiry.

"We are going to look into it," he said. "There are no direct subsidies
allowed to an airline with airport revenue."

Robert Cordaro, a Lackawanna County commissioner and chairman of the
board that oversees the airport, said he welcomed an FAA review and was
confident that it would conclude that the subsidy deal is legal.

"We had our attorneys examine this very closely," Cordaro said. "I trust
their judgment."

Small airports around the country looking for a way to boost traffic
have long lobbied the FAA to relax its prohibition on airline subsidies.

The Sarasota Bradenton International Airport, in Sarasota, Fla.,
petitioned the FAA last year to abolish the rule - a change that would
clear the way for it offer subsidies to low-cost carrier AirTran.

In a February letter supporting the petition, the American Association
of Airport Executives said temporary subsidies could help persuade
airlines to enter markets they had previously overlooked.

The FAA has yet to rule on the request.

The fate of Wilkes-Barre/Scranton International's subsidies may depend
on whether the government accepts the airport's assertion that the
program was ultimately paid for by Lackawanna and Luzerne counties,
which jointly own the airfield.

In making the payments, the airport first sent checks to the counties,
which then immediately cut checks for identical amounts to Aviation
Technologies, a Pennsylvania company that owns the airline and operates
it in conjunction with an Atlanta-based charter company, Vacation
Express.

FAA rules do not prohibit municipalities from subsidizing airlines, as
long as they don't use airport revenue to do it.

Attempts to work around the rule by making indirect subsidies have come
under criticism elsewhere.

The U.S. Department of Transportation's inspector general released an
interim report this spring saying Tulsa International Airport in
Oklahoma improperly subsidized a new airline by offering collateral to
help it secure a loan. The company, Great Plains Airlines, later went
bankrupt.

Loss of the subsidies would mean trouble for Aviation Technologies,
which began flights in March from Wilkes-Barre/Scranton International in
Avoca.

Aviation Technologies president Jim Gallagher said the venture has
struggled in its first months with lower-than-expected ticket sales and
higher-than-expected losses, but he predicted success down the road.

"We had the startup jitters ... but this is a good little airline,"
Gallagher said. "We've pushed the majors to lower their prices. We've
brought 13,500 people into this airport. I believe we are turning things
around."

Cordaro said the airport's ability to attract and retain a discount
carrier is key to its future.

Commercial travel from the airport has been declining for years.
Officials are hoping to turn it around with $80 million in improvements,
including a new passenger terminal and parking garages.


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