"FAA: Airline subsidies did not violate regulations"

Thursday, December 9, 2004

Airport cleared in airline pay flap
At issue was $600,000 used to help Vacation Express, which later ended
service.
By JERRY LYNOTT
The Wilkes Barre (PA) Times-Leader


PITTSTON TWP. - The Federal Aviation Administration on Wednesday cleared the
Wilkes-Barre/Scranton International Airport of any wrongdoing in the funding
of low-cost carrier Vacation Express.

The FAA's investigation determined the $600,000 in reimbursements the
airport paid to Lackawanna and Luzerne counties for their subsidies to the
airline were proper.

"We were found OK. We knew we were OK from day one," said Barry Centini,
airport director.

The investigation was initiated this past summer by a newspaper reporter's
call to the FAA about the propriety of the subsidies. It cost the airport
almost $5,000 in legal fees and left it with a black eye, Centini said.

At stake was future federal funding for the airport, which is paying for a
$60 million expansion largely with government money.

At issue was whether airport revenues went directly to subsidize the
operations of Vacation Express. FAA rules state that a carrier's costs "are
not reasonably considered an operating cost of an airport." 

The counties, which own and operate the airport, agreed to evenly share
$350,000 in start-up money for the carrier for a six-month contract that
ended in September. The addition of Vacation Express in March excited
airport officials, who anticipated more passengers and reduced fares from
competing airlines.

But the counties contributed an additional $250,000 in subsidies, again
split evenly, because the carrier had been unable to support itself by
filling enough seats for flights to Orlando, Fla. and Myrtle Beach, S.C. 

The failure to draw passengers prompted the counties to cut off funding in
August. The carrier discontinued service at the airport Sept. 7.

In a letter to Centini, Wayne T. Heibeck, FAA manager in the Harrisburg
Airports District Office, said a review of audited financial statements from
1998 to 2004 provided by the airport showed the money was within the
permitted use of revenues.

"These documents support the airport's explanation that the payments made to
Lackawanna and Luzerne counties were reimbursements for county contributions
made within the past six years," Heibeck wrote. 

"FAA policy permits the use of airport revenue for the repayment of the
airport owner or sponsor contributions that have not been previously
reimbursed if the request for reimbursement is made with 6 years of the
contribution." 

Centini said the FAA letter vindicated the airport, which consulted the
Washington, D.C., law firm of Spiegel & McDiarmid, an expert in airport law,
before signing an agreement with Aviation Technologies, the operator of
Vacation Express.

The Dec. 18, 2003 agreement said the counties and airport "will jointly
provide a service 'start up' subsidy in the amount of $350,000" with each
county providing half. The airport paid the counties by check and the
counties cut checks to Aviation Technologies.

Airport officials looked upon the matter as a learning experience for future
attempts to pursue airlines for service at Wilkes-Barre/Scranton. Not only
would public funds be needed, they said, but also commitments from business,
area chambers of commerce and the community. 

That approach as been successful at other airports and the cost locally may
be around $2 million to attract a new carrier, they said.


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