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UPS Executive Testifies on Aviation Financing

AUG. 1, 2007

UPS Executive Testifies on Aviation Financing

DATED AUG. 1, 2007
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House Committee on Ways and Means Statement of Robert A. Bergman, Vice President, Public Affiars, UPS Testimony Before the Subcommittee on Select Revenue Measures of the House Committee on Ways and Means

 

August 01, 2007

 

 

My name is Bob Bergman and I am Vice President of Public Affairs for UPS. UPS appreciates the opportunity to testify today on the important issue of financing the aviation system. The taxes that fund the Airport and Airways Trust Fund expire on September 30. It is imperative that Congress establish a fair and equitable financing system to accommodate the future growth of aviation.

UPS and the All-Cargo Aviation Industry

On August 28, UPS will celebrate its 100th anniversary. Although the company began as a bicycle messenger service in Seattle, Washington, UPS has become an integrated, intermodal transportation company that provides a complete range of logistics and supply chain services in more than 200 countries around the globe. Although you are undoubtedly most familiar with the brown UPS delivery vehicles that bring packages to your door every day, we also operate the world's eighth-largest airline, with a fleet of 284 jet aircraft. Clearly, our airline is an integral part of our operation and our success.

The all-cargo segment is unique in the aviation industry, with operating characteristics different from other segments. For example, a high percentage of our flights are at night, allowing us to meet the demands of our customers for overnight and other time-definite services. Flying when the airspace is less congested produces fewer strains on the overall system.

The air cargo industry is one of the fastest growing segments of commercial aviation. According to the latest forecast from Boeing, worldwide air cargo traffic is expected to grow at the rate of 6.1 percent per year for the next 20 years, compared with an annual rate of growth of passenger traffic of 4.5 percent.

Necessity for Air Traffic Modernization

Air traffic modernization is essential for us to continue to provide the service our customers demand. The U.S. has the world's most complex and heavily utilized airspace. Radar technology has served us well but is simply not adequate for the demands of the future. The FAA's Next Generation Air Transportation System will increase the aviation system's capacity, through the more efficient use of airspace, and it will also have important safety and environmental benefits. Without moving rapidly toward modernization of the aviation system, we will impede economic growth as passengers and cargo are delayed.

UPS, along with the Cargo Airline Association, has been a leader for ten years in developing the satellite-based navigation system known as Automatic Dependent Surveillance-Broadcast (ADS-B). At UPS, we have equipped our entire fleets of 757 and 767 aircraft -- a total of 107 aircraft -- with ADS-B and have conducted a variety of tests with the FAA at our international air hub in Louisville. Attached is a copy of the testimony presented to the Senate Commerce Committee by our Director of Airline Operations, Karen Lee, detailing the operational, safety and environmental benefits of this technology (Attachment A).

Financing the Aviation System

The air cargo segment of the industry contributes to the Airport and Airways Trust Fund through the 6.25 percent cargo waybill tax and the 4.3 cents per gallon commercial fuel tax. According to FAA statistics, the large all-cargo carriers contribute more to the Trust Fund than the costs these carriers impose on the aviation system. The FAA's 2005 Cost Allocation Report shows that the all-cargo carriers pay 4.7 percent of the taxes into the Trust Fund. The use of the system by these carriers is only 3.5 percent. With the projected rate of growth in air cargo, the proportion of revenue from the cargo waybill tax into the Trust Fund under the existing tax system will likely continue to increase.

UPS believes that each segment of the industry should pay its fair share of the costs of the system, and that no segment should subsidize any other segment. We support the idea of cost-based financing. The FAA proposal submitted earlier this year did not, in our view, meet that objective. It was overly complex and left too much discretion in the hands of the FAA to determine the fees. It also appeared to exacerbate, rather than correct, the funding inequities for the all-cargo industry.

We support the proposal put forward by Senators Rockefeller and Lott in the Senate Commerce Committee. Attached is a letter signed by six all-cargo carriers supporting this proposal (Attachment B). The proposal combines a $25 modernization surcharge on all flights in controlled airspace with an elimination of the fuel tax for commercial aviation and an increase in the general aviation jet fuel tax. This proposal advances the goal of cost-based financing and resolves some of the existing inequities in financing. At the same time, it has the great advantage of simplicity.

Another key piece of the financing of aviation programs is the General Fund contribution. Historically, Congress has recognized the important public benefits of aviation, including military use of the airspace, and has provided at least 20 percent of the FAA budget from the General Fund of the Treasury. We urge that Congress provide a General Fund contribution of at least 25 percent of the FAA budget.

Conclusion

In closing, I urge you to act quickly to advance the FAA Reauthorization bill and to provide the necessary financing for aviation programs. UPS and the all-cargo segment of the industry currently pay more than their share of the costs of the aviation system. Any new funding formula should move toward a more equitable funding system.

UPS appreciates the opportunity to appear before you today on this important issue and to work with you as you craft legislation. I would be happy to answer any questions you may have.

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