Airline subsidies again threatened by Washington. (List Overview).

JUST AS ARKANSAS' FEDerally subsidized airports started to enjoy the benefits of a new commercial carrier, the Bush Administration is again threatening the subsidy program that keeps the planes flying.

The federal Centennial of Flight Aviation Authorization Act--aka "Flight 100"--proposed by the Bush Administration would gut much of the Federal Aviation Administration's Essential Air Service subsidy program.

"It's a death sentence for community air services for all four cities," said George Downie, manager of Hot Springs Memorial Airport and vice president of the Arkansas Airport Operators Association.

Hot Springs and Jonesboro would almost certainly lose Mesa under the Bush proposal, Downie believes.

The potential bad news comes after all four Arkansas airports that participate in the subsidy program lobbied hard in 2001 to replace Big Sky Airlines of Billings, Mont., with Mesa Air Group Inc. (Nasdaq: MESA) of Phoenix.

For the most part, the airports at Hot Springs, Jonesboro, El Dorado and Harrison enjoyed an uptick in passengers in 2002 after a few months with Mesa.

Under the Bush Administration proposal, airports within 100 highway miles of small to large hub airports--such as Hot Springs and Jonesboro--would be slashed from the program while others would require matching funds from local governments of up to 25 percent.

In 2002, EAS cost the federal government about $113 million in about 125 communities--33 of which are in Alaska. That would drop to $50 million under the Bush Administration proposal, while the federal Small Community Air Service Development pilot program would be eliminated.

It would also eliminate EAS subsidies for communities within 75 miles from a small hub airport or 50 miles from a non-hub that has jet service--communities more than 210 miles from a medium or large hub airport would pay 10 percent of the cost.

Counterproposals by Sen. Arlen Specter, R-Penn., and Sen. Rick Santorum, R-Ohio, would ease community contributions and highway mileage limits for inclusion in the program.

The EAS program was launched in 1978 to guarantee air service in communities after airline industry deregulation.

A recent federal General Accounting Office report concluded the program "has not produced an effective transportation solution for passengers at many small communities" and program costs soared 400 percent since 1995 although nationwide passenger service slid.

The Senate Commerce, Science and Transportation Committee, however, in early May passed its three-year FAA budget bill--sponsored by Sen. John McCain, R-Ariz.--which authorized $113 million per year for EAS and $27.5 million per year for the pilot development program. It's expected to hit the Senate floor in May.

Mesa Vice President of planning Scott Lyon said the small airline wasn't too worried as EAS budget cuts and eliminations have been proposed for years but haven't occurred. About $15 million of Mesa's roughly $600 million in 2003 revenue comes from the program.

"There are a lot of proposals right now, but the 2003 [EAS] budget is intact," Lyon said. "For 2004 nothing is definitive. There are a lot of hypothetical situations for speculation, but obviously we're concerned about the level of EAS funding... At the end of the day, our goal is to make a self-sustaining market so that we can still serve the cities."

Lyon said the company hoped EAS changes wouldn't be a "short-sighted process."

But Jonathan Ornstein, CEO of Mesa, weeks ago told Commuter/Regional Airline News that "a bunch of communities would be eliminated" and proposed EAS changes would probably spur "additional bankruptcies in the industry, bankrupting those carriers who depend on the [EAS] program."

He told the publication Mesa's Beech-1900 operation could be jeopardized.

Besides communities at risk from being cut from the program, those forced to pay for some of the subsidy will have a difficult time keeping Mesa.

El Dorado city officials would struggle for its share of services--possibly a few hundred thousand dollars in a roughly $7.5 million General Fund budget--at South Arkansas Regional Airport, as would Harrison and Boone County officials.

"We'll fight tooth and nail to keep Mesa here," said El Dorado Mayor Bobby Beard. "But we're like any other small city--we're cash-strapped and we're living payday to payday. Anything that takes a dime from our General Fund is going to be bard to do. "But we'll do whatever we have to, to help our airport."

It could amount to about $250,000 between South Arkansas Regional Airport and Jonesboro Municipal Airport, said Gary Harrell, manager of the El Dorado facility. The airports' combined federal subsidy is about $1.2 million.

"It's a definite concern for us," Harrell said. "It would be pretty devastating if it was eliminated or modified so that a community had to contribute."

Small airport growth

Airport managers say Mesa has provided what Big Sky couldn't-consistency--since it took over commercial service at the airports in September 2002 under the EAS program.

"They provided newer aircraft, more dependable service and better trained personnel--from the pilots to the counter workers," said Hot Springs' Downie. "The improvement directly related to Mesa."

El Dorado's Harrell, was more succinct.

"Big Sky practically destroyed our customer base down here," he said.

Harrell said small airports also benefited from the security slowdowns that plagued larger airports following the terrorist attacks of Sept. 11, 2001.

The four EAS airports enjoyed significant passenger increases, led by Boone County Airport's 80 percent gain, while Northwest Arkansas Regional Airport at Highfill enjoyed sizable gains due to a better off northwest economy. Little Rock National Airport was in line with the national dropoff.

Nonsubsidized Baxter County Regional Airport at Midway fell completely off Arkansas Business' list of busiest airports because Big Sky abandoned the facility in September 2001 because it couldn't make money without subsidized contracts. Mesa wouldn't come for the same reason.

"We were the fifth busiest airport in the state, and that just got taken away," said Baxter County Regional Airport Manager Gary williams. "We still get several calls every day about service. It shows we've got interest--we're a resort and retirement community."

Losing commercial service has also been an annoyance for seniors in the area who are loath to drive narrow, twisting roads from the Mountain Home area to other airports.

Baxter County has since struggled to find a commercial carrier. It's dealing with a 17 percent drop in revenue from lost landing fees, leases and fuel sales and is again trying to qualify for an EAS subsidy.

Little Rock and Bentonville

The state's busiest facility--Little Rock National Airport--had about an 8 percent drop in passangers in 2002.

Airport manager Phillip Launius blamed the "implosion of the dot-coins" beginning in 2000, followed in succession by September 11, a chronic national economic downturn, the Iraq War and SARS' outbreak in Asia for discouraging air travel.

"It's not cyclical," Launius said, "but it is chronic, and air service is one of those things where it's use it or lose it."

In response to tough times, Little Rock National's commercial carriers have shifted flights to 35- to 70-seat regional jets making it easier to fill planes and reduce fuel and crew costs, he said.

Just six of 148 daily flights to and from Little Rock in 1997 were made by regional jets--about 4.1 percent, Launius said. By 2003, that surged to 56 of 134 flights--about 418 percent.

While Little Rock National slid Northwest Regional Airport in Bentonville surged.

"I'd like to take all the credit for it, but it's really the economy in northwest Arkansas," said Kelly L. Johnson, airport director, citing statistics that showed Benton County as the country's third-fastest growing county in the country and the region as the sixth-fastest growing Metropolitan Statistical Area.

Business travel due to the nearby presence of major corporations, such as WalMart Stores Inc. and Tyson Foods Inc., and the University of Arkansas at Fayetteville--which generates student, visitor and athletic teams' travel--played a major role in growth.

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