The airlines pay a variety of fees for the airport facilities that they use. They pay landing fees, gate fees, fuel taxes, excise taxes, inventory taxes and property taxes. If they have maintenance facilities on the field, they usually lease them, which means that they pay rents for them. These are variable costs, for the most part, that are charged to current period operating expenses.
The airlines usually own the rights to their gates under a long term lease. Sometimes they can sublease them. The price of the gates is usually settled through a robust bidding process, i.e. witness the recent scramble for gates at Laguardia, Ronald Reagan, and Dallas Love Field.
The airlines don't pay any of the aforementioned fees and/or taxes. They are paid by the airline's passengers through a variety revenue collection mechanisms.
Whether airline passengers pay their fair share of the airport facilities, as well as the air traffic control facilities, that they use, is debatable. As noted the nation's airlines serve a very small percentage of the nation's airports and account for only 1/3 of air traffic control operations. So they don't consume anything like the total spend on the nation's airports and air traffic control systems.
Most airports in the United States are owned and operated by a government authority. They are expected to cover all of their costs from airport generated revenue sources. It is not just the landing or other fees mentioned above. Because they have been very successful, they generate revenues from all sorts of vendors, i.e. car parking, retail vendors, rental car agencies, taxi stands, etc.
The amount of the airport improvement funds that flow through to major airports, i.e. DFW, Love Field, etc. is unknown. However, not all of it goes to airports with commercial airline service.
In 2012 DFW received a small amount of airport improvement money to upgrade its air traffic navigation aids. If I remember correctly the amount was less than 1/2 of one per cent of the airport's budget. But the government could get the money back. How? Better navigation aids mean fewer delays, resulting in less fuel burn and lower expenses for the carriers, which could translate into higher net income and ultimately into higher corporate income taxes paid to the federal government. At least for those airlines that have not been in bankruptcy and therefore don't have a lot of tax loss carry backs and carry forwards!
The biggest advantage accruing to the nation's airline passengers lies in the tax free funding for most airports in the U.S. They were funded with municipal debt. The spread between the effective interest rates for the municipal bonds and the corresponding fully taxable bonds would be extremely difficult to determine, i.e. one would have to know the issue dates, yield to maturity, alternatives, etc. However, the spreads are not as wide as many people assume, but the savings was and/or is significant. Because the facilities were constructed with tax free financing, the construction costs were lower, and these lower costs could be passed on to a variety of users.
schlimm Murphy Siding Didn't the airlines require a big infusion of federal money after 911 to keep them afloat? As I recall, yes. Several have dumped their pensions onto the federal agency. And several (AA, UA, Delta?) have gone through bankruptcy reorganizations to reduce debt.
Murphy Siding Didn't the airlines require a big infusion of federal money after 911 to keep them afloat?
Didn't the airlines require a big infusion of federal money after 911 to keep them afloat?
Regarding profitable passenger trains, I have understood that there are only four in the world and they are, the Newark City subway, Amtrak's auto train, the Amtrak line from Los Angeles to San Diego and the Heathrow express in London.
Essential services like commuter trains, sewage treatment plants, police and fire departments and streetlights are all part of the infrastructure, aren't they? Having all these are why we pay taxes, right?
RIDEWITHMEHENRY is the name for our almost monthly day of riding trains and transit in either the NYCity or Philadelphia areas including all commuter lines, Amtrak, subways, light rail and trolleys, bus and ferries when warranted. No fees, just let us know you want to join the ride and pay your fares. Ask to be on our email list or find us on FB as RIDEWITHMEHENRY (all caps) to get descriptions of each outing.
Sam1 The airlines pay a variety of fees for the airport facilities that they use. They pay landing fees, gate fees, fuel taxes, excise taxes, inventory taxes and property taxes. If they have maintenance facilities on the field, they usually lease them, which means that they pay rents for them. These are variable costs, for the most part, that are charged to current period operating expenses.
That may be the major airports but many medium and small size airports have been hosed. Airline bankruptcies have left federal, state, and local governments building a facility that makes no money.
Prime examples are Raleigh Durham. Nashville, St. Petersburg, Chattanooga, Birmingham, Columbus Ga, and others. Federal money for new runways, extensions, navigation aids. State and local money for runways , taxiways, terminal buildings, roadways, etc. Several airports mentioned have an extra runway not needed. ( nice but not needed 0
Sam1Dumped their pensions onto the Pension Benefit Guaranty Corporation (PBGC) is not technically correct. Under the bankruptcy laws a litigant can transfer a qualified pension plan to the PBGC as part of its plan to exit bankruptcy.
The PBGC is a federal agency according to its website. What the airlines did is legal, but it did dump much of the net burden of paying the pensions they had provided to employees onto that agency, prior insurance premiums paid in notwithstanding.
C&NW, CA&E, MILW, CGW and IC fan
blue streak 1 Sam1 The airlines pay a variety of fees for the airport facilities that they use. They pay landing fees, gate fees, fuel taxes, excise taxes, inventory taxes and property taxes. If they have maintenance facilities on the field, they usually lease them, which means that they pay rents for them. These are variable costs, for the most part, that are charged to current period operating expenses. That may be the major airports but many medium and small size airports have been hosed. Airline bankruptcies have left federal, state, and local governments building a facility that makes no money. Prime examples are Raleigh Durham. Nashville, St. Petersburg, Chattanooga, Birmingham, Columbus Ga, and others. Federal money for new runways, extensions, navigation aids. State and local money for runways , taxiways, terminal buildings, roadways, etc. Several airports mentioned have an extra runway not needed. ( nice but not needed 0
I have neither the time or inclination to look at all the airports mentioned, but I did take a look at the financials for Nashville International.
Nashvile enplanements rose 3.2%, 3.4%, and 5.3% respectively in fiscal years 2013, 2012 and 2011. Airport operating revenues increased from approximately $84,000,000 in FY 12 to slightly more than $100,000,000 in FY 13 or an increase of 19.05 per cent. Instead of scaling back operations, the airport has seen an increase in emplanements and operations since the end of the recession.
In FY13 the airport had net income before capital contributions of $8,366,175. It had an operating loss of $4,605,153 in FY12 and an operating profit of $11,343,454 in FY11.
The airport has an intensive capital investment program. One of the objectives is to take advantage of the current low interest rates to build for the future. It has invested $407 million in a variety of improvement projects since 2007. Of this amount approximately $315 million has been funded by long term revenue bonds issued by the airport authority. The capital improvements have been focused on terminal improvements, baggage system enhancements, etc.
During FY13 the airport received slightly more than $6 million in capital improvement funds from local, state, and federal government agencies. The capital funds received in FY13 were 4.7 per cent of the cash flows generated by airport operations.
The amount of capital funds received from other government agencies, as a percentage of cash flows, was some what greater for the Nashville International Airport than for DFW during FY12. Nevertheless, the notion that the airports are being propped up by the federal government is not supported by the numbers contained in the audited financial statements. The nation's commercial airports are largely self supporting, although there are some exceptions.
Moreover, as noted, the commercial airlines are not the sole beneficiaries of airport improvements. Clearly, they are most likely to benefit from terminal improvements and baggage system enhancements, which in the case of Nashville are being funded by airport revenue bonds as opposed to federal and/or state funds, but the improvements in runways, navigation aids, and air traffic control operations, which get some agency monies, benefit all the users.
schlimm The PBGC is a federal agency according to its website. What the airlines did is legal, but it did dump much of the net burden of paying the pensions they had provided to employees onto that agency, prior insurance premiums paid in notwithstanding.
schlimm Sam1Dumped their pensions onto the Pension Benefit Guaranty Corporation (PBGC) is not technically correct. Under the bankruptcy laws a litigant can transfer a qualified pension plan to the PBGC as part of its plan to exit bankruptcy. The PBGC is a federal agency according to its website. What the airlines did is legal, but it did dump much of the net burden of paying the pensions they had provided to employees onto that agency, prior insurance premiums paid in notwithstanding.
I disagree with the term dump. What the bankrupt carriers did was use a legal gate, implemented by the federal government, to relieve themselves of their pension obligations. For that exit strategy they had paid substantial premiums, just like I pay for a variety of insurance coverages.
If I am involved in an automobile accident, filing a claim to be reimbursed for my loss is not dumping. It is simply collecting on a contract that I had with the insurance company.
Numerous factors contributed to the bankruptcy of the legacy airlines. Amongst them were intransigent labor unions, especially at American Airlines, that refused to acknowledge that the airline business had changed dramatically with deregulation, and insisted that they be compensated as if nothing had changed since the days when the airlines were regulated and could pass their costs onto the flying public through government set rates.
blue streak 1 schlimm The PBGC is a federal agency according to its website. What the airlines did is legal, but it did dump much of the net burden of paying the pensions they had provided to employees onto that agency, prior insurance premiums paid in notwithstanding. Personal experience. -- PBGC only got 25 - 30 % of amount they pay out and that value is only about 1 /4 that was in defined benefits plan. The PBGC subsidy from the federal budget is some amount not know by this poster. Wonder what multiple it is of the federal Amtrak payment ?
"PBGC is funded by assets from trusteed plans and premiums from plan sponsors, not by taxpayer dollars. Unfortunately, our premiums are set in law. They’re both too inflexible — so that some plans are unfairly paying for the risks of others — and too low to cover PBGC’s benefit guarantee levels.
In 2003, the Government Accountability Office added PBGC to its “High Risk” list of agencies, because we control neither the benefits we pay nor the premiums we charge. Congress has repeatedly raised PBGC’s premiums, but they remain too low to fund our obligations. That’s why, 10 years later, we remain on GAO’s High Risk List."
Because premiums out stripped benefits during the initial years of the PBGC, it has sufficient assets to meet the needs of its beneficiaries for the next 10 to 15 years. If the Congress does not allow it to set its premium scale to cover its actuarial liabilities, it will run out of money after that.
Interestingly, the accumulated deficits for the PBGC and Amtrak are in the neighborhood of $30 billion. But the PBGC has generated sufficient revenues in to build a reserve asset base that will allow it to pay benefits for many years to come. Amtrak never turned a profit; it does not have any reserve funds. It has never generated sufficient cash to cover its current operating expenses let along its capital expenditures.
PBGC benefits are paid in accordance with an employee's vesting schedule in his or her employer's pension plan. If I remember correctly, under ERISA, if you work for a private employer that offers a qualified pension plan for more than five years, you are vested in the plan, and you can collect retirement benefits, albeit very small amounts, when you reach retirement age. If you work for a company for 25 years and leave, for whatever reason, you are vested for 24 years, as a rule, and are entitled to the vested benefits for 24 years of service when you reach retirement age.
The PBGC only pays out what you would have received, in most instances, under your private employer's legacy retirement plan. If you lose your job at age 40, lets say, even if your employer continues to offer a pension plan, you would only receive at retirement age the amount vested from the time you began your employment until you reached age 40. In other words, you would have to find another job to generate additional retirement benefits.
The Congress established the PBGC and then saddled it with a variety of restrictions that have made it impossible to succeed financially. It is just one more example of why the government should not be involved in commercial activities.
If the pensions had been insured by a private insurance company, monies to cover the benefits probably would be available. Of course, the premiums would have been substantially higher, but at least no one would have had the wool pulled over his or her eyes regarding the financial viability of the insurer.
Sam1 Numerous factors contributed to the bankruptcy of the legacy airlines. Amongst them were intransigent labor unions, especially at American Airlines, that refused to acknowledge that the airline business had changed dramatically with deregulation, and insisted that they be compensated as if nothing had changed since the days when the airlines were regulated and could pass their costs onto the flying public through government set rates.
It would appear that one of the purposes of Chapter 11 is to allow a firm to stick it to the employees by eliminating their pensions (a 401k is not a pension plan) and cutting their pay.
CSSHEGEWISCH Sam1 Numerous factors contributed to the bankruptcy of the legacy airlines. Amongst them were intransigent labor unions, especially at American Airlines, that refused to acknowledge that the airline business had changed dramatically with deregulation, and insisted that they be compensated as if nothing had changed since the days when the airlines were regulated and could pass their costs onto the flying public through government set rates. It would appear that one of the purposes of Chapter 11 is to allow a firm to stick it to the employees by eliminating their pensions (a 401k is not a pension plan) and cutting their pay.
Chapter 11 appears to have been created to enrich lawyers and stick It to all business partners and employees (pensions, pay rates, work rules, etc. etc.) of the organization filing Chapter 11. The only winners are the lawyers.
Never too old to have a happy childhood!
BaltACD Chapter 11 appears to have been created to enrich lawyers and stick It to all business partners and employees (pensions, pay rates, work rules, etc. etc.) of the organization filing Chapter 11. The only winners are the lawyers.
The primary purpose of Chapter 11 is to allow a failed business to restructure itself so that it has a reasonable probability of succeeding. If the probability is low, Chapter 7 comes into play, and the assets of the bankrupt are liquidated.
If the employees were enrolled in a qualified legacy pension plan, that was covered by the Pension Benefit Guaranty Corporation, their vested pension rights are transferred to the PBGC. The key term is vested! If the employee was participating in a 401k, 401m, or a cash balance plan, he would get the market value of the plan at the point of separation. In the long run, if the 401 or cash balance plans are managed properly, the outcome can be much better for everyone.
The primary objective of a business organization is to preserve the entity. If this objective is not met, everything goes in the toilet. Frequently, to emerge from Chapter 11 with a reasonable probability of success, the organization needs to shed employees. It is unfortunate, especially for those losing their jobs, but it is a fact of business survival. The theory is that shedding some employees is better than shedding all of them.
Contrary to what many Americans appear to believe, a business does not exist to provide employment. It's purposes are to achieve a variety of goals for its key stakeholders, i.e. shareholders, customers, employees, creditors, regulators, etc. At the end of the day the primary purpose of a business is to sell goods and/or services at prices that will cover their costs and provide a reasonable return to the owners.
Mac,
Do you have evidence to show, as you suggest, that Schlimm's statement is "99 per cent untrue?" Did only 1 per cent of all railroads receive land grants?
I don't have numbers at my finger tips but some eastern railroads got land grants from both state and country governments. Federal land grants were only part of the land grants given to railroads; States and Territories as well as Counties and even Municipalities all provided land grants.
Your comment on Federal backed bonds for the Union Pacific is interesting. Congress intended that the UP would pay 6 per cent per year in equal semi annual payments. However, the law was poorly drawn up. When he was President of the UP Jjay Gould filed a lawsuit claiming that no interest was due from the UP until the bonds matured and he won the suit. And when the interest was paid it was simple interest, not compounded to reflect that fact that none had been paid over the years. The UP went bankrupt in, I think, 1893 and around 1900 the Federal Government sold the railroad for $45 million. Whether or not that was enough to recoup all of the interest owed I don't know.
I think you are absolutely correct to point out that had the UP and CP not been built when their were they would have been built over the same route later but with different funding. Had that happened most likely there would have been much less government involvement.
Finally, I think a argument can be made for railroad land grants. Much of the land had no value before the railroad came. It was the railroad that gave the land its value. And even with the grants the government retained much of the land which now had value because of the railroad. So the government was better off because of the land grants.
John
Sure, some passenger trains made money. I'm equally sure, from my reading, that the overall passenger operations of ALL roads lost at least a modest amount, even in the heyday of passenger rail. Passenger carriage is, over time, a losing proposition. Financial guys like Jim Cramer who are getting all excited about airline stocks at this time are slow learners. The airlines are a historical loser ... they have passengers, but little freight to pay the bills.
I don't like the airlines, and can't wait for them to get their final comeuppance when business travel is made obsolete -- as it really already has been made obsolete, only waiting for business practices to catch up -- by modern electronic communications.
dakotafred Sure, some passenger trains made money. I'm equally sure, from my reading, that the overall passenger operations of ALL roads lost at least a modest amount, even in the heyday of passenger rail. Passenger carriage is a sucker business. Financial guys like Jim Cramer who are getting all excited about airline stocks at this time are fools. The airlines are a historical loser ... they have passengers, but little freight to pay the bills. I don't like the airlines, and can't wait for them to get their final comeuppance when business travel is made obsolete -- as it really already has been made obsolete, only waiting for business practices to catch up -- by modern electronic communications.
Sure, some passenger trains made money. I'm equally sure, from my reading, that the overall passenger operations of ALL roads lost at least a modest amount, even in the heyday of passenger rail. Passenger carriage is a sucker business. Financial guys like Jim Cramer who are getting all excited about airline stocks at this time are fools. The airlines are a historical loser ... they have passengers, but little freight to pay the bills.
"Profitable" is probably the wrong measure. Cost/benefit is probably more relevant. Sometimes the costs are paid by others and the benefits accrue outside as well. Even this way, it depends a great deal where you draw the "control volume".
The problem is that the train is just a link in a chain and it 's difficult to apportion an useful measure of the value each link when all are needed to get to the goal. An analogy: There is a treaure chest with $1M of gold at the bottom of the ocean. You have a chain with 1000 links to reach it. Each link costs $100. What is the cost/benefit for the whole system? What is the value of each link? What if one link breaks? What if you are one link short?
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
John,
You are misunderstanding the 99% comment. His claim was that had the land grants not been made the land grant railroads would never have been built. That was the claim I was disputing. A wise middle school teacher one taught me that "always" and "never" statements were almost always false. While the context was True/False tests, I have found that to be a good decision rule in life also.
I made no claim about the percentage or exact amount of rail mileage built with the aid of land grants. It sounds like you know enough history to know that getting an accurate figure would be a major research project.
You can find a good discussion of the UP bankruptcy of 1893-1897 in the first chapter of Maury Klein's 'Union Pacific the rebirth 1894-1969".
Mac
Sam1 Contrary to what many Americans appear to believe, a business does not exist to provide employment. It's purposes are to achieve a variety of goals for its key stakeholders, i.e. shareholders, customers, employees, creditors, regulators, etc. At the end of the day the primary purpose of a business is to sell goods and/or services at prices that will cover their costs and provide a reasonable return to the owners.
And what constitutes a reasonable return to the owners?
CSSHEGEWISCH Sam1 Contrary to what many Americans appear to believe, a business does not exist to provide employment. It's purposes are to achieve a variety of goals for its key stakeholders, i.e. shareholders, customers, employees, creditors, regulators, etc. At the end of the day the primary purpose of a business is to sell goods and/or services at prices that will cover their costs and provide a reasonable return to the owners. And what constitutes a reasonable return to the owners?
Answering your question would be grist for semester long courses at the nation's best business schools.
In a nutshell it depends on the expectations and risk tolerances of the investors. Investors in utility companies, as an example, probably are happy with a return of 8 to 11 per cent, but those in a high risk activity, such as oil and gas exploration, probably have considerably higher expectations because they are willing to tolerate a much higher risk levels.
Investors in the nation's freight railroads, including the Canadian National and CPR, are getting a return in the neighborhood of 11 to 13 per cent. These returns appear to be more than sufficient to attract investor and creditor capital.
The optimum determinate of reasonable is the market. I shudder at the thought that the returns would be dictated by a government authority. Been there, done that. Prior to deregulation of the utilities in Texas, the returns were determine to a large extent by a rate order issued by the Public Utility Commission. It was a largely ugly political exercise.
Oltmannd,
Your summation of the status of Amtrak's long distance trains on Frailey's blog is very good. Why don't you bring it over to an appropriate forum. My impression is that more people read the forums than Frailey's blog.
Sam1 Oltmannd, Your summation of the status of Amtrak's long distance trains on Frailey's blog is very good. Why don't you bring it over to an appropriate forum. My impression is that more people read the forums than Frailey's blog.
Personal observation - Blogs are written by individuals that are way too full of themselves! ie. I write a blog, therefore I am a self appointed expert.
A decade or so ago Railway Age had a short blurb where the author stated that because of the high costs of passenger service there was no way that a railroad could recoup the costs and make a profit on passenger service.
The interesting thing was that the snippet was in Railway Age's "100 Years Ago" column and the original article from which the quote had been taken was from a early 1900 issue. So this topic isn't a new one.
Dave H. Painted side goes up. My website : wnbranch.com
This post was edited by it's author. Have a nice day.
Thanks to Chris / CopCarSS for my avatar.
Jack,
My point with Schlimm was to dispute his claim that absent the land grants, the land grant lines would never have been built.
"Practically every railroad" in your post means every railroad company, which has very little relationship to miles built. This claim too is false.
The land grant age really started with canals in the 1830's and shifted to railroads in the 1850's with the Illinois Central. The land grant covered the main line from near Galena to Cairo, plus the branch to Chicago, some 500-600 miles. By 1910 the IC was roughly 10,000 miles of line. Much of that line was purchased with new stock and bond issues in the period you claim banks would not invest in railroads, which tends to disprove that claim. To the best of my knowledge none of the lines that IC swept up in this period had land grants attached. So the fact is that while the IC was a land grant railroad, only 5-6% of it was built with the aid of land grants.
New grants virtually stopped after the Credit Mobilier "scandal" broke in 1872. Certainly additional mileage was built based on previously chartered land grants. The period begining in 1881 and ending in 1893 saw the highest annual average of mileage constructed. That would have been impossible if the railroads did not have access to the financial markets.
I made no claim about land grant acerage. You may be right, you may not. Frankly I am skeptical of most claims on this issue since most authors have some axe to grind and not all are careful researchers.
I neither know nor care what your politics are, but your knowledge of financial history and ability to read and comprehend leaves a lot to be desired.
Mac McCulloch
Land grants, including the bonds and lands sold, were a useful and wise action which were of great importance in the building of most of the western transcontinentals. One can say they would have been built anyway without the assistance, but there is no evidence of that beyond the NP and parts of others. Perhaps, perhaps much later, perhaps some not.
OK Mac. It seemed to me that 99 per cent comes close to an "always" statement.
I don't know what would have happened had land grants to railroads never been given. The fact of the matter is that they were given. I do understand that President Lincoln and the Congress saw the land grants as a way of getting some railroads built without imposing a tax burden on citizens. It didn't really work out that way but that was their intent and I think the intent was valid. And I don't believe in presentism--judging historical events by today's standards.
I have read Maury Klein's biographies of Jay Gould and E. H. Harriman and found them fascinating. Especially Gould who I think is a better man than is generally realized. Especially in his contest with Corneilus Vanderbilt.
Have a good summer.
PNWRMNM Jack, My point with Schlimm was ...
My point with Schlimm was ...
Okay, here you go. Defending the statement that Amtrak LD trains are irrelevant...
Are LD train USEFUL to some individuals in the areas they serve? Sure. Are they relevant, generally to the movement of people between towns and cities in the US. No. In this sense, they are irrelevant.
What is their purpose?
If it's to generally connect rural areas to urban areas, they fail because there are great big swathes of rural areas not served by LD trains.
If it's to connect urban areas to urban areas, Amtrak moves an irrelevant number of people.
If it's to connect some, specific rural areas to urban areas economically, they fail because there are cheaper ways to do it.
If it's to connect urban areas to other urban areas for those who can't/won't fly or drive, once again, there are cheaper ways to do this. (and we don't provide similar alternatives for overseas travellers)
If it's to provide for tourists, domestic and foreign, once again, the numbers are very small and I'd question why we should provide a travel subsidy for upper middle class patrons.
Even when you add up all these purposes, you're still left with very little in total. That's what makes them irrelevant.
The LD train are a vestigial remnant of the once-great streamliners that served the general population just before the dawn of the fly/drive era. Amtrak treats them as such, not changing schedules or mode of operation to suit how times have changed and population has shifted.
The LD trains have no defined purpose.
If you don't think this is true, then think about how Amtrak schedules are geared to any of the above purposes.
Are Amtrak schedules geared toward rural to urban service. No. The western trains pretty much travel through the rural areas in the dead of night. Old streamliner schedules persist.
Does the SW Chief serve tourists going to the Grand Canyon very well. No. It stops in Williams in the dead of night. Schedule is geared for Chicago to LA travellers - not much different from Super Cheif days.
Does the Crescent runs right through the northerns suburbs of Atlanta where >1M people have located since 1980. Does it stop there? No.
The Piedmont area of SC is now a solid urban/suburban corridor from the NC border to Anderson. Has Amtrak done anything with the schedule of the Crescent to try to serve this population? No. It runs through in both directions in the dead of night.
Florida is the 4th most populous state. Has Amtrak shifted schedules to try to gain ridership here or are Silver Service train operating on 1950 vintage schedules? You know the answer....
Look, I like LD trains quite a bit. I ride them when I can. I'm glad they're around. They do do some useful things. But, let's not kid ourselves. They are too expensive and there are too few of them to be a releveant piece of the nations passenger transportation network. They exist as they do because of political inertia and Amtrak's non-innovative culture.
Political inertia protects the routes the trains run on. But, Amtrak's lack of innovation stops these routes from becoming all they could be. We need a better Amtrak.
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