Budget fight costs FAA millions; stocks slump, FET TAX HOLIDAY

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July 29, 2011, 9:49 a.m. EDT
By Christopher Hinton, MarketWatch
WASHINGTON (MarketWatch) — The Federal Aviation Administration remained partially shuttered on Friday following a congressional fight over last-minute provisions in the agency’s budget bill, putting tens of thousands of people out of work while depriving the government of more than $200 million in tax revenue.

Though it isn’t a result of the ongoing talks on the debt ceiling and budget reductions within Congress, the shutdown serves as another example of how government gridlock can end up hurting the country’s business interests.

“The ongoing FAA shutdown is having a broad and deep negative impact on aviation and our economy,” said Marion Blakely, head of the Aerospace Industries Association, the trade group that represents aviation businesses.

Oil prices stall with U.S. debt talks
It has been a dull week in the oil market and that is likely to continue until deadlocked talks to raise borrowing limits in the U.S. are resolved. Until then, the drama in Washington should overshadow other developments and keep prices in check.

“As a result of Congress’ failure to pass an authorization extension, the FAA has been forced to issue stop-work orders on contracts reportedly worth more than $7 billion,” he said.

Underscoring the point are a string of sharp declines in the stock market this week as investors weigh how the congressional stalemate could impact industry.

Airlines typically get hit the hardest when investors expect an economic downturn, and this week saw shares of AMR Corp. AMR -0.52% , Delta Air Lines Inc. DAL -0.91% and budget-carrier Southwest Airlines LUV -0.74% reach lows not seen in more than 18 months. AMR is the corporate parent of American Airlines.

Among the sector indexes for airlines and aerospace, representing a basket of aviation-related stocks, the NYSE Arca Airline Index XX:XAL -1.64% has plunged nearly 17% since the first week of July, while the Dow Jones Aerospace Index XX:DJUSAS -0.50% is off by more than 6%. The benchmark Standard & Poor’s 500 Index SPX -0.67% is down about 3%.

The FAA furloughed some 4,000 workers last week, making an exception for essential staff such as air-traffic controllers, after the Senate refused to approve the agency’s temporary budget. House Republicans tacked on provisions to cut funding for small community airports and hurt the ability of airline workers to unionize.

The aviation authority is tasked with managing the country’s air-traffic system, as well as carrying out safety inspections and providing grants for airport construction. In addition to the FAA furloughs, an estimated 70,000 construction workers are out of a job.

“I am making a simple and straightforward request to Congress: Pass a clean FAA bill and immediately put thousands of FAA employees, construction workers, planners and engineers across America to work,” said Transportation Secretary Ray LaHood, earlier this week.

Transportation Secretary Ray LaHood during a media briefing at the White House on Thursday.
While the FAA’s reauthorization budget languishes in Congress, the agency is paying its remaining staff from the Airport and Airway Trust Fund, which has been seeing annual deficits for years as tax revenue from airports and airlines declined.

This past week, some fliers might have been hoping the FAA shutdown would result in a tax holiday and lower ticket prices. Airlines quickly raised their fares to match the tax breaks, however.

That led to outrage among some pundits, but it’s still not clear whether the government could try to collect those taxes at a later date. Meanwhile, the airlines are struggling with sharply higher fuel costs that have chipped away industry profits.

On Thursday, Senator John Rockefeller (D, W.Va.) sent an letter to a dozen airlines, including Delta, United Continental Holdings UAL -2.27% and Spirit Airlines SAVE -2.64% , asking whether they were “exploiting” the tax holidayPost Comment