Chairman Stevens: Thank you very much, Mr. Chairman. Mr. May, one of the things we are doing on the Committee is reviewing all of the laws that apply, that come out of the Committee, and determine whether there are roadblocks in them that prevent our making waivers and doing things that would give us a chance to have some application of current revenues and current appropriations to the recovery, or use current authorities without having massive new legislation. Have you examined any of the laws, present laws about conditions or requirements under those laws that currently are preventing the airlines from taking steps that are necessary in view of the disaster and the recovery from the disaster?

Mr. May: Mr. Chairman, I’ve noted a couple of things in my testimony and certainly relief on the 4.3 cents is one. We suggested to the Department of Transportation that we be permitted to impose fuel surcharges separate and apart from the actual ticket price. They took some action yesterday to put out for a notice of comment and rule making whether or not to eliminate those rules all together. We appreciate the direction that Secretary Mineta has taken on that point. I think there are a number of areas that Ms. McElroy has identified this morning that are specific to the regional side of this business, part of which is owned and operated by my carriers, part of which operates on a separate basis. We’d be happy to reexamine some specific areas in the regulatory process that may be of some benefit and submit that to the Committee as Senator McCain has suggested.

Chairman Stevens: Staff informs me that last year, the airlines all together paid $15 billion in federal taxes, but they lost $10 billion overall. Have you looked again now at these taxes? You’ve asked us to suspend the one.

Mr. May: Yes, sir.

Chairman Stevens: The airlines are the only entity in the country that collects from their customers their cost, or at least partially, their cost of security. Have you looked at that? Should we reduce that or in anyway find someway to reduce the cost of the security program in order to free up more area for your increase in fares?

Mr. May: Senator, we pay, as you have just noted, a little bit north of $15 billion a year in taxes and fees. That includes some $3 (billion), $3.5 billion a year directly to DHS, TSA. I think we are one of the only industries that directly undertakes funding of TSA and DHS. We do it through five different taxes and fees. We have seven different taxes and fees that underwrite the lion’s share of the Aviation and Airport Airways Trust Fund. I think it would be fully appropriate for this Committee to take a long, hard look at that entire funding equation and make a determination as to what ought to remain, what ought to be jettisoned, and how we can help reduce the overall impact of 26 percent on an average $200 ticket, which is far greater than any other industry in the United States pays in taxes and fees, greater even than alcoholic beverages and tobacco products, where taxes are used a disincentive to consumption.

Chairman Stevens: We provided that some of the airports could take over their own security if they desire to do so. To my knowledge only one did. Have you had any contact with the airports to see whether they could take over the security and reduce the cost?

Mr. May: I think that the airports have had a long-working relationship with TSA on that very issue. I think the Senator is correct that there was only one airport that took advantage of that opportunity to date. I’m not sure, Senator, that there is a huge dollar difference if it is privatized or federalized. I think the dollar impact is roughly the same.

Chairman Stevens: What about your costs, the airlines’ cost, of the modernization of airlines per se, the passenger portion? That’s substantial, isn’t it?

Mr. May: We find that the hassle factor, if you will, imposed by TSA is having a direct impact on our potential customers. A number of people are driving or using other modes of transportation as opposed of going through the hassle factor. At the same time, there are significant costs that get imposed on the carriers, sort of the unreimbursed costs – from catering security to direct security at airports to costs of inline EDS, etc. We have suggested for some time that we need to take a hard look at how TSA is funded and make a determination as to whether or not it ought to be through the carriers themselves, either through fees imposed in taxes or unreimbursed expenses or airport-derived expenses or through general tax revenues.

Chairman Stevens: It just seems to me there are a lot of chiefs stirring this stew and I wonder if we ought to go into depth on the overall structural relationship of government to airlines. And, part of it is in the tax base and that’s hard to deal with, but I do think we ought to take really a long look. We don’t have the time now during this disaster period, but I think we ought to take a long look at totally revamping of the relationship of government to the airline system and deal with some of those taxes in a way of trying to find some way to reduce the redundancy in the management that comes from county and local and airport executives and entities themselves, the ownership concept. All of those things are leading to problems. I know I’m taking a little bit more time. I’d like to ask Mr. Miller about the problem, you said that one of the problems was as I understand it, you had to go to too many entities to deal with disasters and you would like some way to go directly to the coordinator and you suggested I think that we should go into some concept of regional pre-positioning of disaster equipment. Could you enlarge that a little bit?

Mr. Miller: Yes, Mr. Chairman, what we found out is that during the immediate times following that natural disaster that there is a need for a lot of equipment, building materials, supplies, but that we have to work through multiple state agencies in order to get those supplies in there. The airports that are responding want to respond to that airport, they want to get there as quickly as they can, but there are protocols that have to be followed. As I stated, Bruce Frehlich was required to contact the Mississippi EOC, which would then contact the State of Florida or Georgia or South Carolina to initiate a request for a specific airport. We feel that if we had one point of contact within FEMA, they could be making those contacts for us. They could be asking those airports to respond. They could be issuing the mission numbers that would allow those airports to respond as quickly as possible. The state emergency operation centers are so involved in all the community-wide disaster relief that we do tend to get overrun. We do feel that to make it easier for them and for us that a direct point of contact within FEMA would help to facilitate the response from the other airports.

Chairman Stevens: We’ll follow-up on that. Lastly, Ms. McElroy, all of us, at least I am not familiar with this 24 cent Highway Act provision you were talking about.

Ms. McElroy: What I have been informed from the carriers is because of concerns about jet fuel, which has the lower tax rate, concerns about that being fraudulently purchased by other consumers. But, a change was made to increase that tax rate and then the airlines filed for a return of the overage that they paid, if you will, over the 4.3 cents. It’s my understanding from talking to the major carriers that they’ve been able to use ticket tax revenues owed to the government to offset those fuel payments and as a result it hasn’t caused the cash crunch it has for some of the very smaller regional airlines. I’d certainly be willing to provide you additional information, specifics.

Chairman Stevens: Can you get us a one-pager?

Ms. McElroy: Yes, sir.

Chairman Stevens: So we can talk to the tax people – the Finance Committee and Ways and Means about that.

Ms. McElroy: Yes, sir. We’d very much appreciate that.

Chairman Stevens: Thank you very much, Mr. Chairman.

Closing Statement

Chairman Stevens: Let me interrupt you. We’ve got to go vote. David Russell here is General Counsel. We’re putting together a package now that goes to the leadership, an assessment group, and they’re going to review and try to get clearance on both sides of these rifle shots that Senator Lott is talking about – individual things we can do within the jurisdiction of this Committee to make it easier for people to deal with this disaster and the recovery that we would like to see the airlines have. If you have any suggestions at all, get them to David Russell. Those will be discussed now next Monday and it’s going to be a package that moves pretty quickly we hope. We don’t know yet, but we hope that we’ll get some support on it. But, I urge you to let us know if you think there is anything we can do to help you get through this period.

One last comment – the ANWR bill was vetoed in ’96. If we had that pipeline filled now, we’d have at least 1.2 million more barrels of oil today than we have. It’s coming up now again. I would urge the industries that are affected by this lack of supply to help us convince the Congress to go ahead and do what Congress said it would do in 1980 and that is let us explore that 1.5 million acres on the Arctic Slope. At a time of the last major disaster we had 2 million barrels of oil a day in that pipeline. There’s less than a million barrels a day right now. It’s a national crime in my opinion.

Mr. May: Mr. Chairman, you would note that we included ANWR in our testimony for the first time and we we’ll be happy to share our ideas with both you and Co-Chairman Inouye and his team