Partial Shutdown of FAA Could Add to the Dismal Unemployment Rate

The 20th stopgap funding extension for the Federal Aviation Administration is set to expire Friday, and Congress has been unable to agree upon a new long-term funding bill, which could result in a partial FAA shutdownon Friday. While air traffic controllers and other essential personnel would remain on the job, the FAA would not be able to collect ticket tax revenue and many other employees would face furloughs.

In yet another Congressional stand-off, this time divided between the two chambers rather than two parties, each body is sticking to its own long-term bill. House Transportation Committee Chairman John L. Mica (R-Fla.), who delegated staff members to work with the Senate on reaching an agreement, says, “the current Senate leadership…refuse to negotiate in the best interest of the American public.” Conversely, Senate Commerce Committee Chairman John D. Rockefeller IV (D-W.Va.) is blaming the House for having not demonstrated that they are “serious about getting a comprehensive bill done.”

So this week, House Democrats bypassed Rep. Mica and appealed directly to Speaker John Boehner (R-Ohio) to schedule a conference committee meeting to resolve differences between the House’s four-year, $60.1 billion plan and the Senate’s two-year, $34.5 billion proposal.While the cost and term length of the two bills vary, that is not what is holding up an agreement. In fact, the general public might be surprised to hear that the major issues have little to do with the majority of travelers. The two competing bills argue over federal subsidies for flights to rural airports, putting a cap on the number of flights allowed through Washington’s Reagan National Airport, and an anti-union restriction in the House’s bill.

The Essential Air Service program was created in 1978, spending $163 million a year to subsidized flights to 109 small towns. The House bill seeks to eliminate the EAS subsidies to 13 airports that are within 90 miles of larger airports. The House bill also seeks to overturn a ruling by the National Mediation Board that facilitated the unionization of airline and railway workers. The number of flights that should be allowed through Reagan National Airport is an issue of noise concerns versus convenience. The Senate bill seeks to add five new round-trip flights and extend the routes of seven pre-existing flights. Though the House bill also seeks to add new routes, they simply have different requirements and restrictions, which one House staff member says are likely to soon be resolved, with the other two issues being the main sticking points.

If Congress fails to extend stop-gap funding at 2007 levels, it could put the brakes on airport expansion. Bobby Sturgell, former administrator at the FAA and now vice president at aviation supplier Rockwell Collins (NYSE:COL) say that, “the lack of long-term funding causes real damage to airport improvement projects, capital programs and certification of industry products, which provide jobs and promote economic activity.” So far the public hasn’t witnessed the possible effects of such an issue because there has been a short-term funding arrangement, allowing the FAA to perform its core functions. But that could all end Friday, with even the possibility of another short-term extension becoming unlikely.

The House extension bill is being denounced by the White House for including, “controversial provisions that, because they have not been negotiated, needlessly threaten critical FAA programs and jeopardize thousands of public and private sector jobs.” If FAA funding isn’t expanded by the end of Friday, roughly 4,000 workers will be on furlough beginning Saturday.

Stocks to Watch: JetBlue (NASDAQ:JBLU), Alaska Air Group (NYSE:ALK), AMR Corp. (NYSE:AMR), Delta Air Lines (NYSE:DAL), US Airways (NYSE:LCC), Southwest Airlines (NYSE:LUV), United Continental Holdings (NYSE:UAL).

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