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Aircraft Noise - Meeting with Secretary Coleman, Jim Lynn and Judy Hope, July 19, 1976
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Aircraft Noise - Meeting with Secretary Coleman, Jim Lynn and Judy Hope, July 19, 1976
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The original documents are located in Box 3, folder "Aircraft Noise - Meeting with
Secretary Coleman, Jim Lynn and Judy Hope, July 19, 1976" of the James M. Cannon
Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 3 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
NOISE MEETING
Secretary Coleman, Jim Lynn,
Judy Hope
Monday, July 19, 1976
9:00 a.m.
JMC Office
And -
problem
Anrest -
CAB
Coleson
thritory
1) Column wen new in Boxh poposes contact AD Rer AP
peprum
2)
FORD i LIBRARY GERALD
2)
TAB A
DEPARTMENT OF TRANSPORTATION
[July 1976]
AVIATION NOISE FINANCING
DOT recommends a financing plan with the following key elements:
1. CAB would be asked to approve, and the Executive Branch would
support (perhaps with an expression of Congressional desire), an across
the board surcharge for 10 years of 2% on domestic passenger tickets and
freight waybills. The airlines would be required to deposit the revenues
from the surcharge in an Aircraft Replacement Fund.
Effect:
About $3 billion (in inflated dollars) would flow into the Aircraft
Replacement Fund over 10 years. This amount would finance approximately
one-half of the cost (roughly $6.4 billion) of some 200 to 275 of the B-707s
and DC-8s that would otherwise be in airline service at the end of 1984,
when the noise standard applies to those aircraft.*
2. The Aircraft Replacement Fund would be managed by intercarrier
agreement under which each carrier would have entitlements to the Fund
in proportion to its total system passenger and cargo revenue.
Effect:
FORD & LIBRARY GERALD
Administration of the Fund by the airlines would minimize federal
involvement.
3. The federal air passenger ticket and freight waybill taxes would be
reduced from 8% to 6%, and from 5% to 3%, respectively.
* The amount of $3 billion to be collected through the surcharge has been
chosen because it is the sum that commercial banks have indicated to
the airline industry would be required to induce their participation in
financing an early aircraft replacement program. DOT is, however,
conducting an analysis to ascertain whether some lesser amount might
induce the participation of the financial community. Upon completion
of that analysis the recommendation as to the duration of the 2% surcharge
will be adjusted SO that the collection will yield the amount deemed
necessary.
- 2 -
Effect:
The lower user taxes flowing into the Airport and Airway Trust
Fund would cover all outlays chargeable to the Fund under the
ADAP bill. (An amendment would be needed to permit the use of
uncommitted balances ($1. 4 billion) to finance the full annual authorizations
included in the ADAP Act.)
Once the pending ADAP bill is enacted without a tax reduction, unused
Trust Fund balances would grow rapidly (to $1. 7 billion by 1979) and
become a target for tax reductions or unjustified spending proposals.
From a national interest point of view, the use of these excess
revenues to help meet environmental and broad economic objectives is a
sound and defensible policy alternative.
4. Any balances remaining in the Fund after program objectives have
been achieved would be deposited in the Airport and Airway Trust Fund
and dedicated to noise control purposes (including land acquisitions and
easements).
5. The cost of retrofitting two and three engine airplanes will be paid
from the Airport and Airway Trust Fund.
1 x . GERALD R. FORD
Effect:
About $350 million (inflated dollars) will be taken from the Trust Fund
for retrofit.
- 3 -
Attachments:
1. Effect of Aircraft Replacement Fund on carriers' finances.
2. Estimated Aircraft Replacement Fund revenues, 1977-1986.
3. (A&B) -- Impact on airport/airway fund of lower tax rátes.
FORD & 070839 LIBRARY
ATTACHMENT 1
EFFECT OF AIRCRAFT REPLACEMENT FUND ON CARRIERS FINANCES -
CARRIER CONTRIBUTION AND ENTITLEMENT
(Dollars in millions)
Contribution (2%
Number of
Passenger & Waybill Surcharge-
Non-Complying
Total
Entitlement less
Carrier
10 Years, 1977-1986)
707's & DC-8's
Entitlement
Contribution
Trunk
American
$ 424.8
91
$ 377
$ ( 47.8)
Braniff
119.8
11
124
4.2
Continental
132.5
5
112
( 20.5)
Delta
384.0
34
299
( 85.0
Eastern
357.1
-
342
( 15.1
National
83.2
-
75
( 8.2)
Northwest
162.3
10
171
8.7
Pan American
28.7
79
353
324.3
Trans World
319.4
90
379
59.6
United
598.3
100
469
(129.3)
Western
126.2
23
109
( 17.2)
Total Trunk
$ 2736.2
443
$ 2810
$ 73.8
Local Service
Allegheny
$ 103.5
-
$
80
$ ( 23.5)
Frontier
41.2
-
37
( 4.2)
North Central
39.6
-
34
( 5.6)
Ozark
31.5
-
28
( 3.5)
Piedmont
35.9
-
28
( 7.9)
Air West
44.0
-
38
( 6.0)
Southern
26.3
-
25
( 1.3)
Texas International
15.8
-
17
1.2
Total Local Service
$
337.8
-
$ 287
$ ( 50.8)
Total entitlement is determined by distributing the funds collected among carriers, on the basis of the
proportion that each carrier's system revenues bear to the total of all revenues collected by the carriers.
Page 2
Contribution (2%
Number of
Passenger & Waybill Surcharge-
Non-Complying
Total
Entitlement less
Carrier
10 Years, 1977-1986)
707's & DC-8's
Entitlement
Contribution
Cargo
Flying Tiger
31.1
16
8
(23.1)
Seab ard
17.4
11
46
28.6
Airlift
4.5
5
24
19.5
Total Cargo
$53.0
32
78
25.0
Other
Supplemental Carriers
48.2
31
92
43.8
Intrastate Carriers
125.5
-
42
(83.5)
Hawaiian
14.8
-
11
( 3.8)
Aloha
11.5
-
7
( 4.5)
Total Other
$200.0
31
152
(48.0)
TOTAL
$3327.0
495
3327.0
- 0 -
Other Carriers
2/
17
TOTAL
523
2/ Includes commercial operators and flying clubs. Revenue contribution and entitlements for these carriers
are not provided due to lack of revenue data.
Attachment 2
REVENUE COLLECTIONS - AIRCRAFT REPLACEMENT FUND
Ten
Year
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
Total
IRCRAFT REPLACEMENT FUND
Ticket Surcharge
224
244
258
271
284
303
322
341
360
377
2484
2% Waybi 11 Surcharge
22
26
28
32
36
38
38
40
40
42
342
Total
246
270
206
303
320
341
360
381
400
419
3327
5/27/76
CASE A. EXISTING TAX STRUCTURE, LATEST CONFEREE COMPROMISE ON ADAP & MAINTENANCE
(In $ Millions)
LIBRARY
1976
TO
1977
1978
1979
1980
1981
FORD
Beginning Uncommitted Balance
889
1269
1378
1520
1693
1892
2105
Plus Trust Fund Revenues
969
254
1046
1128
1205
1268
1338
Subtotal
1858
1523
2424
2648
2898
3160
3443
Less: ADAP
412
103
525
555
590
625
Maintenance
-
-
250
275
300
325
F&E
250
62
250
250
250
250
RE&D
68
18
77
85
90
95
1128
1340
1322
1483
1668
1865
Subtotal
Plus Estimated Interest *
141
38
198
210
224
240
Ending Uncommitted Balance
1269
1378
1520
1693
1892
2105
*
Interest for FY 1976 and the transition quarter is as shown in the FY 1977 Budget; interest thereafter
is calculated at 8% of average cash balance.
Beginning Cash Balance
2013
2393
2502
2644
2817
3016
3229
Plus Revenues Less Expenses
239
71
- -56
-37 -
-25 -
-27 -
Ending Cash Balance
2252
2464
2446
2607
2792
2989
Average Cash Balance
(2474)
(2625)
(2804)
(3002)
Interest
141
38
198
210
224
240
Balance Carried Forward
2393
2502
2644
2817
3016
3229
5/27/76
CASE. B. 6% PASSENGER TICKET TAX, 3% WAYBILL TAX, LATEST CONFEREE COMPROMISE ON ADAP & MAINTENANCE
(In $ Millions)
1976
TO
1977
1978
1979
1980
1981
Beginning Uncommitted Balance
889
1269
1378
1276
1165
1038
884
Plus Trust Fund Revenues
969
254
811
874
932
981
1035
Subtotal
1858
1523
2189
2150
2097
2019
1919
Less:
ADAP
412
103
525
555
590
625
Maintenance
-
-
250
275
300
325
F&E
250
62
250
250
250
250
RE&D
68
18
77
85
90
95
Subtotal
1128
1340
1087
985
867
724
Plus Estimated Interest *
141
38
189
180
171
160
Ending Uncommitted Balance
1269
1378
1276
1165
1038
884
*
Interest for FY 1976 and the transition quarter is as shown in the FY 1977 Budget; interest thereafter
is calculated at 8% of average cash balance.
Beginning Cash Balance
2013
2393
2502
2400
2289
2162
2008
Plus Revenues Less Expenses
239
71
-291
-291
-298
-314
Ending Cash Balance
2252
2464
2211
2109
1991
1848
Average Cash Balance
(2351)
(2254)
(2140)
(2005)
Interest
141
38
189
180
171
160
Balance Carried Forward
2393
2502
2400
2289
2162
2008
TAB B
ALTERNATIVE OPTIONS FOR
AVIATION NOISE FINANCING
The following options might be considered as alternatives to DOT
proposal to facilitate replacement and retrofit of aircraft that do not
comply with the FAA noise standards:
Option #1
1. CAB would be encouraged through an expression of legislative
intent to permit an environmental surcharge of 2% on domestic passenger
tickets and freight waybills for 5 years. Revenues from the surcharge
would be placed in an escrow fund to be used primarily for replacement
of 4 engine aircraft.
Effect:
About $1. 4 billion would be provided for the replacement fund over
5 years.
2. The replacement fund would be managed by the airlines under
an inter-carrier agreement.
Effect:
Administration of the replacement fund by the carriers would keep
federal involvement to a minimum.
3. The replacement fund would be disbursed as follows:
- - 50% would be distributed in cash to the participating airlines
in proportion to the surcharges each contributes to the fund;
- - 50% would be used as a loan guarantee fund with the
- 2 -
entitlement of each participating carrier computed on the basis
of its total system revenues. Loan guarantees would be authorized
up to three times the amount of each airline's entitlement.
Effect:
About $1. 4 billion in cash would be available to. carriers.
Use of a loan guarantee fund enables carriers to obtain financing for
new airplanes.
4. Any unused balance in the loan guarantee fund after all loans
have been paid off will be placed in the Airport and Airways Trust Fund.
5. The tax on passenger tickets and freight waybills collected for
the Airport and Airways Trust Fund would be reduced by 2% for 5 years.
Effect:
A reduction in the ticket tax to balance the surcharge prevents the
cost of air transportation from increasing.
6. Appropriations would be authorized from the Airport and Airways
Trust Fund to pay the cost of retrofitting those non-FAR 36 aircraft
which the airlines elect to retain in domestic service, rather than replace
or retire them.
Effect:
The cost of retrofitting 2/3 engine airplanes is estimated to be about
$350 million (in inflated dollars). If the airlines choose to retrofit the
FORD LIBRARY
approximately 75 four-engine aircraft which may be economic to retrofit
- 3 -
then the cost would increase by $225 million.
Option #2
1. The CAB would be encouraged to approve a 2% surcharge for
7 years on carriers' domestic passenger tickets and freight waybills.
Revenues from the surcharge would go into a replacement fund.
Effect:
About $2 billion in revenues, 30% of the approximately $6. 4 billion
needed to replace 4 engine airplanes would flow into the replacement fund.
2. The replacement fund, managed by the airlines under an
inter-carrier agreement, would be distributed according to the amount
each carrier contributes.
Effect:
Administration of the fund by carriers minimizes federal involvement.
Funds could be used for purchase of any type of new aircraft.
There would not be any cross subsidy or pooling of funds.
3. International carriers and the portion of a domestic carrier's
airplanes used in international service (determined by the proportion
its international revenues bear to total revenues) are exempt from the
domestic standard and do not participate in the domestic Aircraft Replace-
ment Fund.
- 4 -
Effect:
About one-third of TWA's and almost all of Pan Am's fleet would
be exempted. The exempt portion of an American carrier's fleet would
come within the international fund (6 below).
4. Any balance in the replacement fund at the end of the 7 year period
would be placed in the Airport and Airways Trust Fund.
5. The tax on passenger tickets and freight waybills collected for
the Airport and Airways Trust would be reduced by 2% for 7 years.
Effect:
A reduction in the ticket tax that corresponds to the surcharge will
not increase the cost of air transportation.
6. A surcharge on all international tickets and waybills would be
collected to facilitate replacement of 4 engine airplanes in international
service for both domestic and foreign carriers. A distribution formula
would be worked out through ICAO.
Effect:
Separation of domestic and international operations prevents uneven
treatment of either domestic or foreign carriers.
7. Appropriations would be authorized from the uncommitted balance
($1. 4 billion) in Airport and Airways Trust Fund to pay for retrofit of
2/3 engine airplanes.
GENALD VORD LIBRARY
- 5 -
Option #3
1. Require the carriers to submit a plan within 6 months after
a noise rule takes effect stating the number of airplanes they intend
to retrofit and the number they intend to replace.
Effect:
The FAA, airframe manufacturers, and airlines will know the
estimated demand for retrofit kits and new airplanes and can estimate
the costs.
2. An escrow fund would be created and would receive moneys from
two sources:
- - the $1. 4 billion surplus in the Airport and Airways Trust
Fund;
- - a 1% surcharge approved by the CAB to be levied on domestic
passenger tickets and freight waybills.
Effect:
About $2 billion would be placed in the fund in 5 years. Of this amount,
$1. 4 billion would be available immediately to be used for replacement.
The carriers would decide how they would meet the noise requirements.
3. Disburse the funds as follows:
- - Estimate the retrofit costs and set the amount necessary to meet
them aside;
- - Allocate the funds remaining after retrofit equally among the
airplanes to be replaced.
- 6 -
Effect:
The total cost of retrofit ($350 million in current dollars) would be
covered.
About $1. 6 billion, approximately 25% of the amount needed to replace
4-engine airplanes (roughly $6. 4 billion), would be available for that
purpose.
FORDO & LIBRARY 078830
[July 1976]
APPENDIX A
FINANCIAL CONDITION OF THE TRUNK AIRLINE INDUSTRY
The ability of the airline industry to finance equipment replace-
ment depends, as it would in any other industry, on its ability
to generate funds internally (through depreciation and earnings)
and/or externally (from the equity market and/or debt market).
Table 1, following, projects sources and uses for the 1977-1984
period, using the specified economic and traffic assumptions.
1. Internal Sources
As the table shows, depreciation will yield a total of $10.0 billion
through 1984. Aircraft sales will yield only about $400 million,
leaving the airlines $18.7 billion short of their total needs of
$29.1 billion. This amount must be met through earnings, new loans,
leases, or new equity financing. The cost of a realistic noise reduction
program would increase the total need for funds by the end of 1984
by around 23 percent, to $36 billion and would increase the deficit
by around 36 percent, to $25 billion.*
Industry earnings are projected to range from $.3 to $.5 billion
in 1976-1977 to $.6 to $.7 billion toward the end of the period, **
and could total about $5 billion, which would leave a financing
need of $13.7 billion, or about $21 billion when noise reduction
costs are taken into account. This "gap" must be met through
external sources -- the equity market and/or the debt market.
2. External Sources
Because of the airlines' poor earnings record for the past 10 years
(see Table 2) both the equity and debt markets have been effectively
foreclosed to them for some time. Airline stocks have not been a
recommended buy for much of this period, and are not being recommended
as an investment for the future, except for possible short-term
* Assumes the cost of the replacement/retrofit program is in the middle of
the $5.6 to $7.7 billion range.
** To earn $.5 billion, the industry would have to achieve about 9 percent
to 10 percent ROI at current investment levels. Since 1967, ROI for
the domestic trunks plus Pan American has ranged from a high of 8.5 per-
cent to a low of 2.1 percent, averaging only 5.7 percent.
GERALD FORD LIBRARY
2
gains in the next six months. * At present, airline stocks
stand at approximately 60 percent of their 1967 value (versus
120 percent for the Dow-Jones Average).
The major source of airline debt financing through the 1960's--
traditionally the large insurance companies--has been closed for
six years. Under New York law, New York insurance companies are
forbidden to make further loans. In a statement submitted to
the House Public Works and Transportation Committee George Jenkins,
Chairman of Metropolitan Life Insurance, said:
II
we feel
confident that Metropolitan will lose no money on its current
airline investments as they run off, but under present conditions,
no new money will be loaned.' Before lenders will commit new debt
capital, Jenkins added, (they) will require a sound equity base and
good profits
II
The DOT is confident that the proposed Aviation Act of 1976 will
return the Aviation industry to long-term profitability and eliminate
the capital expenditure problem of the future. However, no remedy
is seen for the problem of funding the capital decisions that must be
made now in order to achieve a quieter and more fuel efficient fleet
by the end of 1984. Airline earnings are the key to both internal
and external funds generation, but as the foregoing data makes clear
even a high level of earnings will not insure that the industry will be
able to finance the $5.6 to $7.7 billion needed for the noise
reduction program through normal means.
3. Problem Carriers
The financing problems anticipated for the industry will be
concentrated heavily in major carriers, which have the most four-
engine aircraft in their fleet and consequently the greatest retrofit
burden, particularly American, TWA, and Pan Am. As shown in Table 3,
these three carriers have together accounted for a large portion of
the industry's losses over the last five years and, with the possible
exception of American, have relatively undesirable debt burdens.
Further, as shown in Table 4, American and TWA, (presuming that
they could obtain the debt financing they would need,) under the
burden of the ncise reduction program would have debt/equity ratios of over
4 and 5.7 respectively, while Pan Am's would be near 2. These carriers
are likely to have great difficulty in raising the capital that would be
required by the noise regulation.
&
FORD
*
A potential exception to this statement is the pending TWA issue of
RALD
2 million shares of stock. As explained in the text, the need for such
LIBRARY
an issue is created by TWA's poor financial situation and at the expected
price of the sale will seriously dilute the company's equity base.
3
TABLE 1
PROJECTED USES AND SOURCES OF FUNDS
U.S. TRUNK AIR CARRIERS
1977, 1980 AND 1984
(Current Dollars in Billions)
Uses of Funds
1977
1980
1984
1977-1984
Property & Equipment
$1.2B
$1.6B
$5.7B
$24.4B
Debt Repayment
.5
.5
.4
3.6
Dividends & Other
.3
.6
.1
1.1
Total Uses
$2.0B
$2.7B
$6.2B
$29.1B
Sources of Funds
Depreciation
1.1
1.1
1.6
10.0
Sales of Aircraft
.1
.0
.1
.4
Total Sources
1.2
1.1
1.7
10.4
Uses Less Internal Sources
$ .8B
$1.6B
$4.5B
$18.7B
NOTE: The following growth rates are assumed in the projections:
Real GNP
3.7%
Inflation
5.1%
RPM's
Domestic
6.5%
International
5.3%
System
6.2%
TABLE 2
SELECTED FINANCIAL DATA FOR TRUNK CARRIER INDUSTRY
(System Operations, Including Pan Am)
1967-1975
(Dollars in millions)
Operating
Pre-Tax
Pre-Tax
Return on
Revenue
Profit
Profit Margin
Investment
1/
1967
$6,117
$638
10.4%
8.5%
1968
6,902
411
5.6
6.1
1969
7,765
247
3.2
4.6
1970
8,131
(154)
(1.9)
1.8
1971
8,811
55
0.6
3.7
1972
9,783
266
2.8
6.0
1973
10,905
287
2.6
5.6
1974
12,865
447
3.5
6.8
1975
13,374
(121)
(-)
2.8
9 Yr. Total $84,653
$2,076
2.5%
NA
1/ Return element includes net income and interest on long term debt.
Source: CAB Form 41/TPI-32 Reports
GERALD
?
FORD
TABLE 3
SELECTED FINANCIAL DATA FOR TRUNK CARRIERS (Including Pan Am) 1971 TO 1975
Carriers with Large
Debt as a Proportion
Numbers of
Net Income (Loss)
Profit (Loss) Margin
1/
Operating Revenues
of Total Capitalization
4-Engine Aircraft
($ Millions)
($ Millions)
(Percent)
(Percent)
Trans World
$ 7,679.9
$ (24.5)
(0.3)%
73.0%
American
7,583.5
(39.5)
(0.5)
45.4
United
9,681.2
155.6
1.6
48.2
Pan American
7,169.1
(233.9)
(3.3)
75.9
Others
Eastern
6,629.2
(65.1)
(1.0)
68.2
5
Delta
5,502.5
268.8
4.9
44.8
Braniff
2,281.3
93.1
4.1
57.7
Western
2,113.4
74.5
3.5
43.8
Northwest
2,984.8
203.5
6.8
28.3
Continental
2,081.4
21.3
1.0
71.7
National
1,821.1
82.3
4.5
46.7
1/ Trunk Air Carriers - System Operations, December 31, 1975
TABLE 4
PROJECTIONS OF DEBT EQUITY RATIOS,
SELECTED TRUNK CARRIERS, 1976, 1989, AND 1984
(Dollars in Billions)
ANTICIPATED
LONG TERM DEBT/
ADDITIONAL
DEBT/EQUITY
AIRLINE
CAPITAL EXPENDITURES
EQUITY
REPLACEMENT CAPITAL
RATIO INCLUDING
(1977-1984)
1976 1980 1984
REQUIRED BY 19842/
REPLACEMENT FINANCING
(1984)
American
$3-3.5
.78
.47
2.3
$1.2
4.4
Pan Am
1.8
3.0
1.7
.74
1.0
2.17
TWA
$2-.3
3.0
2.2
2.8
1.5-2.0
5.77
United
4.2
1.1
.56
.34
2.0
1.52
Industry
$27.1
1.3
.74
.98
5.6-7.7
1.78
6
SOURCE: Alliance One Institutional Services and TPI-32
1/ Assumes borrowings for capital needs without respect to carriers ability to obtain financing.
2/ Based on number of four-engine aircraft remaining in fleet after 1984, with replacements (including spares)
valued at a 1982 cost of $27 million each.
[July 1976]
APPENDIX B
ADVANTAGES OF ACCELERATED DEVELOPMENT OF NEW TECHNOLOGY AIRCRAFT
1. Greater Noise Reduction
A new-technology replacement aircraft would be far quieter than
the quietest existing aircraft. The gain achievable is illustrated
in Figure 1, which outlines the area exposed, on a single event,
to a noise level equal to or greater than 90 EPNdB--roughly
equivalent to the sound of a busy downtown street.
-- The 90 EPNdB contour of the 707/DC-8 aircraft (technology of
the 1950's) extends more than 20 miles beyond the brake release
point of takeoff and roughly nine miles prior to the touchdown
point on landing.
-- The DC-10, employing the late 1960's technology CF-6 engine,
is able to confine the 90 EPNdB contour to a much smaller area,
equivalent to the over-water area south of Logan International.
It is significantly quieter than a SAM retrofitted 727, which
meets FAR 36 standards.
-- Further important noise reduction advances are reflected in the
noise contour of a new Tri-jet which has double layer acoustical
linings, and the 1970's technology CFM-56 or JT10D engines with
new design fan and turbine stages. Those engines are expected
to be available for use in new aircraft.
2. Productivity, Operating and Safety Gains
Technological advances possible today will result in a new aircraft
with greater payload for its size and weight--an aircraft that is
more reliable, more easily maintained, costs less to operate, and
costs less to acquire per unit of productivity. These benefits
accrue to the public, the air traveler, and the airlines.
Greater efficiencies are achieved through such technological advances
as:
-- Supercritical aerodynamics concepts in wing airfoil and body,
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design, which can yield a lighter and more efficient aircraft
-- Lighter, more aerodynamic propulsion system and more efficient
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engines and nacelles.
-- Digital electronics for avionics systems and in-flight control to
avoid engine abuse, improve navigation and approach precision,
provide increased reliability, maintainability, safety and fuel
efficiencies.
Area Exposed To More Than
90 EPNdB
Revoide
Full povier take off; conventional flop approach
CHELSEA
Milton
727 with
SAM
retrofit
P
Brocktons.
QUINES
an
707/DG-8
DC - 10
8,
Boston LOCAN
AIRPORT
New Trije
CFM56 TITL ==:
1 sings
2
New structural concepts, new materials, and computer-aided designs
which will result in a lighter aircraft made up of fewer, less
complex parts.
The new aircraft will be safer for the air traveler, through im-
provements in inflight control, and new interior materials of much
improved flammability/smoke/toxicity characteristics.
The new aircraft will comply with the more rigorous engine pollutant
standards set for 1979.
The new aircraft, by virtue of improvements in systems and avionics, will
be certified with a two-man flight deck crew--an important contri-
bution to control of airline costs and hence ticket prices.
In terms of seats, range and operational characteristics, the new air-
craft will be more closely attuned to marketing requirements of the
late 1970's and mid 1980's. On many routes today the aircraft used
are smaller than optimal, making additional flights necessary; on
other routes aircraft of longer range than necessary are used, which
incurs both weight and efficiency penalties. A market-matched air-
craft would convert into increased airline efficiencies.
The new aircraft will use computer-aided flight profile management,
which increases aircraft, airport and airways system productivity.
The new aircraft will accept the standardized interline cargo
container (LD-3). This would allow much improved efficiency in
the high growth air cargo industry, by avoiding much of the labor
and handling costs, while interfacing efficiently with all-cargo
and interline air cargo services.
3. Energy Savings
Replacement of 707/DC-8 aircraft with new, high-technology
aircraft would result in reduced energy consumption per seat
mile flown. 1/ The estimated magnitudes of the savings from various
noise reduction programs are shown below:
-- A program resulting in the retrofit of about 100 of
the 707/DC-8 aircraft and replacement of the rest
with new, high-technology aircraft would provide an
energy saving of about 2.5 billion gallons of jet
fuel--an energy cost saving of about $900 million
over the period of the program (1981-1986) at today's
price.
1/ This is based on comparison of the fleet mix that was estimated to result
from implementation of the proposed programs with the fleet mix estimated
to result in the event that no program were undertaken. The new, high-
technology aircraft is estimated to be 30% more fuel efficient than a
707/DC-8 on a seat mile per gallon basis.
3
-- A program resulting in the replacement of all 707/DC-8
aircraft with new, high-technology aircraft would provide
an energy saving of about 2.8 billion gallons-- cost
saving of over $1 billion over the program period.
-- A program resulting in the retrofit of all 707/DC-8
aircraft would impose an additional energy requirement
of about 220 million gallons over the program period.
-- It should also be noted that retrofit of the 727/737/DC-9
aircraft would not cause a measurable change in the energy
requirement of the commercial aircraft fleet.
-- The annual energy saving of the program would in 1986
amount to about 8% of the total jet fuel consumption of
the commercial aircraft fleet.
4. Positive Impact on the U.S. Aerospace Industry
The 2- to 3-year gap between expected development and
accelerated development of a new-generation aircraft is
significant for the national interest in general, but could
be crucial for the U.S. aerospace industry. Lacking a
market for a new plane -- and thus the opportunity to put
their drawing-board technology to work -- the U.S. manufacturers
already have lost some of the technological advantage they have
always enjoyed over foreign competition.
A potentially more critical loss is U.S. share of the world
aerospace market. If delivery of a new aircraft is delayed
to 1985, as appears likely absent the spur of a realistic noise reduction
program, foreign competition -- with newer products to offer --
may secure their hold on a major share of the world market, and
the U.S. industry may decline to a level from which it cannot
easily recover.
The economic impact on the aerospace industry and on the U.S.
economy in general would be enormous. With sales of $28 billion,
and employment of around 950 thousand, the industry has been a
major factor in the U.S. economy for nearly the last quarter
century. Since 1968, however -- as a result of the problems of
its client industry, the U.S. airlines, and a reduction in military
purchases -- aerospace has experienced a very sharp decline:
-- Direct employment has declined 37 percent.
-- Industry payroll as a percent of all manufacturing
payroll has declined 30 percent.
* The domestic market is also at issue. In the absence of a new
U.S. 180-to-200 passenger aircraft, U.S. airlines are looking at
such foreign aircraft as the French-made A-300-B, which already
developed is substantially cheaper -- though less efficient --
than a new generation U.S. aircraft would be.
4
-- As a percent of GNP, aerospace industry sales have
declined 42 percent.
-- Real aerospace industry sales have declined 37 percent.
As the real domestic and military markets have declined, U.S.
manufacturers have grown heavily dependent on foreign
markets for sales of civil aircraft. Since 1968 civil aircraft exports
as a percentage of total civil aircraft sales have almost doubled.
U.S. airframe and engine manufacturers have turned more and more
to consortiums with European firms, both to share developmental
costs and to ensure continued access to European markets. However,
the consequent sharing of production will further erode U.S.
aerospace employment.*
Anxious to reduce U.S. dominance of the lucrative aerospace market,
foreign governments have become increasingly protective of their
own aerospace industries and markets, and increasingly aggressive
about penetrating other markets, forming alliances where necessary
to do so (the French and German combined forces to produce the successful
A-300-B). Thus, while the U.S. aerospace industry has been declining
in real terms, European and other foreign governments have been
subsidizing expansion of their own aerospace industries, and threaten
to encroach on both the U.S. and world markets. A loss of only
5 percent of present U.S. sales to foreign competition would result
in a loss of 47,000 jobs and $729 million in payroll.
Assuming that past relationships hold true, the proposed program
would accelerate by 2 to 3 years the rehiring of about 25,000
aerospace workers at a payroll of about $400 million a year.
* An important consideration here is the effect erosion would have
on the structure of the U.S. aerospace industry. The competition between
the three major manufacturers has helped to establish and maintain U.S.
technological superiority. If a sizable share of the world market is
lost to foreign competition, one and possibly two manufacturers could
suffer seriously.
7/2/76
BACKUP PAPER ON FINANCING AIRCRAFT NOISE REDUCTION
I. INTRODUCTION
There are four parts to the aircraft noise problem:
-- One, an unacceptably high level of noise at major U.S.
airports, and the resultant pressure for a responsible
Federal Government noise-reduction program.
-- Two, the inability of much of the airline industry to
obtain conventional financing to undertake a noise
reduction program.
-- Three, the present unavailability of new-generation air-
craft as suitable replacements under the program.
-- Four, declining employment in the U.S. aerospace industry,
and threatening encroachment of government subsidized
foreign competition on the U.S. share of the world aero-
space market.
II. DEFINITION OF THE PROBLEM
A. The National Airport Noise Problem
Aircraft noise has become a serious problem at seven key U.S.
airports and a considerable irritation and annoyance at about
one hundred more, derogating the quality of life for 6 to 7
million citizens. Pressure from airport operators and consumer
groups compel action by the Federal Government in order to avoid:
-- Curfews at major airports, which would interfere with air
commerce and disrupt our national air system by delaying
mail and cargo, and requiring expensive and difficult
repositioning and rescheduling of aircraft.
-- Billions of dollars in potential law suits and/or land
acquisitions.
-- Federal preemption of local restrictions and the resultant
Federal liability for claims against local airport operators.
To correct the noise problem, DOT proposes issuance of a regulation
requiring operators of the aircraft not meeting FAR 36 standards
to comply with these standards within a 6- to 8-year period,
depending on aircraft type, by retiring and replacing them except in
the case of newer aircraft for which retrofit makes sense.
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There are 2,148 jet aircraft in the U.S. commercial fleet today.
Of these, 77 percent, or 1,654 planes, exceed FAR 36 standards.
These consist of approximately 500 1960-vintage four-engine air-
craft, 1,100 more recent two- and three-engine aircraft, and 50
early 747's. Relatively few of the noisy aircraft are found in
the fleets of the all-cargo and supplemental carriers. The
majority are owned by the trunk carriers; four trunks--American,
Pan Am, TWA, and United--account for nearly two-thirds.
If all 1,654 noisy aircraft were retrofitted, the cost in today's
dollars would range from approximately $870 million to $1.6
billion:
-- $255 million for the 1,100 two- and three-engine aircraft
(at an average cost of over $200,000 per aircraft).
-- From $600 million to $1.3 billion for the approximately 500
four-engines (not including the 747's). The cost of these
kits--which have not yet been developed--is estimated to
range from $1.2 million to $4.5 million, depending on certain
assumptions, the most important of which is the number of
aircraft to be retrofitted. A reasonable estimate, assuming
all four-engines were retrofitted, would be from $1.2 million
to $2.5 million per aircraft. The higher unit cost, as com-
pared to the two- and three-engine retrofit, is a function
of the greater difficulty of retrofitting these planes, the
larger number of engines, and the smaller numbers of planes
involved.
-- The 50 747's would cost approximately $13 million to retrofit.
Retrofit is conceded to increase operating costs for most narrow-
bodied four-engine aircraft, and it is expected the airlines
will choose to replace rather than retrofit these aircraft.
The kits are expensive and would add nothing to the useful
life of the planes. The airlines have indicated it would be
economically preferable to replace almost all with a quieter,
more efficient aircraft, if one were available, contingent
upon obtaining the necessary financing.
Not all the four-engine aircraft in the fleet today will be in
the fleet at the end of 1984. But not all will have been retired
either. Between now and then, it is expected that the airlines
will purchase on the order of 700 additional aircraft* to meet
* Projecting the composition of individual carrier fleets and the total U.S.
fleet 8 years into the future is a difficult, complicated exercise, requir-
ing considerable amounts of judgment as to carrier decisions, as well as
quantitative data. The figures included in this paper are preliminary
and may be revised; however, the relationships and the ranges are firmly
established and can be used with reasonable confidence.
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anticipated traffic growth and to replace worn out, uneconomic
aircraft (additional requirements resulting from Federal noise
reduction policies not included). Several points central to
the program should be noted here:
-- The airlines are not expected to need a significant number
of new aircraft before 1980 or 1981. Existing aircraft,
combined with orders currently on the books and supplemented
only slightly by additional purchases, should handle pro-
jected traffic increases until then. In addition, because
of their poor financial condition, some carriers will find
it difficult to obtain financing for new equipment. For
this and other reasons, the carriers can be expected to post-
pone replacement orders until they become absolutely necessary.
-- On the other hand, to meet the 1984 noise regulation with a
new technology aircraft, the airlines would have to place
firm orders for such aircraft in the next 12 to 18 months.
Thus. there is a gap of from 2 to 3 vears between the invest-
ment decision the airlines would make in the normal course
of events-absent a noise regulation--and the accelerated
decision they must make to comply with the noise reduction
program.
-- Many of the noisy four-engine aircraft currently in the
fleet will be retired under the airlines' anticipated
schedule. But more than half--between 275 and 350--are
expected to be still in the fleet by the end of 1984 (as
cargo and charter aircraft, if not in passenger scheduled
service). Most of these planes are, or soon will be, fully
depreciated. However, the expense of retrofitting them, with
kits ranging from $1.2 million to $4.5 million, would make
continued operation in most cases uneconomic.
The cost of a realistic and economic program to meet the noise
reduction requirement by 1984 has been estimated as follows:
-- $400 to $450 million (in 1976 dollars) for retrofit of approx-
imately 950 two- and three-engine aircraft, 50 747's, and
approximately 75 four-engines that may be economical to
retrofit.
-- From $4.0 to $5.5 billion (in 1976 dollars) for accelerated
replacement of the other 200 to 275 noisy four-engines
expected to be in the fleet after 1984.
-- If the airlines choose to retrofit none of the narrow-
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bodied four-engine aircraft then the cost of replacement
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increases to a range of from $5.5 billion to $7 billion
(in 1976 dollars).
B. The Financial Situation of the Trunk Airline Industry* (Detail
in Appendix A).
Although the national interest quite clearly compels a noise
reduction program, the financial condition of the trunk airline
industry, and in particular of certain companies within the
industry, calls into serious doubt the industry's ability to
finance such a program through conventional means.
In the normal course of events, the airline industry will have
to raise on the order of $25 billion to $30 billion (in inflated
dollars) between now and 1985 in order to purchase an estimated
700 new aircraft that will be made necessary by traffic growth
and obsolescence of existing aircraft, to repay debt, and for
other miscellaneous capital expenditures.
As is well known, the air carriers have had almost 10 years of
very lean earnings (since 1967 an average pre-tax profit margin
of 2.5 percent and ROI of 5.7 percent). There seems little
doubt that for the last year or so (principally as a result of
the 1974-75 economic recession combined with rapidly escalating
costs) the industry's collective ability to finance any major
capital acquisitions has been at an extreme low point, both in
terms of its own history and as compared to other industries.
Fortunately, the resurging economy is bringing the industry out
of its doldrums and positive earnings are in sight for the next
several years. The size of the existing fleet, with the addition
of current orders, is sufficient to make the need for new air-
craft investments relatively low through the period from 1976
to 1979. By the time substantial new aircraft capacity is needed,
it seems likely that the industry will have redeveloped adequate
financial strength to fund it. (This assumes no extraordinary
financing needs and the help of regulatory reform.)
However, the realistic noise reduction program would add $5.6 to
$7.7 billion (in inflated dollars) to the industry's capital
requirement, which clearly constitutes an extraordinary financing
* The focus of attention in this paper is on the financial condition of the
trunk air carrier industry because the majority of the noisy aircraft,
and virtually all of the noisy four-engine aircraft which should be
replaced, are concentrated therein. Any financing options considered by
either the industry or the government must of course take into account
the fact that there are noisy aircraft owned by companies outside the
trunk airline industry.
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need.* Capital needs would increase by 19 to 31 percent, from
which the airlines would derive no direct traffic or revenue
increases, and only slight capacity increases. An incremental
requirement of this magnitude is beyond the near-term ability
of the industry to finance in any normal fashion, since both
the debt and equity markets have been foreclosed effectively
for several years.
Yet, to obtain delivery of new generation aircraft in time to
comply with the regulation by 1984, the airline industry would
have to accelerate its replacement schedule and make firm purchase
commitments within the next 12 to 18 months. The industry very
simply is not in adequate financial condition to make such
commitments. It will begin to do so eventually, but too late to
obtain the economically and environmentally efficient aircraft
desired for the noise reduction program, to generate the jobs
needed now in the aerospace industry, and to counter the com-
petitive threat of new-technology foreign aircraft. ***
Compounding the problem greatly is the financial condition of
certain individual carriers within the industry. The use of
aggregate data to analyze the ability of an industry to meet a
specific financial need is often misleading. Individual
companies, possessing a specialized knowledge of their own
situation, can find ways around financial barriers that seem
insurmountable to the industry analyst. In this case, however,
the reverse is true. Several of the financially weakest
carriers in the industry are also the owners of large numbers of
* Assumes the combination of replacement and retrofit discussed earlier,
with a 5 percent annual inflation rate and using 1982 prices. Excludes
those four-engine aircraft possessed by other than the trunk airlines.
**In hearings on the Aviation Act, the heads of several banks and insurance
companies, the industry's traditional institutional lenders, testified
that they did not anticipate making further loans to any carriers, and
advised that capital formation was, and would continue to be, a critical
problem for the industry.
***An additional consideration is the potential impact of some approaches
that have been proposed for dealing with the industry's re-equipment
problem. Frank Borman, the CEO of Eastern Airlines, has recommended,
for example, that the industry conduct a design competition, select a
single new aircraft, and then agree to purchase that aircraft only.
The consequences of such an approach for the competitive structure of
the aerospace industry are serious.
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noisy aircraft, and will face some of the largest requirements
for funds with which to replace those aircraft.
TWA, for example, has had an extremely difficult time remaining
solvent over the past year and a half. In fact, having asked
for and been refused Federal subsidy, it has avoided bankruptcy
only through extraordinary efforts on the part of management and
acquiescence on the part of its lenders. TWA's problems will not
vanish overnight. Even though it will approach breakeven in 1976,
and should see a return to profitability in 1977, the company is
a few years away from being an effective competitor for funds in
the capital marketplace.* Yet by 1985, TWA probably will require
from $2 to $3 billion in capital (in inflated dollars) merely
to stay competitive and remain in business. The added cost of
achieving noise reduction goals (that is, of replacing before
1985 those aircraft that would otherwise remain in its fleet)
could increase TWA's capital needs by as much as $1.5 to 2.0
billion (in inflated dollars) between now and then. Present
projections say it is highly unlikely that TWA could finance
independently such a tremendously increased capital requirement.
Two of the other carriers strongly impacted by the noise regulation,
Pan Am and American, also have had financial difficulties recently
and would face similar problems in financing the purchase of
replacement aircraft. Pan Am's capital requirements in the 1976
to 1984 period could increase on the order of $1 billion (from
around $2 billion to as much as $3 billion), as would American's
(from around $3 billion to around $4 billion).
C. The Need for a New-Generation Aircraft (Detail in Appendix B):
No major new aircraft has been developed in the United States
for almost 10 years. In that time important design and techno-
logical advances have been made -- many specifically to meet the
new economic, operating, and environmental constraints dictated
by rising labor costs, energy shortages, and changing market
demands.
* TWA's recent announcement that it plans to sell 2 million shares of
common stock should not be construed as a sign of ability to compete in
the capital marketplace. The company quite clearly has been forced into
the sale by financial exigencies and as a result will suffer a serious
dilution to its equity base. The shares will sell at a current market
price of around $13 as compared to a book value of $21. Something like
15 percent of the company will thus be sold for approximately $25 million,
or the price of one 747.
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Although the technology exists, the present inability of the U.S.
airline industry to finance a new generation of aircraft prevents
the manufacturers from moving beyond the design stage. It is
clearly in the national interest, however, and in the interest of
the air traveler and the airline industry, to take advantage of
of such gains:
-- Greater noise reduction: A new technology aircraft would
sound about three times quieter than a nonretrofitted 707,
and twice as quiet as a retrofitted 707.
-- Greater fuel efficiency: In the period from 1981 (when the
first new-technology aircraft would be introduced under the
accelerated-replacement program) until 1986 (when all new-
technology replacement aircraft would be delivered) the
total savings in jet fuel is estimated to amount to about
2.5 billion gallons.
-- Productivity: Measured against existing aircraft, a new-
technology aircraft would offer greater payload for its
size and weight, would be more reliable and more easily
maintained, and would cost less to operate and less to
acquire per unit of productivity.
D. The Declining Prospects of the U.S. Aerospace Industry (Detail
in Appendix B).
The United States achieved its prominence in the world aerospace
market because of its technical superiority; most important civil
aviation advances historically have been-made in U.S. products.
But lack of orders for a new plane has virtually stalled technical
development since the widebody jets were introduced. Newer foreign
aircraft such as the A-300-B show the potential for meeting certain
market demands which current U.S. products cannot (i.e. efficient
operation over short-medium range routes). This, combined with
declines in U.S. Government outlays for aircraft and engines,
has already had serious consequences for U.S. airframe and engine
manufacturers, a major source of employment and export sales.
Since 1968:
-- Real industry sales have declined 37 percent.
-- Employment has declined 37 percent.
-- Aerospace exports as a percent of GNP have declined 42 percent.
-- Each $30 million lost in sales translates into a loss of
1,000 full time jobs and $15.5 million in payroll.
8 . &
While the U.S. industry shrinks in real terms, foreign aerospace
manufacturers -- spurred by Government subsidy -- are growing larger,
more capable technologically, and more agressive. It is conceded
that the U.S. cannot continue to hold its present 80 percent market
share (of world civil aircraft in operation). The question of how
large a share European and other foreign manufacturers take will
depend in part on how long U.S. production of a new aircraft is
delayed. A 2- to 3-year acceleration of the present timetable could
be very important in that it would allow U.S. manufacturers to pro-
duce a new generation of planes when U.S. airlines will need them
and when new foreign products will be on the market.
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THE WHITE HOUSE
WASHINGTON
July 16, 1976
MEMORANDUM FOR:
JIM CANNON
FROM:
JUDITH RICHARDS HOPE
JEM
SUBJECT:
Secretary Coleman's Aircraft Noise Proposal
The "Noise" proposal dated July 2 (and containing revisions
of July 9), is a revision of Bill Coleman's draft proposal
submitted in early June. This draft was outlined by you for
the President on June 9; a copy of your memorandum is attached
at Tab A.
After OMB inter-agency staffing, Paul O'Neill asked Bill
Coleman to address two additional issues: (1) How this
policy comports with his Concorde SST decision; (2) The
inflationary impact of the plan.
I had some serious questions about the proposal, which are
included in my memorandum to DOT Deputy General Counsel, Don
Bliss, attached at Tab B.
The current proposal is basically the same as the draft
proposal except that the Airport Trust Fund is tapped for
noise retrofit of two and three engine aircraft.
The basic pros on this policy are:
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-- Positive action on the noise problem;
-- Revitalization of the aircraft industry with "found
dollars" (with over $1 billion in the Airport Trust
Fund, Coleman predicts that Congress will move to cut
the air ticket tax by 2%; therefore, we could propose
the cut and simultaneously allow a 2% surcharge directed
to solving the noise problem by replacement or retrofit)
-- Creation of tens of thousands of jobs, especially in
the aircraft manufacturing states;
--
Strengthening our aircraft industry, 2nd most important
factor in our international balance of payments picture,
needed in light of increased competition from France
and Germany.
2
The basic cons on this policy are:
--
The proposed financing, administered by an Air
Transport Association pool, would require some
kind of exemption from the anti-trust laws. Such
an exemption cuts against the philosophical grain
of our aviation regulatory reform proposals.
--
Once a 2% surcharge pool is set up, it is likely
to go on forever, providing a permanent federal
government subsidy to aviation.
--
The proposal would not have an impact on noise
until 1982-85.
--
The DOT statistics are shaky on whether even, if
no Federal action were taken, the noise problem
would be significantly improved by airlines'
normal replacement of older (noisier) aircraft.
--
The proposed policy financially benefits Pan-Am
and TWA more than other carriers, yet they are not
subject to many of EPA's noise standards since
their flights operate mostly overseas.
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A
A
Extra
THE WHITE HOUSE
WASHINGTON
June 9, 1976
MEMORANDUM FOR THE PRESIDENT
FROM:
JAMES M. CANNON
SUBJECT:
Secretary Coleman's Aviation Noise Policy
Because of substantial public and Congressional pressure
for federal action to reduce aircraft noise, Secretary
Coleman has personally conducted a series of meetings with
concerned groups and prepared an Aviation Noise Policy that
establishes a limited federal role while emphasizing the
primary local responsibility of airport owners and local
governments in controlling aircraft noise in communities
surrounding airports.
The Problem
Airport noise is a serious problem at several of the major
airports in the country (Los Angeles, New York, Boston),
and a serious annoyance for 6 to 7 million Americans. The
problem is compounded because of a number of damage suits
against airports by residents in the surrounding areas and
also by the fact that airport operators are beginning to
impose restrictions on the use of airports (curfews, jet
FORD LIBRARY is 078839
bans) which may disrupt the interstate flow of air travel,
interfere with federal safety and air traffic control
responsibilities, and pose an undue burden on interstate
commerce. Secretary Coleman promised members of Congress
and the public that he will announce a policy that addresses
these issues in June. (Complete cooperation among Executive
Branch agencies will be required to enable the Secretary to
meet his June 21 deadline. Secretary Coleman would appreciate
your support in meeting this deadline. He recognizes that
additional modifications to the policy may well be necessary
and DOT staff stands ready to work closely with OMB in making
whatever improvements are needed.)
Background
77 percent of the airplanes flying in the United States today
do not meet existing federal noise standards because they
were manufactured before the effective date of those standards.
The industry will be flying some of these planes into the
1990's.
2
The Noise Policy proposes that most aircraft be required to
meet federal noise standards within 6 to 8 years after the
enactment of legislation that would authorize a user charge
to help pay for bringing the aircraft into compliance. There
are two ways the air carriers may meet this requirement: (a)
they can retrofit existing airplanes with sound absorbing
material or (b) they can replace existing airplanes with
newer aircraft.
For the newer airplanes, retrofit is the cheapest and most
reasonable. For the older 4-engine jets (B-707, DC-8)
replacement has many other advantages that are in the national
interest. These include:
- - A substantial boost to the economy of the
aerospace industry;
- - The development of new aviation technologies
for export; (the second most important contributor
to the U.S. balance of payments.)
- - More jobs - each billion dollars in aircarft
sales employs 32,000 people.
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- - Energy conservation - new planes would offer
20-30% improved fuel efficiency.
Financing - Coleman Recommendation
Since there is a suplus in the Airport Development Trust Fund
of more than $1 billion Secretary Coleman suggests that we propose
legislation to reduce the ticket tax by 2% (from 8 to 6%), thus
enabling air carriers to impose a surcharge -- without raising
overall fares significantly -- in order to raise revenues that
would be used for the replacement or retrofit of noisy aircraft.
This financing formula would have the additional benefit of
stimulating the aeronautical manufacturing industry and promoting
new aviation technologies. Although the precise financing
formula needs to be worked out with OMB, the Secretary's preferred
option would be to authorize the collection of a surcharge on the
ticket which would be managed by the air carriers with little
federal involvement.
If Coleman's recommendations are adopted without modification,
the total cost would be approximately $3.580 million, financed
almost exclusively by user charges.
B
subject
file
THE WHITE HOUSE
WASHINGTON
June 30, 1976
MEMORANDUM FOR:
DON BLISS
FROM:
JUDITH RICHARDS SRN
SUBJECT:
Proposed Aircraft Noise Policy:
Some Suggestions
SUMMARY
I think we need:
1. Better statistics on which to base our forecast of the
noise problem in the future.
2. To separate out the noise problem from the questions
of the desirability and need to revitalize our aerospace
industry, complete with the international implications,
the job creation potential, and the need to maintain this
industry as part of our national defense.
3. To conform our policy with the assumptions on which
the Aviation Act of 1975 is based (statistically and
philosophically).
FORD i LIBRARY GERALD
4. To consider an alternate method of financing whatever
we decide must be done, such as tax credits for environmental
purposes - plus a "jawbone" encouraging that the credits be
used to replace rather than retrofit.
5. To recognize that the ticket tax will - and should - be
cut, therefore, leadership in that area, (we recommend it)
again with a possible jawbone that reduced air fares yield
more traffic yield increase profits and, hopefully, kick off
the next round of aircraft purchases.
6. To consider a program which does not clobber the
previously efficient carriers, such as Delta, at the expense
of inefficient carriers, such as TWA - and which does not
grant the lions share of the funds available to two
international carriers, Pan Am and TWA, which carriers garage
most of there noisy fleet overseas, and, indeed, under the
present state of the proposal may not be required to meet the
noise standards in any event.
2
DISCUSSION
In accordance with our discussion yesterday, I call your
attention to a number of questions and concerns of mine.
1. The DOT/FAA/ATA Statistics on noisy aircraft which will
be operating ten years from now - about the time when the
proposed noise policy would, if adopted, begin to have a
substantial impact - may be misleading. Paul Ignatius'
testimony on the Hill in February would indicate that many
of the noisy aircraft will no longer be in service by 1985;
For example, he states at page 6 that airlines tend to retire
their planes prior to the end of the book life of the planes.
The Bowing-707's are now approximately ten years old. None
of them meet the FAR 36 standards but, their book life is
estimated to be between ten and fifteen years, mostly fourteen
to fifteen years. Thus, by 1985 they are likely to be phased
out in any case without any retrofit or help from the United
States government. Similar examples can be found throughout
Ignatius' testimony. A careful statistical analysis may
cause us to change our forecast on the noise problem. The
first suggestion, then, is that we should look at the numbers
again, carefully. However, even if we change our forecast as
to the degree of the noise problem ten years hence, I think
we must address the noise problem, for example by mandating
that all planes flying in 1985 or 1986 must meet FAR 36 (with
exceptions for international aviation.)
2. We can then address the question, separately, of whether
the Federal Government should finance or subsidize in any way
the meeting of this noise standard. It might be helpful to
look at tax incentives to industry to comply with environmental
laws. I believe, for example, that scrubbers on industry smoke
stacks have been granted accelerated depreciation status, although
this would have to be checked. It occurs to me that the proposed
pooling arrangement, which requires an exemption from the anti-
trust laws and also seems to be an unprecedented governmental
assist to the airline industry (while we have given no such
assistance, for example, to the auto industry in meeting ever
tightening emission standards) is cause for great concern.
Instead could we propose that the Treasury reverse its recent
decision that aircraft should be written off over twelve,
rather than six, years and write the change in such a way that
accelerated depreciation would be given only (a) to those
planes purchased to replace noisy planes; (b) to the retrofit
used to quiet noisy planes; and/or (c) require that those
3
companies choosing to replace rather then retrofit be allowed
to accelerate depreciation only on those planes which replace
noisy planes actually retired. (This limitation might help
to avoid the traditional plague of the airline industry, excess
capacity.) Moreover, we could state at the time of announcing
this financing proposal that we hoped thereby to stimulate the
aircraft industry and urge airline companies to consider
seriously buying new equipment rather then retrofiting old
equipment.
3. If, as most people believe, the ticket tax is going to,
and should, be decreased anyway, I think the Administration should
propose this decrease and submit legislation decreasing it
by two or three percent. This legislation could be accompanied
by a statement that we hope thereby to assist the air consumer
in obtaining lower fares, and to assist an essentially elastic
industry to increase business, hence capital, which can be used
to purchase badly needed new equipment.
I think it is troublesome to tie a two percent tax reduction to
a two percent surcharge for noise - when much of the pool created
by such a surcharge would be used to replace aircraft rather than
simply solve the noise problem.
CC: Art Quern
Paul O'Neill
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Extra
THE WHITE HOUSE
WASHINGTON
July 16, 1976
MEMORANDUM FOR:
JIM CANNON
FROM:
JUDITH RICHARDS HOPE
SUBJECT:
Secretary Coleman's Aircraft Noise Proposal
The "Noise" proposal dated July 2 (and containing revisions
of July 9), is a revision of Bill Coleman S draft proposal
submitted in early June. This draft was outlined by you for
the President on June 9; a copy of your memorandum is attached
at Tab A.
After OMB inter-agency staffing, Paul O'Neill asked Bill
Coleman to address two additional issues: (1) How this
policy comports with his Concorde SST decision; (2) The
inflationary impact of the plan.
I had some serious questions about the proposal, which are
included in my memorandum to DOT Deputy General Counsel, Don
Bliss, attached at Tab B.
The current proposal is basically the same as the draft
proposal except that the Airport Trust Fund is tapped for
noise retrofit of two and three engine aircraft.
The basic pros on this policy are:
-- Positive action on the noise problem;
ERALD FORD LIBRARY
-- Revitalization of the aircraft industry with "found
dollars" (with over $1 billion in the Airport Trust
Fund, Coleman predicts that Congress will move to cut
the air ticket tax by 2%; therefore, we could propose
the cut and simultaneously allow a 2% surcharge directed
to solving the noise problem by replacement or retrofit)
--
Creation of tens of thousands of jobs, especially in
the aircraft manufacturing states;
--
Strengthening our aircraft industry, 2nd most important
factor in our international balance of payments picture,
needed in light of increased competition from France
and Germany.