Transportation policy issues played an important role in the recent United States presidential election. Amongst the often contentious and vitriolic debate, improving and modernising the transportation infrastructure of the United States was one area upon which the candidates, and most Americans, agreed.
Newly sworn-in President Donald Trump has called for a considerable transportation infrastructure initiative, indicating a particular interest in improving aviation infrastructure. While airport and air traffic control modernisation may be the early aviation focus of the Trump Administration, there are several other aviation issues which will need to be addressed.
President Trump signalled the importance he places on transportation issues by naming the experienced Elaine Chao as his nominee for Secretary of Transportation. Ms Chao served as head of the Federal Maritime Commission under President Ronald Reagan, as a deputy transportation secretary under President George H. W. Bush and as Secretary of Labour under President George W. Bush. Ms Chao is also married to Senate Majority Leader Mitch McConnell (a Republican Senator from Kentucky). Ms Chao's experience and familiarity with Capitol Hill may serve to smooth the inevitably difficult congressional transportation budget negotiations.
For the time being, it appears that Michael Huerta will continue in his role as Administrator of the Federal Aviation Administration ("FAA") and serve out his five-year term which is due to expire in January 2018. This will provide some consistency at a time when the FAA is undertaking many important initiatives, including the implementation and enforcement of new rules applying to the operation of unmanned aircraft systems.
It is worth recalling that President Trump has personal experience of the airline business; through his ownership of the Trump Shuttle some years ago.
Looking ahead, there are several areas in which the Trump Administration may have a significant impact on aviation issues.
President Trump has proposed a USD$1 trillion spending initiative on transportation infrastructure over the next decade; specifically highlighting the need for improved airports and the long-overdue modernisation of the US air traffic control system.
Airport infrastructure in the US is badly in need of investment. Anyone who has flown into major international and domestic hubs in the US, such as LaGuardia or JFK in New York, O'Hare in Chicago or Dulles serving Washington, DC, recognises that these airports are overdue for improvement. This is particularly so in light of international airports competing with US airports for travel and trade business, such as Dubai International or Changi Singapore, which have surpassed the major US airports in terms of capacity and quality.
A major part of the proposed initiative promises to be changes to the US air traffic control system; however, what those changes may be is yet to be fully determined. Foremost will be efforts to finally provide the FAA with the funding and support needed to migrate to the satellitebased NextGen air traffic control system. This important modernisation of the antiquated national air traffic control system has long been held up over disputes regarding proposals to privatise or create a government-owned corporation to oversee the system. These proposals have met with a varying degree of support from aviation industry interests, but are strongly opposed by labour groups.
Of course, the overall price tag of this enormous initiative will be hotly debated in Congress. Congressional leaders and budget hawks will be very hesitant to add this cost to the Federal deficit; likewise, any proposed transportation (or general) tax increases will not be greeted favourably. Based upon these concerns, funding mechanisms such as public-private partnerships and private investments in return for tax incentives have been put forward. However, similar programs have historically met with little interest or success. Therefore, at this time, it is unclear how (or if) President Trump's proposed initiative may be paid for.
During the campaign, President Trump signalled that he would seek to withdraw from or renegotiate international trade agreements entered into by the US by his predecessors. On his first full day in office he carried through on this promise by Executive Order, pulling the US out of the world's biggest trade deal, the Trans-Pacific Partnership. He has also indicated an interest in scrapping NAFTA and certain WTO agreements.
While the stated goal for attacking these trade agreements is the preservation and eventual re-growth of manufacturing jobs in the US, from an aviation industry perspective there are concerns that this may have the opposite effect. As international industries by their very nature, aviation manufacturing, transportation and cargo delivery rely on the free movement of goods. A strict protectionist trade policy may see aircraft orders decrease and parts supply chain issues increase for companies such as Boeing or Lockheed Martin, decreased airline traffic between certain regions for carriers such as Delta and United and decreased delivery opportunities for companies such as UPS and Federal Express along with potential corresponding job losses within each sector.
It is yet to be seen how far the Trump Administration is looking to go in this regard. For instance, President Trump has indicated his dissatisfaction with major US aircraft manufacturers for the size of their defence contracts, and specifically called out Boeing's contract for delivery of future versions of Air Force One; however he has since met with representatives from these companies to negotiate proposed cuts in corporate tax rates and efforts to maintain manufacturing facilities in the US. These discussions may open the door to ensuring that aviation industries in the US are not significantly impacted by further protectionist policies.
Open Skies agreements
The US is a party to more than 100 Open Skies agreements which have resulted in greater competition, lower airfares and increased routes to hundreds of international destinations. For the most part, US airlines have supported Open Skies agreements as they provide rights to serve many key international destinations as often as they wish. However, the Big Three US carriers Delta, United and American have sought Executive action against the Gulf carriers Emirates, Etihad and Qatar arguing the Gulf carriers have significantly increased their US operations in violation of the terms of the relevant Open Skies agreements.
Specifically, it is alleged that the Gulf carriers have improperly received subsidies from their governments that put US domestic carriers at an unfair disadvantage.
Many US aviation interests do not agree with the Big Three on this issue; particularly airport interests who see increased passenger numbers, smaller carriers who gain open access to increased route opportunities and cargo companies who take advantage of Open Skies agreements to more efficiently operate their global delivery services.
The Obama Administration resisted calls from the Big Three to temporarily ban the Gulf carriers from adding new US routes, allowed loan guarantees through the ExportImport Bank for the purchase of Boeing aircraft by the Gulf carriers and did not engage in official consultations with the governments of Qatar and the United Arab Emirates to discuss unfair trading practices.
Given the Trump Administration's more protectionist leanings, the Big Three may receive a more sympathetic reception to their subsidy dispute with the Gulf carriers.
Sanctions in place against several nations greatly impact the aviation industry. These sanctions restrict the ability of aircraft manufacturers to sell their products to the subject nations and prevent air carriers from establishing potentially profitable routes to these countries. Further, the sanctions place broad general restrictions on individuals and companies from doing business with these countries; and likewise place financial and travel restrictions on individual and corporate nationals of the subject nations.
During the election, much was made of reports of supposed close relations between President Trump and Russian interests. Regardless of the veracity of these reports, all indications are that the US and Russia will have much closer relations under the Trump Administration than any other recent administration. What this means in terms of the international sanctions in place against Russia is yet to be seen; however, any softening of the sanctions regime will benefit the aviation sector, with increased aircraft orders and airline passenger and cargo traffic being likely consequences. Further, Russia has long been recognised as a major region for the business jet sector, which could see significant benefits from any relaxation of sanctions.
President Trump has indicated his concerns with the ground-breaking nuclear agreement reached between the Obama Administration and Iran which, among other things, opened diplomatic channels between the two countries and relaxed sanctions that have been in place since 1979. The relaxed trade restrictions permitted the Treasury Department to grant a license to Boeing to sell 80 aircraft to Iran's national carrier, Iran Air - which is estimated to amount to a USD$16 billion deal.
President Trump has stated that he considers the nuclear agreement to be "the worst deal ever made", however, given the support it enjoys in the international community it may prove a difficult agreement from which to withdraw. It will be interesting to see in which direction the Trump Administration chooses to go forward.
During the election, President Trump warned that he is prepared to roll back the Obama Administration's opening of diplomatic relations with Cuba that many see as a gradual and inevitable normalisation of relations. In response to these efforts, and in anticipation of eventual full freedom of movement between the neighbouring countries, US carriers have begun regularly scheduled commercial flights to Havana. Obviously, should President Trump choose to revert to the formerly icy relationship between the two countries, these aviation opportunities would be curtailed.
While on the campaign trail, President Trump repeatedly indicated that he believes climate change to be a `hoax' and that he would "cancel" the Paris climate change agreement.
An early indicator of President Trump's stance on climate change will come with the anticipated implementation of aviation emission rules. In October 2016, the general assembly of the International Civil Aviation Organization ("ICAO") adopted standards for new aircraft designs to take effect in 2020. This measure was supported by the US and dozens of other countries and requires a minimum level of jet engine fuel efficiency. Federal authorities must now write these standards into law; however, the Trump Administration may choose to delay their enactment.
President Trump will be under some pressure from US aircraft manufacturers who supported these measures and fear that failure to adopt these standards would create uncertainty as to their ability to sell their aircraft overseas in countries which adopt the new rules. Further, powerful lobbying interests such as the National Association of Manufacturers have already called upon the Trump Administration to commit to the ICAO standards in order to maintain a level playing field among international aircraft manufacturers.
Other key policy areas for the Trump Administration are immigration and national security, which the Trump Administration sees as going hand in hand. This was dramatically brought into focus by President Trump's controversial Executive Order halting all refugee admissions into the US and temporarily barring people from seven Muslim-majority countries from entering the US. This move had the immediate effect of creating worldwide travel chaos for passengers and confusion for international airport security authorities, airports and air carriers; entities the Trump Administration then held responsible for the disorder. At the time this bulletin goes to print, it is unclear what long term impacts this decision, and the global reaction to it, may have on aviation interests, both domestically and internationally. What is clear from this decision and its fallout is that a significant increase in funding for aviation security and border controls at airports is a likely component of a first Trump budget.
Further, there will be a probable review and/or restructuring of the Transportation Safety Administration ("TSA"); moves which may be welcomed by officials on both sides of the political aisle. Following its creation by the George W. Bush Administration in the wake of the September 11th terrorist attacks, the TSA quickly developed and maintained a reputation for being overly bureaucratic, mismanaged, arbitrary and ineffective. As a result, President Trump may put forward proposals to address these shortcomings in either a national security initiative or as part of his interest in overhauling the federal employee system.