• Told FAA fees down $75m from first forecast

• Expenses shrunk 30% in ‘cost recovery’ plan

• Local regulator defended strategy to the US

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ plan to generate $176m from the first five years of its new overflight fees regime was defended to US aviation regulators as “just and equitable for all air space users”.

The Civil Aviation Authority of The Bahamas (CAAB), rejecting the Federal Aviation Administration’s (FAA) concerns, told its US counterpart in early 2021 that the fees were set at levels that would amount to a cost recovery scheme whereby this nation simply covered all expenses associated with building safety and oversight of its own sovereign air space.

It added that the $175.6m, which The Bahamas expected to collect over the five-year period through 2025, represented a near-$75m or almost 30 percent reduction on the initial $250m estimate after the charges were revised downwards during the 2020 second half.

And this decline, which lowered the Bahamian regulator’s average annual costs for the period from $50m to $35.1m, was almost entirely driven by the FAA’s own offer to waive the cost of air navigation services and accept a mere $80,000 fee per annum - an arrangement the two sides subsequently agreed upon,

This slashed the Bahamian civil aviation authority’s annual costs by some $18.1m, documents seen by Tribune Business disclose, driving a total expenses base shrinkage of some $14.9m or nearly 30 percent. As a result, The Bahamas was able to slash air traffic control (ATC) fees from the initially proposed maximum of $61 per 100 nautical miles to a high of $51.60 for planes transiting its air space and which do not land in this nation.

The CAAB’s projections, which were finalised post-COVID and adjusted for the pandemic-induced fall in air traffic, show overflight fee revenues rising from an initial $27.4m in 2021, when the levy was first introduced, to $31.3m in 2022 and a forecast $35.2m for this calendar year. As air traffic recovers, they are projected to further jump to $39m and $42.8m, respectively, in 2024 and 2025.

“The total expected revenues match the costs to recover ($175.6m),” the Bahamian regulator asserted, justifying the proposed fee structure in the face of growing US airline pressure even then. “Therefore, the CAAB’s charging scheme is cost-reflective and proposes a fair and equitable charging scheme for all air space users.”

That total was revised downwards from the initial $250m forecast made when The Bahamas issued its so-called “notice of intent” to implement the overflight fees scheme on August 31, 2020. The $176m figure was derived by the time The Bahamas unveiled its “notice of imposition”, confirming the levy would take effect, on December 22, 2020, following consultation with aviation stakeholders including the US airlines complaining so bitterly now.

The never-before-seen submission to the FAA, released as part of the Government’s bid to ensure US airline complaints against the overflight fee charges are dismissed, for the first time gives insight into how much The Bahamas expects to earn from its new revenue stream that will finance local aviation infrastructure and regulatory capacity.

It also discloses that international, and especially US, opposition and concern to the overflight fee regime has been building since at least 2020 when The Bahamas first gave notice that it planned to impose the charges. The latest dispute, which in a worst-case scenario could result in Bahamian-owned airlines such as Bahamasair and Western Air being barred, or severely “curtailed”, from flying to the US, is the latest phase in a long-running dispute.

The CAAB’s FAA submission also reveals that the latter’s agreement to cease charging air navigation services fees would slash the Bahamian regulator’s “external services provider costs” from $23.7m to $5.6m per annum. “The FAA’s waiver of air navigation services fees results in the $18.1m reduction of the CAAB’s annual operating costs from external service providers,” the document states.

“The update of the CAAB’s investment plan implies an extra annual cost of $3.2m [in] internal costs associated with further personnel, maintenance and utilities, cost of amortization and depreciation, and cost of capital. On average, the annual budget of the CAAB has been reduced by $14.9m thanks to the FAA’s waiver of air navigation services fees, which represents a 29.8 percent reduction of the CAAB’s annual budget.”

The Bahamian regulator is conservatively forecasting that the recovery of air traffic volumes to pre-COVID levels “is postponed to 2024-2025”, leading it to cut average annual estimates by 18.4 percent. However, it added: “Thanks to the FAA’s waiver of air navigation service fees, the combined effect of the reduction of the CAAB’s operating costs and the traffic figures is still positive.

“The ATC (air traffic control) fees in the notice of imposition are lower than in the notice of intent. Note that the FAA’s waiver of air navigation services fees has reduced the overflight fee by 15.5 percent. The rest of the fees have continued the same...... Since the cost to recover has reduced by 29.8 percent, the CAAB’s “building block” model outcomes that the revenue requirement is 29.8 percent lower.”

The Bahamian regulator said reduced post-COVID air traffic, combined with a more aggressive investment plan for building local aviation safety and oversight capacity, has slightly offset the savings from the FAA waiver. It added: “With the baseline traffic forecast and investment plan (notice of intent), the FAA’s waiver would allow reducing the overflight fee to $31.50 per 100 nautical miles.

“However, when considering the new traffic forecast, this figure increases to $45.10 per 100 nautical miles. Additionally, the cost of the FAA’s flight data provider implies a total fee of $45.30 per 100 nautical miles. Finally, the updated investment plan, which includes new features enhancing the safety and the continuity of the air navigation services system in The Bahamas, adds $6.30 per 100 nautical miles more to the overflight fee.

“Therefore, the total overflight fee amounts to $51.60 per 100 nautical miles. Note that the final figure is 15.5 percent lower than the fee published in the notice of intent.” The CAAB added that the FAA’s waiver would reduce its total costs by a combined $90.6m over the five-year period between 2021 and 2025, which is to be partially offset by a total $16.3m rise in its investment. Capital spending over the period is forecast to jump from an initial $14.1m to $33.3m.

“The total costs to recover have reduced by $74.4m (a 29.7 percent reduction) for the period 2021-2025 from the notice of intent to the notice of imposition. The CAAB’s fees are fully reflective of this discount,” the Bahamian regulator asserted.