Aviation Taxes and Charges

Aviation Taxes and Charges A comparison of the level of the taxation, subsidies and charges for aviation and for other transport modes in Germany, France and the United Kingdom. IATA ECONOMICS BRIEFING N O. 02

IATA Economics Briefing N o. 2: Aviation Taxes and Charges Mark Smyth Brian Pearce IATA Economics November 2005

Contents 00 01 02 03 04 05 06 07 Foreword by Giovanni Bisignani page 3 Executive Summary page 4 Introduction page 8 Germany page 10 France page 12 United Kingdom page 14 Changes in Aviation Taxes Since 1998 page 16 Conclusions page 18

00 Foreword The aviation industry creates substantial economic value. Governments already reap the benefits airlines provide to economies. We are a heavily taxed industry. We must ensure that unjustified new tax proposals do not add to this burden. Globally, airlines represent a US$400 billion industry that generates US$2.9 trillion in economic activity 1. However, while the value created by airlines provides significant benefits for passengers, businesses and governments, the airlines themselves remain severely constrained in their ability to turn value creation into better profitability. One of these constraints is taxation. We are already a heavily taxed industry, at an absolute level and in relation to other transport modes. Too often the airline industry is seen as an easy target for new taxation proposals. In the eyes of many governments, airlines - and our customers - offer a quick fix, revenue-raising option, without any consideration being given to the detrimental impact of these proposals on the industry and the value it creates. This report highlights the significant tax and user charge contribution the aviation industry makes. It is a contribution that is already too high, particularly at a time when airlines continue to be hit by high fuel prices. It focuses on three major European countries, though the story is similar in other parts of the world 2. The conclusion is clear; airlines and our customers already more than pay our fair share. We want to work with Governments to boost the long-term value created by our industry, not the short-term revenue needs of finance ministries. Giovanni Bisignani Director General & CEO, IATA 1 ATAG (2005) The Economic and Social Benefits of Air Transport, Geneva. 2 For example, the US Air Transport Association (ATA) estimates that taxes levied on aviation exceeded US$14 billion in 2004, corresponding to 25% of a typical airfare.

01 Executive Summary Contrary to the general perception, airlines are not under-taxed. The aviation industry is already highlytaxed relative to other transport modes. It is often asserted that airlines are under-taxed since, in most cases, they do not pay fuel duties or taxes on their international services. However, a true calculation of the net tax status of a transport mode must look at the financial contribution made towards the cost of infrastructure as well as the net tax payments (i.e. taxes minus subsidies) made to Governments.

01 - Aviation Taxes and Charges 5 This report shows that the aviation sector currently pays a significant amount in terms of both taxes and user charges. Indeed, airlines already pay in full - and more - for their associated infrastructure costs. By contrast, rail and urban transit networks are heavily subsidised. Road users do pay a higher total amount of tax, but typically make a lower net contribution than the aviation sector on a per journey basis. IATA commissioned Mott MacDonald - an independent transport consultancy - to analyse the taxes, subsidies and charges associated with each major transport mode. Mott MacDonald based their analysis on published figures provided by the European Commission's UNITE study 3. The results shown in this report focus on three large European countries - Germany, France and the United Kingdom - where the published data is both comprehensive and consistent. The results are based on 1998 figures, the year on which the UNITE study was focused. However, changes in aviation taxes and charges since 1998 are also noted. This shows that total payments have increased significantly in all three countries since then. A POSITIVE CONTRIBUTION FROM AVIATION Table 1 shows that the aviation industry makes a significant positive financial contribution - over and above the cost of associated infrastructure - in each of the three countries studied. The net contribution is expressed in terms of absolute value, per domestic or international passenger journey. The results show that aviation made a net contribution ranging from 4.60 in the UK to 8.40 in France for each air passenger journey. The net contribution value is calculated as: NET CONTRIBUTION Taxes Paid net of Subsidies Received User Charges net of Infrastructure Costs Net Contribution Made by the Aviation Industry [table1] GERMANY FRANCE UNITED KINGDOM million per annum 784 726 659 per journey 7.5 8.4 4.6 We estimate that aviation taxes and charges have increased significantly in each country between 1998 and 2003. In Germany, taxes have increased by 14% (an extra 53 million) while user charges have increased by 25% ( 706 million). In France, aviation taxes have increased by an estimated 14% ( 22 million) while user charges have increased by 27% ( 467 million). In the UK, air passenger duty receipts actually fell by 5% ( 46 million) but user charges have increased by a much higher 46% ( 497 million). The number of air passenger journeys has also increased in each country. However, even when expressed on a proportionate basis, the amount paid in taxes and charges has increased in Germany and France and remained the same in the UK. Infrastructure costs will also have risen between 1998 and 2003, reflecting higher investment in airport and air traffic control facilities. We do not have an accurate estimate for the rise in aviation infrastructure costs. However, for costs to have risen by more than payments would require additional aviation infrastructure investment of at least 1.9 billion per year in the three countries. 3 The Unification of accounts and marginal costs for Transport Efficiency (UNITE) study, produced for DG TREN, European Commission by the Institute of Transport Studies, University of Leeds, UK.

[Box 1] THE ECONOMIC AND SOCIAL BENEFITS OF AIR TRANSPORT Environmental and Social costs are often cited by Governments and pressure groups as a justification for higher taxation on air transport. However, recent research demonstrates not only the significant progress the aviation industry is making towards reducing environmental costs, but also the significant positive economic and social benefits it provides: Aircrafts entering today's fleets are 70% more fuel-efficient than they were 40 years ago. Carbon monoxide emissions have been reduced by 50%, while unburned hydrocarbon and smoke have been cut by 90%. The next generation aircraft (A380 & B787) are targeting a fuel efficiency of 78 passenger miles per US gallon, which exceeds the efficiency of any modern compact car on the market Aircraft entering today's fleets are 20 decibels quieter than comparable aircraft 40 years ago. This corresponds to a reduction of noise annoyance of 75%. Air transport provides the only worldwide transportation network, which makes it essential for global business and tourism. It plays a vital role in facilitating economic growth, particularly in developing countries. Aviation contributes to sustainable development. By facilitating tourism and trade, it generates economic growth, provides jobs, increases revenues from general taxation and fosters the conservation of protected areas through eco-tourism. Aviation's global economic impact (direct, indirect, induced and catalytic) is estimated at US$2,960 billion. It generates a total of 29 million jobs globally. Higher taxation for the aviation industry negatively impacts upon the wider economic impact the industry makes. It also places financial constraints on the significant progress that is being made by the industry, through fleet renewal, in reducing its environmental impact. Source: Air Transport Action Group (ATAG)

01 - Aviation Taxes and Charges 7 AVIATION MAKES A HIGHER NET CONTRIBUTION THAN OTHER MODES The UNITE study enables us to compare the net contribution of the aviation sector with that made by other transport modes (except maritime, where the available data is less comprehensive). The results are shown in Table 2. Aviation makes the highest net contribution of all modes when expressed in terms of passenger journeys. Airlines not only more than "pay their way" in terms of their tax and user charge payments, they do so on a higher proportionate basis than the other transport modes. Road users (including buses) make a significant positive net contribution in absolute terms, even after infrastructure costs are taken into account. Road users make a higher total contribution than other transport users, but this contribution is also spread more widely than other modes among a significantly higher number of journeys made. Rail and light rail (urban transit) networks are heavily subsidised. In addition to operational or fare subsidies, these modes also typically fail to cover their infrastructure costs through the user or access charges they pay. In addition, the subsidy for the UK rail system has increased significantly since 1998 following the change in infrastructure ownership from Railtrack to Network Rail, a company backed by Government financial guarantees. Net Contribution of Transport Modes [table2] million per annum GERMANY per journey million per annum FRANCE per journey UNITED KINGDOM million per annum per journey Aviation 784 7.5 726 8.4 659 4.6 Aviation Road (+buses) 15,540 0.2 21,507 0.3-0.4 31,255 0.5 Road (+buses) Rail -12,048-6.2-6,179-7.4-2,146-2.4 Rail Light Rail -3,689-0.5-5,154 n/a -2,175-2.3 Light Rail KEY CONCLUSIONS The aviation industry is already highly-taxed relative to other transport modes. It is often asserted that airlines are under-taxed since, in most cases, they do not pay fuel duties or taxes on their international services. However, this misses the point. A true assessment must also take account of the contribution made by each transport mode towards the cost of investing in and maintaining its infrastructure. The inability of a transport mode to meet the cost of its infrastructure typically translates into a financial liability for the public sector. In the three countries studied in this report, the aviation sector more than pays for its infrastructure costs through taxes and charges. It also makes a higher net contribution, on a proportional basis, than other major transport modes. By contrast, rail and urban transit systems are heavily subsidised. The key results are based on 1998 data. However, if anything, the results have been further enhanced in recent years. Airline taxes and user charges have increased significantly since 1998, while rail receives an even higher subsidy in the UK and remains highly subsidised in Germany and France. A calculation of the different social and environmental impacts, often cited as justification for the imposition of taxes and the provision of subsidies, is beyond the scope of this report. However, Box 1 (opposite) discusses the significant progress being made by the aviation industry towards reducing these impacts, along with the substantial positive externalities that are also generated by the industry. These positive externalities arise because air and other transport networks are vital infrastructure assets, connecting many industries within the national economy and to the wider global economy.

02 Introduction This report assesses the financial contribution made by different transport modes in net payments through taxes and infrastructure related charges. IATA commissioned Mott MacDonald - an independent UK-based consultancy firm - to undertake an analysis of the net financial contribution made by each of the major transport modes. Mott MacDonald is a multi-disciplinary company, with offices worldwide and departments covering all the main transport modes. This report summarises the key results. It focuses on the results for Germany, France and the UK, where official published data was available on a comprehensive and consistent basis. DATA COLLECTION Mott MacDonald initially attempted to develop its analysis for several countries around the world, but it proved extremely difficult to obtain data in a consistent and reliable format. Instead, it focused on the data provided by a previous data collection study developed for the European Commission, the UNITE project. The UNIfication of accounts and marginal costs for Transport Efficiency (or UNITE) project was designed to support policy-makers in the setting of charges for transport infrastructure use. It was co-ordinated by the Institute of Transport Studies at the University of Leeds, UK and undertaken in conjunction with official representatives in each of the European countries it studied. The UNITE project provides data for several European Union countries, though provides particularly comprehensive data for Germany, France and the UK. The UNITE project provides disaggregated financial and traffic data for each of the major transport modes. This data is used to assess and compare the taxation and infrastructure charges for the different modes. The results shown in this report are for 1998, the year on which the UNITE study is focused. Mott MacDonald also used its transport sector expertise to provide reasonable estimates where gaps existed in the UNITE data. It is recognised that the analysis in this report, while based as far as possible on published data, is dependent on the accuracy and detail of this data and to the assumptions made in its interpretation.

02 - Aviation Taxes and Charges 9 SCOPE The analysis provides a high-level view of the specific taxes, subsidies and infrastructure-related costs and charges for each transport mode. These payments are made through several routes; involving Governments, public sector operators and private sector companies. Payments between two private sector firms (e.g. British Airways' airport usage charges to BAA plc) are included where they represent a contribution towards the cost of infrastructure that, in the absence of the payment, would need to be covered by the public sector. The calculations include taxes or charges levied on transport fares (e.g. the UK air passenger duty, VAT payments on rail fares) as well as those levied directly on the transport operators. Even if a tax is targeted at the user rather than the operator it still has a direct impact on the total cost of using the mode of transport and the total financial contribution it makes. The results do not include any corporate taxes paid by private sector transport operators (e.g. airlines, road haulage companies) or individual taxes paid by transport sector employees. In addition, it does not include the tax contributions associated with support industries (e.g. vehicle, aircraft or rolling-stock manufacturers). Such an analysis is both extremely difficult to collate and extraneous to the results presented in this report. A calculation of the social and environmental impacts of the different transport modes is beyond the scope of this report. No assessment has been made of level of pollution output made by the various modes of transport and the associated environmental cost, though Box 1 (page 7) notes the significant progress being made by the aviation industry towards reducing its environmental impact. The UNITE study does contain some estimates of the environmental and congestion costs of different transport modes, though also discusses the difficulties involved in making these estimates. METHODOLOGY The analysis uses the available data to calculate the net financial contribution made by each mode in terms of its net taxation burden and the charges it pays towards the cost of operating, maintaining and enhancing its infrastructure network. Specifically, the net contribution is calculated as follows: NET TAXATION NET CHARGES NET CONTRIBUTION Specific Transport Taxes Paid (e.g. excise duties) Financial Subsidies Received (both capital and fare subsidies) User Charges Paid (for access to and use of the infrastructure) Infrastructure Costs, including depreciation costs (net of capital subsidies received) NET TAXATION NET CHARGES The report uses the recognised ICAO definition for distinguishing between aviation user charges and taxes. User charges relate to payments that defray the costs of providing facilities and services for civil aviation while taxes are payments generally levied to raise general government revenues that are not wholly applied for aviation purposes. For example, in Germany VAT payments on domestic fares are classified as a tax, but the airport security levy on passengers is included within the user charges total. A similar distinction is used for the other modes. To enable a comparison between the modes, the net contribution is expressed in proportionate as well as absolute terms. The net contribution per journey divides the net contribution by the total number of passenger journeys made in 1998 (including, for aviation, international passenger journeys) 4. 4 A comparison can also be made on the basis of passenger kilometres. Aviation still makes the highest contribution per mode when expressed in terms of domestic passenger kilometres. Including international passenger kilometres would lower the proportional contribution made by aviation, but these kilometres are not directly attributable to the cost of infrastructure use in the domestic country.

03 Germany The UNITE study provides detailed information for Germany that was obtained from official sources, such as the German Ministry of Finance. Table 3 shows the components of the calculation of the net contribution made by each transport mode, based upon the following. AVIATION An estimated net contribution of 784 million. Aviation tax relates to a 16% VAT rate on domestic airfares. Usage Charges and Infrastructure Costs are consistent with the UNITE figures that include airport commercial activities and ground-handling costs 5. User charges include passenger charges, such as the airport security charge. ROAD (INCLUDING BUSES) An estimated net contribution of 15,540 million. The tax figures do not include an additional 'Eco Tax', which operates in conjunction with the Fuel Excise Tax, which was not introduced until 1999. User charges relate to the vignette paid by HGVs. Infrastructure costs include investment and maintenance costs plus an estimated depreciation cost for the road network. RAIL An estimated net contribution of minus 12,048 million. User charges relate to the track and station access payments made to DB Netz. Infrastructure costs are shown net of the direct capital subsidy of 7.2 billion received by Deutsche Bahn, relating to the transfer of its ownership in 1994. This direct subsidy payment ceased in 2002. LIGHT RAIL An estimated net contribution of minus 3,689 million. Infrastructure costs relate to capital investment in urban transport systems. The concessionary fares subsidy includes some payments relating to bus journeys. 5 German aviation user charges are higher than in France and the U.K. because of the inclusion of commercial activities and ground-handling costs. These items are also included within the German infrastructure costs total.

03 - Aviation Taxes and Charges 11 The Calculation of Net Contribution by Transport Mode for Germany [table3] - million AVIATION ROAD RAIL LIGHT RAIL TAXES & SUBSIDIES Fuel Excise Tax Annual Circulation Tax VAT on Fuel/Fares Capital Subsidy Operational/Fare Subsidy TOTAL (A) INFRASTRUCTURE Infrastructure Usage Charge Terminus Usage Charge Infrastructure Costs Inf Costs Net of Capital Subsidy TOTAL (B) NET PAYMENTS (A+B) - 28,983 217 - - 7,757 - - 364 4,565 34 - - - (7,175) - - - (4,244) (1,622) 364 41,305 (11,168) (1,622) 787 411 3,873-3,121-693 - (3,488) (26,176) (12,621) (2,067) (3,488) (26,176) (5,446) (2,067) 420 (25,765) (880) (2,067) 784 15,540 (12,048) (3,689) Source: UNITE; Federal Statistical Office of Germany; IATA Table 4 shows expresses the net contribution made by each mode by journey. Aviation makes the highest net contribution on a proportionate basis, with a net payment of 7.50 per air passenger journey. Though road users make a significantly higher total contribution than other modes, this is spread across a significantly higher number of journeys. By contrast, Rail and Light Rail receive a net subsidy towards their infrastructure costs of 6.20 and 0.50 respectively per passenger journey. The Proportionate Net Contribution by Transport Mode in Germany [table4] DOMESTIC/INT L. JOURNEYS (million) NET PAYMENTS Passenger Total ( million) Per Journey ( ) AVIATION ROAD RAIL LIGHT RAIL 104 65,981 6 1,939 7,762 784 15,540 (12,048) (3,689) 7.5 0.2 (6.2) (0.5) Source: UNITE; Federal Statistical Office of Germany; IATA 6 This figure is for all road journeys in 2000, obtained from the Federal Statistical Office.

04 France The UNITE study provides detailed information for France that was obtained from official sources, such as the Comptes de Transport de la Nation. Table 5 shows the components of the calculation of the net contribution made by each transport mode, based upon: AVIATION An estimated net contribution of 726 million. Taxes relate to the 5.5% VAT rate on domestic fares. The Civil Aviation "Tax" is actually included separately as a user charge as it is levied by airports to meet their costs. User charges and Infrastructure costs exclude all airport commercial activities. Direct capital subsidies of 237 million to airports and other infrastructure providers are deducted from the gross infrastructure cost total. ROAD (INCLUDING BUSES) An estimated net contribution of 21,507 million. User charges relates to road tolls, axle charges and insurance premiums. Infrastructure costs include investment and maintenance costs plus an estimated depreciation cost for the road network. RAIL An estimated net contribution of minus 6,179 million. Infrastructure costs are shown net of the 2.8 billion direct capital subsidy and net of a maintenance cost of 2.6 billion that is funded through a separate subsidy via SNCF to RFF. LIGHT RAIL An estimated net contribution of minus 5,154 million. This includes suburban rail services in Paris and inter-urban coach services. Taxes relate to the "versement transport", which is levied on local firms, the revenue from which is dedicated to urban public transport. Infrastructure costs are shown net of the 679 million capital subsidy.

04 - Aviation Taxes and Charges 13 The Calculation of Net Contribution by Transport Mode for France [table5] - million AVIATION ROAD RAIL LIGHT RAIL TAXES & SUBSIDIES Ownership Tax Fuel Excise Tax VAT on Fuel/Fares Capital Subsidy Operational/Fare Subsidy TOTAL (A) INFRASTRUCTURE Infrastructure Usage Charge Terminus Usage Charge Civil Aviation Tax (BAAC/FIATA) Infrastructure Costs Inf Costs Net of Capital Subsidy TOTAL (B) NET PAYMENTS (A+B) - 4,983-544 - 18,720 35 377 154 16,146 280 429 (237) - (2,820) (679) (52) - (3,154) (3,975) (135) 39,849 (5,659) (3,304) 916 7,178 1,450 161 594 - - - 194 - - - (1,080) (25,520) (4,790) (2,690) (843) (25,520) (1,970) (2,011) 861 (18,342) (520) (1,850) 726 21,507 (6,179) (5,154) Source: UNITE; DGAC; IATA Table 6 shows expresses the net contribution made by each mode on a proportionate basis. Aviation makes the highest net contribution on a proportionate basis, with a net payment of 8.40 per passenger journey. Unfortunately, it has been difficult to obtain reliable passenger journey figures for the road and light-rail sectors. However, an estimate has been provided for the road sector based on the number of journeys observed in Germany and the UK. Rail receives a net subsidy towards its infrastructure costs of 7.40 per passenger journey. The Proportionate Net Contribution by Transport Mode in France [table6] AVIATION ROAD RAIL LIGHT RAIL DOMESTIC/INT L. JOURNEYS (million) NET PAYMENTS Passenger 87 60K-70K 7 833 n/a Total ( million) 726 21,507 (6,179) (5,154) Per Journey ( ) 8.4 0.3-0.4 (7.4) n/a Source: UNITE; DGAC; SNCF; IATA 7 Based on the figures for the UK and Germany, an estimate for the total number of journeys of between 60-70 billion is used.

05 United Kingdom The UNITE study provides detailed information for the UK that was obtained from official sources, such as the Department for Transport. Table 7 shows the components of the calculation of the net contribution made by each transport mode, based upon: AVIATION An estimated net contribution of 659 million. Aviation received a negative subsidy (i.e. the subsidy regime actually saw payments flow back to the Government) as the CAA and NATS generated funds in excess of their support payments. User charges and infrastructure costs exclude airport commercial revenues and commercial investment. ROAD (INCLUDING BUSES) An estimated net contribution of 31,255 million. Subsidy is the Bus Fuel Duty rebate. User charges relate to bridge and tunnel tolls (though not congestion charges that were introduced in 2002). Infrastructure costs include investment and maintenance costs plus an estimated depreciation cost for the road network. RAIL An estimated net contribution of minus 2,146 million. Direct subsidy relates to payments to the train operating companies. User charges are the access charges paid by the train operators, while infrastructure costs reflect Railtrack's investment expenditure. LIGHT RAIL An estimated net contribution of minus 2,175 million. Includes direct subsidy payments to London Underground. Infrastructure costs are shown net of the 875 million capital subsidy.

05 - Aviation Taxes and Charges 15 The Calculation of Net Contribution by Transport Mode for the UK [table7] - million AVIATION ROAD RAIL LIGHT RAIL TAXES & SUBSIDIES Air Passenger Duty Vehicule Excise Duty Fuel Excise Tax VAT on Fuel/Fares Capital Subsidy Operational/Fare Subsidy TOTAL (A) INFRASTRUCTURE Infrastructure Usage Charge Terminus Usage Charge Infrastructure Costs Inf Costs Net of Capital Subsidy TOTAL (B) NET PAYMENTS (A+B) 1,210 - - - - 7,500 - - - 31,168 - - - 5,454 - - - - - (875) 109 (398) (2,297) (104) 1,319 43,724 (2,297) (979) 523 259 3,439-1,052 - - - (2,236) (12,728) (3,288) (2,071) (2,236) (12,728) (3,288) (1,196) (660) (12,469) 151 (1,196) 659 31,255 (2,146) (2,175) Source: UNITE; CAA; IATA Table 8 shows expresses the net contribution made by each mode by journey and by thousand domestic traffic kilometres. Aviation makes the highest net contribution on a proportionate basis, with a net payment of 4.60 per air passenger journey. Though road users make a significantly higher total contribution than other modes, this is spread across a significantly higher number of journeys. Rail and Light Rail both receive a net subsidy towards their infrastructure costs of 2.40 and 2.30 respectively per passenger journey. The Proportionate Net Contribution by Transport Mode in the UK [table8] AVIATION ROAD RAIL LIGHT RAIL DOMESTIC/INT L. JOURNEYS (million) NET PAYMENTS Passenger 142 69,384 8 892 966 Total ( million) 659 31,255 (2,146) (2,175) Per Journey ( ) 4.6 0.5 (2.4) (2.3) Source: UNITE; Department for Transport; IATA 8 Estimated by dividing total road vehicle kilometres of 688 billion by an average journey length of 10.6 kilometres and adding 4.2 billion bus passenger journeys.

06 Changes in Aviation Taxes and Charges SINCE 1998 The preceding analysis shows the significant net financial contribution, above the cost of infrastructure, made by the aviation sector in Germany, France and the UK. This section updates the information on aviation taxes and user charges, showing that significant additional payments were made in 2003.

06 - Aviation Taxes and Charges 17 Table 9 shows the estimated change in taxes and charges between 1998 and 2003, the latest year for which full data is available. In Germany, taxes have increased by 14% (an extra 53 million) while user charges have increased by 25% ( 706 million). In France, aviation taxes have increased by an estimated 14% ( 22 million) while user charges have increased by 27% ( 467 million). In the UK, air passenger duty receipts actually fell by 5% ( 46 million) but user charges have increased by a much higher 46% ( 497 million). The number of air passenger journeys has also increased in each country. However, even when expressed on a proportionate basis, the amount paid in taxes and charges has increased in Germany and France and remained the same in the UK. Estimated Aviation Taxes and User Charges [table9] TAXES VAT on Domestic Fares Air Passenger Duty million million million GERMANY FRANCE UNITED KINGDOM 1998 2003 1998 2003 1998 2003 364 417 154 176 - - - - - - 837 791 INFRASTRUCTURE Airport Charges Civil Aviation Tax ATC Charges 2,092 9 2,497 594 755 - - 194 287 787 1,088 916 1,129 728 1,042 - - 362 545 Passenger Journeys (m) 104 121 86.8 99.5 142.1 176.9 Per Passenger Journeys ( / ) Taxes Infrastructure Charges 3.5 3.5 1.8 1.8 5.9 4.5 27.7 29.6 19.6 21.8 7.7 9.0 Source: UNITE; National Aviation Bodies (see below); IATA For Germany, the tax figures relate to the 16% VAT rate on domestic airfares, with estimated revenue figures provided by the Federal Statistical Office. The airport charges figures were obtained for the major airports from German airlines and uprated by IATA to estimate a total for all German airports. Air Traffic Control charges were obtained from Deutsche FlugSicherung. For France, taxes relate to the 5.5% VAT rate on domestic fares. An estimate was made for VAT receipts by uprating the 1998 figure according to the increase in passenger numbers. Figures for the Civil Aviation "Tax" were obtained from the Comptes de Transport. User charges figures were obtained from the DGAC. For the UK, Air Passenger Duty figures were obtained from HM Revenue and Customs department. Airport charges were provided by BAA for its airports and uprated by IATA to estimate a total for all UK airports. ATC charges were obtained from the UK National Air Traffic Services. Infrastructure costs will also have risen between 1998 and 2003, reflecting higher investment in airport and air traffic control facilities. We do not have an accurate estimate for the rise in aviation infrastructure costs. However, for costs to have risen by more than payments would require additional aviation infrastructure investment of at least 1.9 billion per year in the three countries. 9 In this table, German airport charges are shown after excluding commercial activities, so are different from those in table 3.

07 Conclusions The aviation sector makes a significant positive net financial contribution in each of the three countries studied. Airlines not only more than pay for their infrastructure costs, they also make a higher proportional contribution than other modes. By contrast, rail and urban transit systems are heavily subsidised. It is often asserted that airlines are under-taxed relative to other modes since, in most cases, they do not pay fuel duties or ticket taxes on their international services. However, this misses the point. A true assessment must also take account the contribution made by each mode towards the cost of investing in and maintaining its infrastructure. The inability of a transport mode to meet the cost of its infrastructure typically translates into a financial liability for the Government. This report shows that the aviation industry is already highly-taxed relative to other transport modes, especially after the contribution to respective infrastructure costs is taken into account. The key results are based on 1998 data. However, if anything, the results have been further enhanced in recent years. Aviation taxes and user charges have increased significantly since 1998, while rail receives an even higher subsidy in the UK and remains highly subsidised in Germany and France. A calculation of the different social and environmental impacts, often cited as justification for the imposition of taxes and the provision of subsidies, is beyond the scope of this report. However, the report does discuss the significant progress being made by the aviation industry in reducing these impacts, along with the substantial positive externalities that are generated by the industry. These positive externalities arise because the air and other transport networks are vital infrastructure assets, connecting many industries within the national economy and to the wider global economy. Nevertheless, the report highlights that aviation already makes a financial contribution in excess of its infrastructure costs, much of which is received by the public sector.

07 - Aviation Taxes and Charges 19

We are a heavily taxed industry. We must ensure that unjustified new tax proposals do not add to this burden.

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