Tax break for airlines may not give enough boost

By Kelly Yamanouchi
Advertiser Staff Writer

Airlines with Hawai'i-based crews would receive tax credits to offset airport landing fees under a measure advancing through the state Legislature, but opponents say it won't give immediate relief to struggling carriers that are not earning any taxable income.

Local carriers Hawaiian Airlines and Aloha Airlines have both suffered losses through much of the last year and United Airlines, a major carrier to Hawai'i, is being restructured under Chapter 11 bankruptcy protection. Many other airlines are also bleeding cash and would not pay taxes that could be recovered through credits.

The airlines are critical to Hawai'i's tourism industry and residents' interisland travel, but lawmakers have been struggling to balance the revenue loss from credits or airport fee waivers against balancing the state's budget.

While many in the airlines will settle for any help they can get, the relief under consideration may not go far enough to boost interisland flights cut in cost-saving moves or help save airlines that are on the financial brink given the decline in post-Sept. 11 travel and fear of another Persian Gulf war.

The Senate Ways and Means Committee yesterday approved the measure to provide tax credits through 2005 that would be equivalent to a yet-unspecified percentage of airport landing fees. The credits may not pay off now while airlines are unprofitable, but according to the committee, the airlines can keep excess credits until they do have taxable income.

But Airlines Committee of Hawai'i executive director John Thatcher noted the 2005 deadline to claim the credits. That deadline calls into question whether airlines would see substantial benefit from the legislation. The bill still needs approval from the full Senate.

Other versions of airline aid legislation are pending before the House Finance Committee. One measure would apply to airlines with Hawai'i-based fleets and allow excess tax credits to be refunded to the carriers. Another bill proposes to waive landing fees for airlines that increase flights to the Neighbor Islands.

Thatcher, who represents 19 airlines serving Hawai'i, said in Senate testimony that "almost all of the airlines are suffering major losses making the benefits of a tax credit of marginal value." He added if the intent is to provide relief to those airlines serving the state, the bill should also provide a moratorium on general excise taxes on fuel, goods and services charged to the airlines.

The airlines "probably don't have any income tax liability ... so what good is the income tax credit?" asked Lowell Kalapa, president of the Tax Foundation of Hawai'i. "It's almost no good to an airline that's losing money."

Kalapa said relief would be more effective if it came in the form of reduced landing fees or a tiered-fee system based on the number of flights.

The Ways and Means Committee approval followed a hearing Saturday of the state House Select Committee on War Preparedness, which supported waiving landing fees amounting to $3 million per month.

The Senate tax credit legislation may address some concerns, "but that's not specifically what we're looking at," said Rep. Sylvia Luke, D-26th (Punchbowl, Pacific Hts., Nu'uanu Valley), chairwoman of the war preparedness panel. "I think that bill is geared toward probably Hawaiian and Aloha."

She said her committee is recommending the airlines maintain air travel to Hawai'i to qualify for landing fee waivers.

But some from individual airlines support the tax credit measure. In testimony, Hawaiian Airlines spokesman Keoni Wagner called it "an affirmative step." And United Airlines pilots said they believe the tax breaks would convince United as well as other airlines to retain or reinstate pilot or flight attendants based in Hawai'i.

Ten senators voted in favor of the measure yesterday, but Lorraine Inouye, D-1st (Hamakua, S. Hilo), Gary Hooser, D-7th (Kaua'i, Ni'ihau), Gordon Trimble, R-12th (Waikiki, Ala Moana, Downtown) and Fred Hemmings, R-25th (Kailua, Waimanalo, Portlock) backed the bill with reservations.

"The airlines have not been very cooperative with regards to flights to the Big Island and my constituents are still very unhappy," Inouye said. Although she voted for the bill in committee, "when it gets to the Senate floor it's going to be a different story," Inouye said. "I don't see how this tax credit is going to help for only this three-year period because it's so minimal."

Hooser also criticized the airlines for cutting interisland flights.

"We can't have them limit flights all the time, raise prices and get tax credits," he said. "If the public's going to subsidize that operation, the public benefit needs to be increased."

And with tax credits, Trimble added, "sooner or later it adds up to real money."

Kalapa said the state cannot afford to lose tax revenues from the airlines.

"It's ironic that they should take money away from the general fund to subsidize the airport," Kalapa said. "That has been the M.O. of this session: If you've got a problem, just propose a tax credit. It just doesn't work in this case."

Maui-based carrier Pacific Wings Airlines is not seeking tax credits, said President Greg Kahlstorf, but "we're certainly not going to turn our backs on any credits that would benefit the industry."

"In the absence of any detailed study of these airlines' finances that would help the legislation come to a more long-term solution, it's a short-term fix," Kahlstorf said.

But he added: "Anytime you give a tax break, ultimately you'll have to pay the piper somewhere down the road."