Bills give isle airlines $30M break

Aloha and Hawaiian say that they will save only a fraction of that if the measure passes

Hawaii's two major local airlines, Hawaiian and Aloha, could get a $30 million tax break under bills moving in the Legislature.

The two measures, Senate Bill 2768 and House Bill 2746, would exempt the aviation fuel used in intrastate air transportation. The tax break would also be for Island Air and Mesa Air -- when it enters local service in the second quarter -- and any other airlines flying just in Hawaii.

Airlines buy fuel for international and mainland flights through a foreign trade zone exemption and do not pay tax on that fuel, but the locally used fuel is subject to both general excise tax and fuel tax.

The state Tax Department estimates it would lose $27 million in general excise taxes on fuel sales and $3 million in fuel taxes if the measures pass, but Hawaiian and Aloha estimate they will save only $3.5 million.

Both airlines recently emerged from bankruptcy protection. The airlines asked the Legislature for the tax breaks because fuel is such a big part of the cost of doing business.

"I want them to be in business. Aloha and Hawaii are part of our history," Sen. Lorraine Inouye, whose Transportation Committee approved the bill, said.

A spokesman for Hawaiian, Keoni Wagner, vice president of Hawaiian Airlines public affairs, said the bill would save his airline about $1 million a year.

"We are a $700 million-a-year company that barely breaks even, so in the scheme of things it is not a small amount of money.

"We need to lower our costs any way we can," Wagner said.

Stephanie Ackerman, Aloha senior vice president for public relations and government affairs, said the airline will pay $2.5 million in state GET for fuel this year.

Fuel cost Aloha 75 cents a gallon in 2002 and costs $1.85 today, Ackerman said.

Wagner added that just a 1-cent increase in the price of fuel "affects Hawaiian's bottom line by $1.1 million on an annual basis."

"This bill recognizes the severe financial strain that high fuel prices are causing the airlines," Wagner said.

Inouye, in her committee report, said the airlines "need and deserve a reprieve from state taxes on fuel."

But Inouye urged the airlines to "accommodate residents by lowering air fares, which would also stimulate travel."

Lowell Kalapa, president of the Hawaii Tax Foundation, warned that the bill would not save any money because airline fuel tax payments go to build and maintain airports.

"Where are you going to get the money to run the airports?" he asked.

"This bill takes a very narrow view. Are you going to make up the funds by increasing landing fees and pass those costs on to everyone?

"This bill just doesn't make any sense," Kalapa said.

The state Transportation Department opposes the tax break, saying that airlines can deduct the aviation fuel taxes from landing fees they owe the airports.

Tax officials did not oppose the measure, but pointed out it would help the airlines.

"The airlines, both based in Hawaii and on the mainland, stand to benefit greatly by this legislation," said Kurt Kawafuchi, state tax director.

"The department raises the issue of passing on savings to the consumers who are truly affected by high airline prices, compared to shareholder concerns," Kawafuchi said.