Aircraft Owners and Pilots Association 2005 Annual Report

Headwinds and Tailwinds

May 1, 2006

Your association overcomes challenges and celebrates victories during a turbulent year

When planning a flight of any significant distance, we must take into account the effect of winds. In cruise flight, where we spend most of our time, headwinds present a problem. They wick away our speed and, if we're not careful, cut into fuel reserves. Tailwinds, on the other hand, propel us along our route, allowing us to fly more efficiently and to extend the endurance of the flight.

For us here at AOPA and probably for you too in your businesses and personal lives, headwinds and tailwinds become a metaphor for the challenges and successes we face. Because of the headwind-induced airspeed reductions, we spend more time plowing into headwinds than enjoying the push of a tailwind. Life is like that — we seem to have little time to enjoy our successes before the next challenge — headwind — shows up. Certainly as we work every day to protect the general aviation interests of AOPA members we have our successes, but challenges are ever present and looming.

If you've read the pages of this magazine over the past year, looked at AOPA Online, or perused your weekly AOPA ePilot, you know that one of the biggest challenges facing all of aviation is the continuing threat of aviation user fees. It's not a new threat, but over the past year the headwinds have picked up. The low-cost air carriers, once our allies in this battle against user fees, have now aligned with the legacy carriers, making a once-formidable challenger ever stronger. Over the past year, the FAA has honed its mantra that the agency needs a "predictable" funding stream, implying that the current system in which general aviation pays through fuel taxes is somehow not predictable. This notion gets spouted in the media and on Capitol Hill despite the fact that Congress year after year has increased the amount of funding the White House has budgeted. Study after study shows that we can expect the funds flowing into the Airport and Airway Trust Fund to increase in coming years as airline ticket prices continue to increase — a result of airlines able to achieve higher yields as the consolidations of the past decade finally become profitable. Wouldn't your business enjoy such a predictably increasing funding stream?

Like any business, the airlines are looking to offload costs, and they see general aviation as the place to do it. The airlines say general aviation isn't paying its fair share of the FAA's costs. Building a bureaucratic, inefficient user-fee collection system is a better way, they say — despite the fact that general aviation is only an incremental user of an air traffic system built for the airlines.

At AOPA Expo 2005 in Tampa last November, Secretary of Transportation Norman Y. Mineta assured the attendees that general aviation would not pay user fees under any plan the FAA was working on. And he may be right — as long as he is secretary. But the next secretary may not feel that way. Other countries that have implemented user fees have made similar promises, only to later begin charging general aviation user fees, especially when airlines struggle through financially difficult times and the bloated user-fee system demands more.

We'll be fighting this headwind well into 2007 and beyond, but let me state clearly, as I did when I testified last May before the House aviation subcommittee: Fair and reasonable excise taxes on aviation fuel are the appropriate way for general aviation to help pay for the aviation system, not user fees.

Pushing for change

Although we don't believe user fees are the right way to fund the FAA, we do understand the agency's need to manage its costs. As the largest aviation organization in the world and representing more than two-thirds of the nation's pilots, we have a responsibility to offer creative solutions to help the FAA balance its budget. One way we've done that over the past five years was to assess the costs and study how the flight service station (FSS) system might be operated more efficiently. Then the government used a process — called an "A-76" study — that was completed in 2005 when the FAA awarded a contract to Lockheed Martin to operate the system on behalf of the agency. Under this plan, the FAA will save $2.2 billion over the next 10 years. And, thanks to AOPA's intense efforts, the agreement requires Lockheed Martin to meet stringent service levels that ensure that pilots will enjoy a modernized and efficient flight service system.

Lockheed Martin officially took over operation of FSS on October 4. Since then pilots have enjoyed the same sorts of services as always, but with hold times down and fewer dropped calls. Over the next year, look for a new comprehensive flight-planning and weather-briefing Web site to debut along with even better telephone service. What's most important is that this continues to be a government-provided service with no fee attached to it for pilots. Better service for less cost is a way for AOPA to demonstrate that before changing how we fund the FAA, we should all look at cost savings — a tailwind if there ever was one.

Unfortunately, not all of our efforts to push for changes go smoothly. It seems we've been flying into hurricane-force headwinds in our efforts to have the federal government remove the "temporary" flight restriction in the form of an Air Defense Identification Zone (ADIZ) over the Washington, D.C., area. This onerous and precedent-setting megaplex of airspace was dropped as a "temporary" measure over the capital in early 2003 as the United States went off to war in Iraq. Affecting 19 public-use airports, 10,000-based pilots, and 1.1 million annual operations, the ADIZ places a substantial burden on air traffic controllers, pilots, and aviation businesses while arguably providing no improvement in security. As has been reported by numerous government and independent assessments, general aviation aircraft do not pose a threat to security. Yet this confusing chunk of airspace — some 3,000 square miles in all — remains.

On May 11, 2005, a private pilot and a student blundered deep into this airspace without the required flight plan, transponder code, and air traffic control (ATC) communications. When they penetrated the flight-restricted zone within 15 miles of the heart of Washington, the government began to evacuate the Capitol and other buildings. Intercepted by a helicopter and then fighters, the two finally landed at Maryland's Frederick Municipal Airport, where AOPA is based. They were forced to the ground at gunpoint and interrogated for several hours before being set free. The FAA ultimately issued an emergency revocation of the pilot's certificate. An incredible amount of media coverage followed this event, giving all of general aviation a black eye.

The incident renewed concerns voiced by the Department of Homeland Security. On August 4, 2005, the FAA issued a rulemaking to make the ADIZ permanent, perhaps setting a precedent for similar airspace over other major metropolitan areas. Fortunately, the rulemaking required a 90-day comment period. AOPA launched a massive campaign to encourage pilots to comment. As thousands of comments poured in, AOPA urged the FAA to extend the comment period to 180 days. At AOPA Expo, Mineta announced that the comment period would indeed be extended. Ultimately more than 21,000 of you sent in comments. AOPA also urged the FAA and the security agencies to conduct public hearings regarding the rulemaking so that individual pilots could tell agency representatives in person how the ADIZ has affected their flying. The FAA finally agreed and the public meetings were conducted earlier this year.

The FAA is still wading through the responses and crafting a final rulemaking. As with the user-fee issue, the headwinds are strong on this one. When faced with lower than anticipated groundspeed because of high winds on the nose, one always seeks an alternate route. As part of determining that alternate, AOPA has surveyed the D.C.-area pilots to determine what critical factors of ADIZ operations could be modified in order to use these answers and offer creative solutions.

Recognizing that we must all do our part to increase security, AOPA updated our highly regarded Airport Watch materials last year with a new theme, "Lock Up and Look Out." This program, which has been praised by members of Congress and the security agencies, provides signage and other materials to remind pilots and airport personnel to be on the lookout for suspicious activity. Questionable activities should be reported to the police or to the 866/GA-SECUR(E) hotline. This program has certainly been critical in overcoming the headwinds of continuing cries from the press, Congress, state legislators, and all levels of regulators for more GA airport security.

Looking for efficiencies

On another FAA front, AOPA is working hard to give the agency — and pilots, too — a tailwind in the form of a modern, efficient, and less costly air traffic control system. Because it is so important that general aviation has a stake in ATC modernization and that the systems implemented provide user benefits, AOPA has staff dedicated to these issues. In addition to participating on numerous industry committees that set standards, AOPA is on the executive board of the FAA modernization committee.

Two primary technologies offer GA and the FAA the greatest bang for the buck — WAAS and ADS-B. The Wide Area Augmentation System uses a series of ground stations and a satellite link to correct GPS signals, providing for ILS-like precision approaches to potentially thousands of GA runways, including many that have no approaches now. Thanks to AOPA's advocacy on WAAS and lobbying for funding, this system has been proven — and, in fact, is providing accuracies higher than predicted — and now provides 300 approaches with precision-approach-like minimums and more than 2,000 nonprecision approaches. Pilots must upgrade their IFR GPS receivers to take advantage of this technology, and unfortunately, the avionics industry has not been able to keep up. We have been assured that, soon, new WAAS-capable units will be available in large quantities, allowing many more pilots to take advantage of this technology, and WAAS upgrades will be available this year for an installed base of more than 60,000 receivers.

Although WAAS is primarily of assistance in the terminal environment, automatic dependent surveillance-broadcast (ADS-B) provides the greatest benefit in the en route phase of flight. Designed to someday replace expensive ground-based radar systems, ADS-B provides both controllers and pilots with traffic information through a two-way datalink. The datalink also can be used to upload weather radar and other weather products to the cockpit. Other ATC services surely will be developed to take advantage of this remarkable technology. Once again, though, pilots must equip their aircraft to take advantage of this system. AOPA's goal is to make sure that the transition to ADS-B is phased, allowing pilots to upgrade their cockpits over time. Meanwhile, we are working to ensure that the FAA provides robust weather and traffic information through ADS-B so that pilots will see the value of making the investment.

Of course, systems to aid pilots en route and in the terminal environment are of little use if you don't have a place to land. About the only time we welcome a headwind is when it comes to landing. Unfortunately, protecting some of the most important GA airports in the nation is becoming increasingly more challenging; here, the headwinds are strong and gusty.

Last year, our regional affairs staff addressed issues at hundreds of airports, including some 60 airports where continued operations were threatened. Among the wins were preventing the closure of Crystal Airport near Minneapolis, keeping Fort Wayne, Indiana's Smith Field open permanently, fending off the latest attempt to close Oceanside Municipal Airport in San Diego, and delaying the closing of the University of North Carolina's Horace Williams Airport. Keeping score, however, it took Congress at the eleventh hour to sneak in a rider on a bill that forced the closure of Rialto Municipal/Miro Field, a GA airport in California. Additionally, we have worked hard to protect backcountry airstrips vital to pilot safety in several western states. An essential part of this effort has been our Airport Support Network (ASN), which provides a nationwide intelligence and early warning system on airport issues. Some 1,500 member volunteers keep headquarters staff and each other informed about airport issues. Last year we formed a board of advisors for the network, which will be instrumental in developing new strategies to make it even more effective.

The association staff also worked to lower the cost of flying through reducing taxes and fees in several states, including reducing Ohio's state aircraft registration fee and fighting increases in the fuel sales tax fuel; winning new tax exemptions in Rhode Island, Wyoming, and Oklahoma; and pressing for increased funding for airport improvements.

Our regional affairs staff also has developed two new publications that we think are terrific airport advocacy tools for our members. Closures at Privately Owned/Public Use Airports provides valuable information on what can and cannot be done to preserve private properties as airports, while our Aircraft Hangar Development Guide provides authoritative and complete instructions on developing hangars at an airport.

The price of success

Dedicated lobbying and ATC technology staff, regional affairs and airport specialists — these and dozens of other specialties are needed to provide the types and levels of service that you have come to expect. This is our sixteenth year without a dues increase, and yet, we are doing ever more to support general aviation and provide a greater number of services to our 407,000 members. Your dues pay for about a third of the cost to operate AOPA. The balance of our income is from nondues revenue, which includes everything from the advertising in our magazines and on our Web sites to the return we receive from the AOPA Bank of America credit card program. The credit card program, formerly provided by MBNA America Bank before it was purchased by Bank of America at the first of this year, provides annual income to the association — at no additional cost to you. In addition, when you use your card for aviation-related purchases at qualifying businesses, the bank returns a 5-percent rebate to you of up to $250 a year. Last year alone, nearly $3 million in rebates the bank returned to members. Since the rebate debuted in 1997, the bank has provided some $18 million in rebates to AOPA members.

The credit card program is one of many where we attempt to provide a win-win source of nondues revenue. Another is the AOPA Legal Services Plan. For a small fee each year, AOPA members can receive certain free legal advice for aviation-related inquiries or when facing enforcement actions. Some 80,000 members currently participate in the program, which also helps to fund AOPA activities. Similarly, the AOPA Insurance Agency provides a return to AOPA while providing high-quality aircraft hull, liability, and nonowned insurance products to members at competitive prices. In 2005, the agency introduced a new 5-percent member discount on renters insurance, combined with the 10-percent discount for those who renew and haven't had a claim. Hull liability for renter pilots was increased to $200,000.

The AOPA Insurance Agency negotiated with several underwriters to remove age restrictions for owner insurance on many popular aircraft and also introduced sport pilot coverage for light sport aircraft. With regard to higher insurance costs for older pilots, in 2005 AOPA and the AOPA Air Safety Foundation initiated a major study to address the higher accident statistics in this category. As a result of this work, education materials for older pilots are planned for distribution in the second half of 2006.

Another source of revenue and quality products for members is the AOPA Aircraft Financing Program, which provides competitive aircraft loans with new terms up to 25 years and now includes financing for Experimental and kitbuilt aircraft.

Money where it matters

Of course, none of the funding matters if we don't have members to serve. At AOPA we work hard every day to understand your needs and to provide the best service possible. In 2005, our Member Services department answered 147,000 calls and 55,000 e-mails regarding benefits and services. To ensure top-notch quality, we added a service support team dedicated to quality assurance. The team's goal is to reduce errors and ensure that whenever possible your request can be fulfilled on the very first contact. A sophisticated tracking system for member comments helps the staff identify and address problem areas immediately. As a result of what we have learned from this tracking system, we have taken steps to improve the way that members access the Web site, heading off password problems, and also reducing the number of annoying duplicate mailings.

Members have helped us work smarter, too. More than 140,000 of you have signed up for our automatic annual renewal (AAR) program, which reduces our costs and reduces the amount of mail you get from us. We offer a special discount to members who sign up for AAR. You can help even more and save even more by renewing your membership online. Fifteen percent of members now renew online — and enjoy additional savings when doing so.

We even offer a way that you can get a free membership — just recruit three new members and your membership is free. And for each of those new members, you'll receive two additional chances to win our annual membership sweepstakes prize — this year a fully refurbished Piper Cherokee Six.

One of the most popular member recognition efforts we ever launched was our lapel pins recognizing years of continuous membership. In 2005, we introduced the 60-year membership pin. What an honor to have a group of members so dedicated that they have been with us for six decades. More than 310 60-year pins have been presented since their introduction.

At AOPA, member service goes beyond just processing your application. You rely on us to have the answers to your technical questions. During 2005, some 90,000 members generated 153,000 calls and e-mails to AOPA with technical or medical-related questions. Interest in airman medical certification issues continued to increase this year to 26,000 contacts. Other frequent questions were related to aircraft ownership on such topics as buying, selling, and maintaining aircraft.

Getting the word out

Whether it's with your copilot or ATC, the key to a smoothly running cockpit is good communications. When facing stronger than forecast headwinds, you may need to clearly communicate to ATC your intentions to land short of your planned destination. With a tailwind, you may decide to skip a fuel stop.

At AOPA, we have some of the most powerful communications channels available. AOPA Pilot is the world's largest and most authoritative aviation magazine. It provides information, education, and entertainment to the breadth of our membership. AOPA Flight Training magazine is the only monthly magazine dedicated to serving the unique needs of student pilots and flight instructors. Last year, some 47,000 future pilots took advantage of AOPA's offer of a free six-month trial membership that includes Flight Training magazine. An increasing number of AOPA members also are subscribing to this second magazine, finding Flight Training's back-to-basics editorial content a good complement to AOPA Pilot.

With headwinds these days seemingly at all flight levels, it's ever more important to be able to communicate quickly. We can instantly reach the entire world through our world-class Web site, AOPA Online. With its tens of thousands of pages, the site is a rich resource of up-to-the-minute information about the latest AOPA initiatives and industry news as well as a repository for useful information on subjects as broad as aircraft valuations to aviation weather to TurboMedical, our unique interactive medical form that helps you spot conditions that might be an issue with the FAA. Updates to our online search engine last year make it easier than ever to quickly find what you are looking for, whether it's an article from Pilot published 10 years ago or a white paper on WAAS.

We understand that you're busy and don't always have time to come to the Web site, so we provide a quick synopsis of the week's information in our e-mail newsletter, AOPA ePilot. Some 240,000 members opt to receive this free weekly e-mail newsletter. AOPA ePilot is the only aviation newsletter that allows you to customize the type of information you receive — based on the type of flying you are interested in. Meanwhile, 73,000 members receive the Flight Training edition of ePilot, which focuses on subjects of interest to students and flight instructors.

Besides these weekly updates, AOPA sent another 2.7 million e-mail airspace bulletins, alerting pilots to upcoming temporary flight restrictions in their regions. Member feedback tells us that these alerts have kept pilots from stumbling into TFRs that they otherwise were not aware of.

As we learned from the May 2005 ADIZ incursion and the events of September 11, 2001, we must reach beyond ourselves to educate the broader community about general aviation. To that end, AOPA in late 2005 created a small television studio at our headquarters and installed a satellite link that allows me and the other experts on our staff to be instantly accessible by media outlets around the world. Now when a television station or network wants a comment on general aviation, we are able to respond quickly and effectively — telling the good news about general aviation. We believe this and our other media outreach efforts will pay dividends in the long run.

Looking forward

Although this report looks back on the year 2005, in that year your association spent a lot of time looking forward. That's because after a careful examination of the statistics of the past we clearly saw that they unfortunately do not paint an optimistic picture of the future.

In 1977, student pilot starts reached their peak with 138,816 people beginning flight training. Some 30 years later that number has dropped a staggering 61 percent to only 54,050 in 2005. If that trend continues, GA could be on the verge of extinction in another generation. We find both that trend and that outcome to be entirely unacceptable.

Although there have been a variety of industry programs developed to bolster our ranks and increase student starts, the trend continues downward. As the world's number-one aviation association, we take this challenge most seriously. Therefore, in 2006 we intend to mark the beginning of the end of that death spiral and usher in a new era of student pilot growth.

This will be one of the most important initiatives we've ever addressed. Clearly, it is a necessary and noble cause. And, as we do in those rare instances when we face a challenge of this magnitude, we will fully leverage the association's most valuable asset: you. We will be calling upon you and all of our members to provide the support that's needed to make this effort as successful as it needs to be. Look for more information in June of this year.

The winds of change

As you can see, the depth of your association is unlike any other in aviation. As sure as the wind will affect your next flight, know that AOPA will be here working for you — ensuring that your rights to fly are protected. With user fees, rising costs, and threats of onerous security regulation promising headwinds well into the future, AOPA will steadfastly work to lift you into smooth air and tailwinds.

Fly safe,

Phil Boyer, AOPA President

Consolidated statements of financial position

Consolidated statements of revenue and expenses