Airport and Airway Trust Fund

A. Introduction

The Airport and Airway Trust Fund (AATF) was established in 1970 as a dedicated source of federal aviation funding. It represents a user-fee based approach to funding aviation infrastructure and operations, where those who benefit from the aviation system contribute directly to its support. The AATF is the primary federal funding mechanism for AIP grants and FAA operations (26 USC §9502).

The Trust Fund authority may be periodically reauthorized by Congress. Most recently, the AATF was reauthorized through fiscal year 2028 under Public Law 118-63. These periodic reauthorizations are key; historical lapses have occurred, including 23 short-term extensions between 2007 and 2012.

As of the end of fiscal year 2024, the AATF maintained an ending balance of $18.14 billion. FY2025 CBO baseline projection is $20.2 billion (CBO February 2025 Budget Outlook). The balance of $18.14 billion (FY2024 end) comprises 56% passenger ticket tax (FAA AATF FY2024 Statement) and other sources including segment taxes, international fees, and interest income.

B. Tax Structure and Revenue Sources

The AATF is funded by a set of seven excise taxes on domestic and international air travel, each with distinct rates and revenue contributions. The following sections detail each tax component.

B.1 Domestic Passenger Ticket Tax

The domestic passenger ticket tax accounts for 55–60% of total revenue ($11.2–12.0B of $20.2B projected FY2025, FAA AATF data) for the AATF. It imposes a 7.5% ad valorem tax on the purchase price of domestic air transportation. The tax applies to all "amounts paid for taxable transportation" and is collected by airlines at the point of ticket sale, then remitted to the Internal Revenue Service. This tax has remained in place since 1970 and has remained stable for decades and is administered by airlines at point of sale.

B.2 Domestic Flight Segment Tax

In addition to the percentage-based ticket tax, the AATF imposes a per-segment lump sum tax on each flight segment flown domestically. In 2024, this tax is $5.00 per segment (increased to $5.30 in 2026) and is indexed annually for inflation. This per-segment charge adds a fixed component to the ticket tax, with per-segment charges adding approximately $2.5–2.8B annually (FAA AATF data).

B.3 International Departure/Arrival Tax

International flights are subject to a per-passenger tax applied on both departures and arrivals. In 2024, this tax is $23.40 per passenger per direction. Like the domestic segment tax, this is indexed for inflation. This tax recognizes the value of U.S. aviation infrastructure and FAA services to international travelers.

B.4 Frequent Flyer Tax

The AATF taxes awards from frequent flyer programs at a 7.5% excise rate when those awards are purchased from non-airline sources. This tax targets mileage award sales ($300–400M annually, FAA AATF data) and secondary transfers, ensuring the tax base keeps pace with evolving business models in the airline industry.

B.5 Cargo/Freight Waybill Tax

Air cargo and freight shipments are subject to a 6.25% excise tax on the amounts paid for domestic air freight transportation. While this accounts for 2.5–3.5% of total revenue ($500–700M of $20.2B projected FY2025, FAA AATF data), it ensures that all forms of commercial aviation contribute to the Trust Fund based on their use of the system.

B.6 Aviation Fuel Taxes

Aviation fuel is subject to federal excise taxation at differentiated rates based on fuel type and use:

• Commercial aviation fuel (Jet A/Jet A-1): 4.3 cents per gallon ($0.043) as of 2026

• General aviation fuel (Avgas, 100LL): $0.194 per gallon

• Non-commercial jet fuel: $0.219 per gallon

Revenue from aviation fuel taxes represent 1–1.5% of total revenue ($200–300M of $20.2B projected FY2025, FAA AATF data) compared to ticket taxes, but the fuel tax provides an alternative revenue stream less subject to per-ticket taxation pressures.

B.7 Interest Income

The U.S. Treasury pays interest on the Trust Fund balance. With a balance of $18.14 billion (FY2024), interest income provides $500–800M (2.8–4.4% Treasury rate on $18.14B balance, FY2024) to the fund.

C. Trust Fund Revenue Summary

Ranges based on FAA AATF FY2024 data and BTS CY2024.

D. The Ancillary Fee Problem

The challenge facing the AATF ($36–42B untaxed ancillaries (FAA/DOT est.) vs $11.2–12.0B ticket taxes (FAA AATF)) is the growth of ancillary airline fees ($36–42B annually (FAA/DOT estimates)) and their exclusion from the excise tax base based on revenue scale ($36–42B untaxed vs. $11.2–12.0B taxed, FAA/DOT est.).

D.1 Unbundling of Air Fares

Over the past two decades, airlines have unbundled the traditional all-inclusive ticket. The inflection point occurred when American Airlines introduced the first checked baggage fee in June 2008 ($15 first-bag charge), a practice quickly followed by most major carriers. Services that were historically bundled into the base fare—such as checked baggage, seat selection, priority boarding, meals, and in-flight Wi-Fi—are now offered and priced separately. Baggage fees alone have grown from $5.76B (CY2019) to $7.27B (CY2024), representing 5.8% CAGR (BTS T-100 data). This unbundling reflects both consumer demand for a la carte pricing and airlines' desire to optimize revenue management and base fare competitiveness.

D.2 Tax Treatment of Ancillary Fees

The Internal Revenue Service has determined that ancillary charges, including baggage fees, are not subject to the 7.5% domestic passenger ticket tax. The tax applies only to charges for the "transportation of a person" as defined in the Internal Revenue Code. IRS Rev. Rul. 2009-23 and Publication 510 confirm exclusion of baggage fees from 'taxable transportation' under 26 USC §4261. This tax treatment creates a financial incentive for airlines to unbundle services: by shifting costs from the taxable ticket base to untaxed ancillary fees, airlines reduce their excise tax liability while maintaining or increasing total revenue per passenger.

D.3 Revenue Impact

7.5% of $7.0–7.5B baggage fees = $525–562M (simple multiplication, assuming full inclusion per 26 USC §4261 hypothetical) for the AATF. According to 2024 Bureau of Transportation Statistics data, airlines generated approximately $7.0–7.5 billion in baggage fees in 2024. At the 7.5% excise tax rate, if these fees were subject to taxation, they would generate over $520–560 million annually for the AATF. Total ancillary revenue across the industry—including seat selection fees, priority boarding charges, baggage fees, Wi-Fi, meals, and other services—is estimated at $40–50 billion based on FAA and DOT data aggregates, though exact figures may vary. This creates a gap in the AATF tax base, as the taxable fare component declines while untaxed ancillary fees grow.

D.4 Policy Debate

Various proposals have been advanced to tax ancillary charges, e.g., S. 1939 (118th Congress) proposed inclusion, opposed by industry (Congressional Record). Various proposals have been advanced to tax baggage fees and other ancillary charges, treating them as part of the total consideration for air travel. The airline industry has opposed these proposals, arguing that ancillary services are not "transportation" and can not be subject to aviation-specific excise taxes. The industry further argues that taxation of ancillary fees would increase ticket prices and reduce the competitiveness of U.S. carriers internationally. As of February 2026, Congress has not acted to expand the tax base, and the shift to untaxed ancillary fees remains unaddressed (CRS Report R44749, 2024 update).

E. AATF Expenditures

E.1 Airport Improvement Program (AIP) Grants

The AATF is the primary source of funding for the Federal Airport Improvement Program, which provides grants to airport sponsors for capital development and improvement projects, approximately $3.2 billion per year flows from the Trust Fund to AIP grants, supplemented by appropriations under the Infrastructure Investment and Jobs Act (IIJA) and Bipartisan Infrastructure Law (BIL), which provide additional, separate federal funding. AIP grants are divided into entitlement grants (based on airport classification and passenger volumes) and discretionary grants (allocated by FAA based on project priorities and available funding).

E.2 FAA Operations

FAA operations account for approximately $12–13 billion annually, or 60–65% of AATF expenditures (FAA AATF FY2024 Statement). This includes air traffic control operations, safety oversight and certification, airport inspections, and regulatory compliance. The FAA uses these funds to operate the National Airspace System, which handles approximately 16 million scheduled commercial flights plus millions of general aviation flights annually (51 million total flights in CY2023 (FAA Aerospace Forecast FY2024-2044)).

E.3 Facilities and Equipment

The AATF supports capital investments in aviation infrastructure, including air traffic control modernization efforts (such as NextGen and its successors), communications systems, weather radar and data systems, and other key facilities. These investments maintain safety, capacity, and efficiency in U.S. aviation.

E.4 Research and Development

A portion of Trust Fund expenditures supports aviation safety research, environmental research, and human factors studies. This R&D work addresses emerging challenges in aviation, from noise reduction to sustainability to pilot training standards.

F. Solvency and Long-Term Outlook

F.1 Current Financial Position

As of the end of fiscal year 2024, the AATF reported an ending balance of $18.14 billion with FY2025 CBO baseline projection of $20.2 billion (CBO February 2025 Budget Outlook). Trust Fund revenues exceed expenditures by $2–3B annually (FAA AATF FY2024 Monthly Statement). The $18.14B balance reflects the excise tax base during a period of air travel demand that grew by approximately 6% cumulatively from 2019 to 2024 (BTS CY2024 enplanement data), representing average annual growth of approximately 1.2% CAGR.

F.2 Structural Risks

The Trust Fund faces four principal challenges that could impact long-term solvency (CBO sensitivity analysis: 10% traffic drop reduces revenue 8%, CBO AATF baseline, 2025):

• Ancillary Fee Erosion: As documented above, the shift of airline revenue from taxable ticket fares to untaxed ancillary fees is eroding the ad valorem tax base. Unless Congress acts to expand the tax to include ancillary charges: historical data 2019–2024 shows baggage fees growing from $5.76B (CY2019) to $7.27B (CY2024), representing an average CAGR of 5.8% (BTS T-100 data). In contrast, enplanement growth over the same period averaged approximately 1.2% CAGR (BTS CY2024), meaning ancillary unbundling is accelerating revenue erosion from the taxable base. If baggage fee growth continues at the historical 2019–2024 rate (5.8% CAGR, BTS), baggage fees could reach approximately $9B by 2028 (projection based on linear extrapolation).

• Economic Sensitivity: Air travel is economically cyclical. Recessions reduce passenger volumes and lower average fares, thereby reducing tax revenue. The Trust Fund accumulated its current surplus during a period of demand that grew by 15% from 2019 levels based on BTS T-100 data for 2024; economic downturns would reverse this trend.

• IIJA/BIL Expiration: The Infrastructure Investment and Jobs Act and related bills provided temporary additional funding for aviation capital projects. These supplemental appropriations are scheduled to expire after FY2026, post-FY2026 AIP returns to $3.35B baseline (PL 118-63 §2003) in subsequent years.

• Traffic Growth Uncertainty: Historical data from 2019–2024 shows baggage fee growth (15% YoY) outpaced enplanement growth (5% YoY) (BTS T-100 data). If this trend continues, the tax base could shrink relative to total passenger spending, as ancillary unbundling shifts revenue from the taxable fare to untaxed services.

F.3 Reauthorization Cycle

The Trust Fund is currently authorized through fiscal year 2028 under Public Law 118-63. Prior to that date, Congress may consider new legislation to reauthorize the tax authority and appropriation structure. The reauthorization process provides an opportunity to address long-standing structural issues, including the taxation of ancillary fees, but requires political will to resolve the airline industry's opposition.

G. Relationship to Airport Finance

For airport operators and finance professionals, the financial position of the AATF has direct effects on capital planning and federal grant availability:

• AIP Grant Availability: Airport improvement grants funded by the AATF are a key input to capital planning at airports, especially smaller regional airports that lack sufficient passenger or cargo revenue to self-fund all capital projects. A decline in Trust Fund revenue translates directly to reduced grant availability.

• Capital Planning Dependency: airports incorporate AIP grants into multi-year capital improvement plans. Uncertainty about future Trust Fund solvency creates planning risks and may necessitate reliance on alternative funding mechanisms such as airport revenue bonds or Passenger Facility Charges (PFCs).

• Interaction with PFC: The Passenger Facility Charge, which airports may impose on enplaning passengers with federal approval, is a complementary funding tool. While the PFC provides airport-specific funding, the AATF provides federal support for system-wide development. Both mechanisms compete for the same passenger base but serve different purposes.

• Smaller Airport Dependence: Regional and smaller airports, 15 of 31 large-hub airports generate <20% non-aeronautical revenue (DWU CPE database, FY2024); non-primary airports received 65% of AIP discretionary grants ($1.1B of $1.7B, FAA AIP FY2024 data) for capital development. The future of the Trust Fund is therefore a factor in the financial viability and competitiveness of smaller airports.

• Federal Investment Capacity: The overall federal commitment to aviation infrastructure is influenced by Trust Fund financial position. Declining revenue from untaxed ancillary fees could constrain federal aviation investment capacity and shift more of the capital funding burden to airports and local stakeholders.

H. Summary of Key Points

• The Airport and Airway Trust Fund is a user-fee-based funding mechanism established in 1970 to support federal aviation operations and airport capital improvements.

• The AATF is funded by seven excise taxes on domestic and international air travel: a 7.5% ticket tax, per-segment charges, international departure/arrival taxes, freight/cargo taxes, fuel taxes, frequent flyer taxes, and interest income.

• In FY2024, the AATF reported $18.14 billion in reserves with FY2025 CBO baseline projection of $20.2 billion (CBO February 2025 Budget Outlook), with revenues exceeding expenditures by $2–3B annually (FAA AATF FY2024 Monthly Statement).

• The shift of airline revenue from taxable ticket fares to untaxed ancillary fees (baggage, seat selection, etc.) poses a challenge to the AATF tax base. The IRS has determined that ancillary charges are not subject to the 7.5% ticket tax.

• According to 2024 BTS data, airlines generated approximately $7.0–7.5 billion in baggage fees; total ancillary revenue is estimated at $40–50 billion annually. This represents revenue that falls outside the Tax Fund base, currently not addressed by Congress.

• The AATF funds approximately $3.2 billion in annual AIP grants, supports $12–13 billion in FAA operations, and finances infrastructure modernization and R&D.

• Long-term solvency depends on addressing ancillary fee taxation, managing the transition after IIJA/BIL expiration, and adapting to economic cycles and traffic growth trends.

• The AATF reauthorization cycle (next due in 2028) presents an opportunity for Congress to enact reforms, but airline industry opposition has historically blocked expansion of the tax base.

• For airport finance professionals, AATF financial position affects capital planning, grant availability, and the federal government's overall commitment to aviation infrastructure investment.

I. Resources

For more information about the Airport and Airway Trust Fund:

• Federal Aviation Administration – AATF Overview: https://www.faa.gov/about/office_org/headquarters_offices/apl/

• Congressional Research Service Report R44749 – Aviation Trust Fund: Issues and Legislative Actions: https://crsreports.congress.gov/

• Tax Foundation – Analysis of Aviation Excise Taxes: https://taxfoundation.org/

¹ 26 USC §9502 (Trust Fund statute); P.L. 91-258 (Airport and Airway Revenue Act of 1970); P.L. 118-63 (FAA Reauthorization Act of 2024, extending authorization through FY2028).
² 26 USC §4261 (7.5% domestic passenger ticket tax), §4262 (segment tax), §4271 (international taxes), §4272 (cargo), and §4081-§4083 (fuel taxes). IRS Publication 510 and Treasury regulations define taxable transportation and exclusion of ancillary services.
³ FAA budget documents and Congressional Research Service Report R44749 document the $18.14 billion FY2024 balance and $20.2 billion FY2025 projected revenue.
⁴ Per 2024 Bureau of Transportation Statistics data, airlines generated approximately $7.0–7.5 billion in baggage fees; total ancillary revenue industry-wide estimated at $40–50 billion annually per FAA and Department of Transportation data. IRS Chief Counsel guidance confirms that ancillary charges fall outside the 7.5% excise tax base.

Scope & Methodology

This article examines the Airport and Airway Trust Fund (AATF), its funding mechanisms, expenditure categories, and impact on airport capital programs. Analysis draws on the establishing statute (P.L. 91-258), current tax provisions (26 USC §9502), FAA budget documents, Congressional Research Service reports, and Government Accountability Office reviews. Readers can consult qualified professionals for application to specific airport situations.

Changelog

FAA Regulatory Resources

The following FAA resources provide authoritative guidance on Airport and Airway Trust Fund:

• Aviation Fuel Tax Action Plans — Compliance status by state (aviation fuel taxes are airport revenue subject to revenue use requirements)
• AIP page — Showing Trust Fund expenditures through the grant program

ACRP Research Resources

The Airport Cooperative Research Program (ACRP) has published research relevant to this topic:

• Report 121 — Innovative Finance and Alternative Sources of Revenue for Airports (2014). Discusses federal funding mechanisms including the Trust Fund.
• Synthesis 104 — Airport Infrastructure Financing (2019). Reviews federal, state, and local funding streams.

Note: ACRP publication data may reflect conditions at the time of publication. Readers can verify current applicability.

Related DWU AI Articles

• Airport Improvement Program
• Airport Capital Funding and the Infrastructure Gap
• Passenger Facility Charges
• FAA Reauthorization Act of 2024

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