Airline subsidies in the United States take several forms: emergency payroll grants during the pandemic, a federal fuel tax rate that is a fraction of what other industries pay, direct payments to carriers serving small communities, tax credits for sustainable aviation fuel, federal funding for the airports airlines operate from, and a legal requirement that federally funded travel use US carriers. Some of this support shows up as a check from the Treasury. Most of it is buried in the tax code or in laws that steer business toward domestic airlines without any money changing hands.
Pandemic Payroll Support
The largest and most visible airline subsidy in recent history came through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Under 15 U.S.C. § 9072, Congress authorized direct payments to airlines specifically to keep workers on payroll after air travel collapsed.1Office of the Law Revision Counsel. United States Code Title 15 Section 9072 – Pandemic Relief for Aviation Workers Across multiple rounds of legislation, roughly $48 billion flowed to passenger carriers, cargo airlines, and aviation contractors. A later extension under 15 U.S.C. § 9132 continued payroll support as the pandemic dragged on.2Office of the Law Revision Counsel. United States Code Title 15 Section 9132 – Payroll Support Program
The money came with conditions. Under 15 U.S.C. § 9074, airlines that accepted payroll support could not involuntarily furlough employees or reduce pay or benefits through September 30, 2020. The Secretary of Transportation could also require carriers to maintain scheduled service to any destination they served before March 2020, so airlines could not walk away from thin routes while collecting federal funds.3Office of the Law Revision Counsel. United States Code Title 15 Section 9074 – Required Assurances
Participating airlines were also barred from paying dividends or buying back their own stock through September 30, 2021. Carriers receiving larger amounts had to give the Treasury warrants or equity stakes, so taxpayers got a share of any future recovery in airline share prices.
The Federal Fuel Tax Advantage
The largest structural subsidy to commercial aviation is one most travelers never notice. Under 26 U.S.C. § 4081, kerosene used by a registered commercial aviation operator is taxed at 4.3 cents per gallon.4Office of the Law Revision Counsel. United States Code Title 26 Section 4081 – Imposition of Tax The same kerosene used outside commercial aviation is taxed at 21.8 cents per gallon, and highway fuels face steeper federal rates still. When an airline burns millions of gallons a day across its fleet, the gap between those rates translates into a substantial cost advantage.
The stated rationale is that highway fuel taxes fund road maintenance, and airlines do not use roads. Critics respond that the 4.3-cent rate has not been adjusted for inflation in decades and does not cover aviation’s share of air traffic control, safety oversight, and environmental costs.
Essential Air Service
Not every airline subsidy is emergency spending. The Essential Air Service (EAS) program has operated since airline deregulation in the late 1970s. It exists to solve a specific problem: some communities are too small to support profitable air service, but cutting them off entirely would isolate them from the national aviation network. Under 49 U.S.C. §§ 41731–41748, the Department of Transportation pays carriers to fly routes that would otherwise lose money.5Office of the Law Revision Counsel. United States Code Title 49 Chapter 417 – Operations of Carriers
A community generally qualifies if it received scheduled air service historically and sits far enough from a large or medium hub airport. Communities more than 175 driving miles from the nearest hub are exempt from some of the tighter eligibility restrictions that apply to places closer to major airports.5Office of the Law Revision Counsel. United States Code Title 49 Chapter 417 – Operations of Carriers
The DOT subsidizes two to four daily round trips per EAS community, with three being the norm, typically using 19-seat aircraft to a major hub. Carriers compete for these routes through a bidding process, and contracts generally run two years.6U.S. Department of Transportation. Essential Air Service FAQ Roughly 160 communities across the mainland, Alaska, Hawaii, and Puerto Rico depend on the program.
Sustainable Aviation Fuel Credits
The newest category of federal aviation support targets emissions. Under 26 U.S.C. § 45Z, fuel producers can claim a Clean Fuel Production Credit for sustainable aviation fuel (SAF) that achieves at least a 50 percent reduction in lifecycle greenhouse gas emissions compared to conventional jet fuel.7Internal Revenue Service. Sustainable Aviation Fuel Credit The credit starts at a statutory base of 20 cents per gallon for producers that have not met prevailing wage and apprenticeship requirements, and rises to $1.00 per gallon for those that have. A supplemental credit of one cent per gallon applies for each percentage point the emissions reduction exceeds 50 percent, up to an additional 50 cents. Both amounts adjust for inflation beginning in calendar years after 2024.8Office of the Law Revision Counsel. United States Code Title 26 Section 45Z – Clean Fuel Production Credit
To qualify, the fuel must meet specific ASTM International standards, cannot be derived from palm fatty acid distillates or petroleum, and must be certified by an unrelated party for supply chain traceability and lifecycle emissions analysis. The credit expires for fuel sold after December 31, 2029, making it a time-limited push to build SAF production capacity before the subsidy disappears.
On the infrastructure side, the FAA’s FAST (Fueling Aviation’s Sustainable Transition) grant program funds projects to produce, transport, blend, and store SAF. Applicants must submit quantitative lifecycle greenhouse gas analyses and demonstrate alignment with the Inflation Reduction Act’s definition of sustainable aviation fuel.
Federally Funded Airport Infrastructure
Airlines operate from airports they generally do not own or build. The federal government picks up a large share of the capital cost through two channels.
The Airport Improvement Program (AIP) provides grants for planning and developing public-use airports included in the National Plan of Integrated Airport Systems. Eligible projects include runway construction and rehabilitation, taxiway work, and in some cases terminal and hangar improvements. AIP funds are drawn from the Airport and Airway Trust Fund.9Federal Aviation Administration. Airport Improvement Program (AIP)
Airports can also collect Passenger Facility Charges (PFCs) directly from travelers. The FAA authorizes public agencies controlling commercial airports to impose a PFC of up to $4.50 per enplaned passenger, capped at two charges on a one-way trip and four on a round trip, for a maximum of $18 per traveler.10Federal Aviation Administration. Passenger Facility Charge (PFC) Program The $4.50 cap has remained unchanged for years, and periodic legislative proposals to raise it have so far failed. PFCs are collected from passengers but controlled by airport authorities, and they reduce how much airports need to charge airlines in landing fees and terminal rents.
The Fly America Act
The Fly America Act (49 U.S.C. § 40118) requires almost all federally funded air travel to use US flag carriers. Federal employees, military personnel, and anyone traveling on the government’s dime must book with a domestic airline unless a narrow exception applies. Exceptions include situations where no US carrier serves a particular route segment, where a foreign carrier would save three or more hours of travel time compared to doubling the en route time on a US airline, or where an applicable Open Skies agreement explicitly permits foreign carrier use.11eCFR. 41 CFR 301-10.134 – Fly America Act Requirements and Exceptions Only four Open Skies agreements currently meet the Fly America Act’s requirements for using a foreign carrier on government-funded travel.12U.S. General Services Administration. Fly America Act The result is a captive market of government travelers reserved for US airlines, a form of support that is easy to overlook because no check changes hands.
What Airlines Pay In Return
Airlines do not escape federal taxation altogether, and the fees passengers and shippers pay through the ticket cover most of the federal aviation system. A 7.5 percent tax applies to the amount paid for domestic air transportation, plus a per-segment fee set at a $3.00 statutory base and adjusted annually for inflation.13Office of the Law Revision Counsel. United States Code Title 26 Section 4261 – Imposition of Tax International departures and arrivals carry their own per-passenger charges. Air cargo faces a 6.25 percent tax on amounts paid for domestic property transportation by air, with exemptions for very small aircraft, intra-corporate transfers, and cargo moving in continuous export.14eCFR. 26 CFR 49.4271-1 – Tax on Transportation of Property by Air
These excise taxes flow into the Airport and Airway Trust Fund, which the Treasury Department forecasts will collect approximately $21.3 billion in FY 2026.15Federal Aviation Administration. Airport and Airway Trust Fund That money funds air traffic control operations, FAA safety programs, and the AIP grants that flow back to airports airlines use. Airlines collect the passenger taxes but pass the cost through to travelers, so the fees show up on the ticket rather than the airline’s income statement.