The FAA's AeroNav charting division told vendors this week that it proposes to charge end users of digital charting producers about $150 a year to close a $5 million shortfall in its budget due to declining paper chart sales. The new fee, if adopted, would presumably more than double the cost of some popular iPad and Droid applications such as ForeFlight and WingX. Plus, vendors selling through Apple's application channels would face additional charges. "To me, it's pretty clear that these prices are a non-starter. I know pilots aren't going to pay $150 for these products without screaming about it," one vendor told us.
And because AeroNav's incremental pricing favors large-volume vendors over smaller ones, the pricing change may effectively kill smaller application writers and/or free sites that offer FAA charting products as a convenience for users. That might include DUATs contractors, which offer free charts on the two sites.
Moreover, the FAA told about 70 vendors that as paper sales continue to decline, the FAA charges for digital charting products are likely to increase in order to cover fixed overhead costs. The agency also assured the vendors that it would not be developing any apps or other products to compete with them.
Tuesday's meeting, which was closed to the public and press, had been billed as an information gathering session so the AeroNav group could reach pricing that worked for everyone. Based on conversations with several vendors, we would say reaction to the FAA's proposals were mixed at best. "The FAA did a remarkably good job in soliciting opinion," one vendor told us, "I'm actually fairly hopeful." Mark Spenser of Avilution, a newer aviation app for Android, says he's not sure he'll stay in the business if the FAA's proposed charges are adopted. "It's too early to tell," he said. The FAA also realizes there will have to be some other structure for websites that display charts, like FltPlan.com or RunwayFinder. Dave Parsons of RunwayFinder told us, "I won't be able to do it for even a dollar a user [per year]."
The assembled vendors were told that the FAA will announce a detailed proposal by mid-January and the new charges will go into effect in April, 2012. But one of the participants we spoke to on Wednesday said that timeline is "totally unrealistic." He expressed further skepticism that the FAA made its case the its economics justify such steep price increases. Several vendors we spoke to told us there wasn't much give and take and that AeroNav presented their price structure in a way that suggested little flexibility. Michael Wolf, president of Sporty's, told us Wednesday that he remained unconvinced that AeroNav had made a legitimate effort to close its budget shortfall by cutting its expenses.
As for the new prices, vendors questioned how the agency arrived at its numbers. The FAA seems to have grossly underestimated the number of potential users, vendors told us. They told the assembled vendors that the $150/year number was based on their estimated number of users divided into the $5 million shortfall. But that's only about 33,000 users. Vendors tell us the real number is more than 100,000. That may be good news for driving down the final price for subscriptions eventually, but for the short term, it means higher costs for vendors. It's also true that bigger companies will have the right to resell charts to start-ups, who might want only single-updates or charts for a specific area of the country to trim costs. However there might be an inherent conflict of interest in doing so.
Bigger companies also will have an edge as the proposed pricing is regressive: For example, a vendor with up to 100 customers would pay $250 per customer, while one with up to 1,500 might pay $120. There was also a flat-fee proposal where zero to 100 customers would be $25,000/year, 100 to 250 would be $50,000/year and so on. It's unclear which of those options might go into effect, but AeroNav told the vendors the prices proposed are in a general range.
When asked if AeroNav could make up the $5 million by reducing its expenses, FAA officials said no, although budget relief from Congress might be an option. FAA officials deflected several specific questions about AeroNav's budgeting and costs, which Sporty's Wolf told us he thinks they will need to do.
In addressing the group, Fred Anderson, AeroNav's director of products, told the vendors that the FAA has always charged user fees for charting products, dating to the 1920s, when the government was authorized by Congress to collect fees limited to paper and printing. The current law allows AeroNav to charge for printing and distribution, but also for management of databases used for chart preparation. It cannot charge for the acquisition or distribution of flight data required to make charts. Heretofore, AeroNav has charged a nominal fee for digital chart data it sold on DVDs. It has also allowed all comers to download the digital data at no charge, an arrangement that made attractive economics for some application writers. Vendor costs for the DVD have been on the order of $200 a year, but with no end user limitations, they amortize this over hundreds or thousands of customers.
AeroNav also proposed that vendors will be required to become chart sales agents and will be subject to audit by AeroNav to confirm they're charging customers correctly, which will cost vendors -- and customers -- yet more money. Vendors told us the FAA hopes to finalize its pricing, contractual agreement and other issues brought up in today's meeting by early January. We'll gauge pilot reaction after the numbers are finalized.
On Tuesday, the FAA did not return our request for comment by our deadline, but spokesman Laura Brown said Wednesday the agency would respond to detailed queries for follow-up stories later this week.