UPDATE 3-Key US senator backs upping aviation security fee

* Security boosted after failed Christmas Day plane attack

* Airline industry suffers big losses after Sept. 11, 2001

(Adds AMR comment)

By Jeremy Pelofsky

WASHINGTON, Feb 24 (Reuters) - A key U.S. senator said on Wednesday that he supported hiking aviation security fees as authorities boost security after the failed attempt to blow up a U.S. commercial airliner on Christmas Day.

Senate Homeland Security and Governmental Affairs Committee Chairman Joe Lieberman said the Department of Homeland Security's budget may not keep pace with inflation, which could inhibit efforts to thwart terrorism threats.

Boosting aviation security fees will help fund air industry security, he said.

"For that reason, I will support a request to increase aviation fees to benefit the budget of homeland security," Lieberman said at a hearing on the department's budget for fiscal 2011, which begins Oct. 1.

After the Sept. 11 attacks when four hijacked commercial airliners were deliberately crashed in 2001, the federal government overhauled passenger and luggage screening and imposed a fee on travelers and airlines to help defray the costs.

The airline industry, which has suffered massive financial losses since the attacks, has complained that carriers and passengers spend about $5.9 billion a year on security. Airlines want the government to pick up the entire tab.

Fliers pay a security fee of up to $5 each way and up to $10 round-trip. President Barack Obama's fiscal 2011 budget calls for collecting about $2.15 billion in aviation security fees.

Last year, the administration proposed hiking the maximum round-trip fee by $1 a year starting in fiscal 2012 through fiscal 2014, but it did not advance in Congress.

"The airline industry is the most heavily taxed industry in the country and one of the least financially successful and one that produces a lot of well-paying jobs in North America," said Tom Horton, chief financial officer for AMR Corp AMR.N, the parent of American Airlines. "We don't think further taxes on the airline industry are a formula for success."

Last December, a Nigerian man, Umar Farouk Abdulmutallab, tried to blow up a flight from Amsterdam to Detroit with a bomb hidden in his clothing, but it failed to go off completely and he was tackled and subdued by passengers.

That failed attempt led the Obama administration to boost airport security dramatically, and included in its fiscal 2011 budget additional money for advanced-imaging body scanners that could detect bombs hidden in clothing.

The Department of Homeland Security plans to deploy hundreds of the machines this year with the goal of having 1,000 of them operating by 2011.

While not directly addressing the fees, the senior Republican on the committee, Senator Susan Collins, said she backed the Obama administration's request for additional funding to address gaps in security that have been exposed.

"The proposed increases for aviation security are welcome," Collins said. (Additional reporting by Kyle Peterson, editing by Philip Barbara and Chris Wilson)