UPDATE 3-Congress reaches deal to end FAA shutdown

Thu Aug 4, 2011 5:54pm EDT

* Legislative compromise to be finalized on Friday

* Senate will approve House-passed FAA extension

* Nearly two-week shutdown halted airport projects (Adds airlines, details of agreement)

By John Crawley and Thomas Ferraro

WASHINGTON, Aug 4 (Reuters) - U.S. congressional leaders struck a deal on Thursday to resolve a partisan dispute and end a partial shutdown of the Federal Aviation Administration that has halted airport projects and threatened thousands of jobs.

The standoff, which began on July 22, has centered on partisan differences over full funding of the agency through the middle of next month.

Because of the disruption, certain airline ticket taxes were not collected, leaving a huge hole in government revenues for aviation programs.

"I am pleased to announce that we have been able to broker a bipartisan compromise between the House and the Senate," Senate Majority Leader Harry Reid said in a statement.

Reid said the compromise did not resolve key differences that held up funding extension, leaving contentious issues until lawmakers return from recess in early September.

Congress adjourned earlier this week for its August recess but Democratic aides said the Senate will finalize the deal on Friday by approving a version of the spending measure already passed by the U.S. House of Representatives.

The Senate will use a procedure that does not require lawmakers to return for a vote.

Transportation Secretary Ray LaHood called the agreement a "tremendous victory" for workers.

The nearly two-week shutdown affected some 70,000 jobs related to airport construction and nearly 4,000 FAA positions that were placed on furlough, government officials said.

PRESSURE FROM OBAMA

Compromise came after President Barack Obama stepped up pressure on lawmakers already bruised by weeks of partisan wrangling over legislation to raise the U.S. debt limit.

The FAA impasse hinged on cutting certain subsidies for rural air service -- a demand by the Republican-led House that rankled key Senate Democrats like Reid, Finance Chairman Max Baucus and John Rockefeller, chairman of the Commerce Committee.

Congressional and transportation officials said the linchpin of the compromise gives LaHood authority to waive specific cuts in service to rural airports contained in the bill.

"He will use that authority where appropriate under the law," a senior Transportation Department official said.

The compromise allows Congress to finalize legislation to fully fund FAA programs through mid-September. This and past extensions aim to bridge the gap to a long-delayed bill laying out agency funding and U.S. aviation priorities.

Rockefeller warned of another possible showdown with Republicans over funding and aviation priorities when lawmakers return from their recess.

The funding extensions, put in place periodically since 2007, are needed to keep the FAA operating fully while Congress debates a long-term spending blueprint for the agency.

The end of the impasse also will mean the end of a revenue windfall for U.S. airlines. With no legislation in place to authorize FAA funding, carriers were not required to collect a 7.5 percent passenger tax assessed on tickets.

Most, like Delta Air Lines (DAL.N), American Airlines AMR.N, US Airways LCC.N and Southwest Airlines (LUV.N), raised fares by that amount instead and stood to collect more than $1 billion in extra revenue had the shutdown lasted for another month. (Reporting by John Crawley; Editing by Bill Trott)

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