Aviation groups have backed a wide-ranging review of Airways' funding which has been described as defying commercial reality.
Operations and funding of struggling small airports will also studied by the Ministry of Transport, drawing on input from throughout the sector.
The Board of Air Line Representatives says Treasury's requirement for a monopoly service like Airways to make a profit from keeping air travellers safe "defies commercial reality."
"It's not a level playing field, Airways hold all the cards when it comes to pricing consultations, and airlines have no real negotiating clout at the table because they can't operate without the service," said the board's executive director Justin Tighe-Umbers.
"We'd like to see Airways operate under a cost recovery model – or at the very least any profits made should have to be re-invested into air navigation services."
In Official Information Act documents the ministry includes reference to a contestable fund of between $10 million and $12m to support airports and airlines.
Airways' revenue has collapsed since the pandemic closed borders and in lockdowns grounded nearly all aircraft movements and last year it tumbled to a $31m loss. However, in the five prior years from 2015, the state owned enterprise made profits totaling more than $108m and paid $45m in dividends to the Government.
Tighe-Umbers said the ministry was right to explore financial support for smaller airports to help pay for expensive air navigation services. At least 12 are under severe financial strain.
"New Zealand is a very difficult country to keep operating costs flat across a national network. We have a handful of concentrated centres, and then the rest of the population thinly spread out over large distances, and some in very remote places," he said.
Smaller regional airports suffer because of this, they only have a small passenger base to recover costs from.
"Air services are critical for keeping our rural and remote communities connected - so it makes sense to explore how to keep these airports viable."
Transport Minister Michael Wood ordered the review and in a briefing paper to him Airways outlined plans to possibly end services at Hawke's Bay, Gisborne, New Plymouth, Rotorua and Invercargill airports, and the aerodrome flight information services (AFIS) provided at Kapiti Coast Airport and Milford Sound Piopiotahi Aerodrome.
Airways said it has been working for a number of years to reassess how it provided
services throughout New Zealand airspace.
NZ Airports said the proposal of a fund for airports that don't have sufficient air traffic to operate in a strictly commercial manner has been a goal for the sector for a number of years.
Its chief executive, Kevin Ward, said there was a group of airports that rely on ratepayer support to maintain safe infrastructure, and that is not fair on the smaller councils and their communities.
"In the case of regional airport control towers, it's like saying that the last bridge on the state highway into town needs to be commercially self-sufficient in its own right. Of course the highway network doesn't work like that."
The air network had a similar role in keeping communities connected, providing transport resilience, enabling emergency and health services, and supporting local economies and jobs. It needs a policy and funding framework that supports it properly,
Some of the more urgent airport needs have been met from the Provincial Growth Fund and other one-off funds, but the airports had told the Government funding needs to be ongoing and part of a predictable long-term system, rather than uncertain bursts.
"Also, the affected towns simply won't let their airports close, because they provide such a valuable link for both social and economic reasons. In a way, that local determination has hidden the problem for a long time, but we are very pleased that the Government is bringing it to the surface and addressing it directly.
There was a mis-match between the needs of a safe, efficient and reliable national air transport network, and how it is set up and funded at the moment, said Ward.
"For example there is a significant tension between the requirement on Airway to operate on a fully commercial basis, and the need for ongoing services in parts of the network that have lower air traffic levels and less ability to pay directly for local services."
The New Zealand Air Line Pilots Association has also questioned the profit imperative of Airways, a monopoly supplier of an essential service.
"We don't expect the Police or the Fire Service to make a profit," said Andrew Ridling, president of the association which represents air traffic controllers.
Airways chief executive Graeme Sumner said he welcomed the ministry review.
"We are committed to supporting the long-term recovery of New Zealand's aviation industry but we do see some opportunities for improvement in the sector, particularly in the context of Covid-19 and its impacts on the aviation sector and the wider economy."
The review will get underway later this year.