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Reason Foundation

Air Traffic Control Reform Newsletter #28

Topics include: a congressional threat to flight service outsourcing; another TRACON scandal; progress on ATC funding reform; a global comparison of ATC performance; and S&P on ATC corporations.

Robert Poole
July 1, 2005

In this issue:

House Bill Would Kill Flight Service Outsourcing

In an action that caught the FAA by surprise, the House passed by 238-177 a bill that would overturn the agency's award of a five-year contract to Lockheed Martin to modernize the aging Flight Service Station (FSS) system. An all-out effort by the FSS unions, with the full support of the AFL-CIO Transportation Trades Department, won 48 Republican votes. For the latter, it was apparently a combination of moderates bolstering their union-friendly reputations and members wanting to protect a facility in their district that would be shut down under the outsourcing plan. The issue will be taken up at the committee level in the Senate this week.

The FSS outsourcing is the largest non-military outsourcing contract in the federal government to date. The $1.9 billion contract would cut the annual cost of the FSS program from over $600 million to around $380 million—a nearly 40% saving. Over 10 years (the contract has a possible 5-year extension) that would save FAA $2.2 billion. LM would achieve those savings by consolidating 58 facilities into three core centers plus 17 automated sites, while replacing 1970s technology with state-of the art equipment and services. The FSS system provides services to private pilots, such as weather briefings and flight plan filings. The largest private pilots group, AOPA (representing over 400,000 pilots), has been a big supporter of the plan. President Phil Boyer has said repeatedly that the new technology will improve both safety and services to pilots.

But that didn't stop the bill's sponsor, Rep. Bernie Sanders (I, VT), from mis-characterizing what was going on. Sanders himself repeatedly referred to the flight service specialists who staff the FSSs as "air traffic control specialists," implying that they control traffic, which they do not. Colleagues Dennis Kucinich (D, OH) and Maxine Waters (D, CA) kept using words like "safety" and "security" in their statements on the floor, as the bill was being debated.

But what probably made the key difference was members' knee-jerk resistance to the loss of government jobs in their districts. This is ironic, since avoiding layoffs has been one of FAA's (and Lockheed Martin's) key objectives in the outsourcing process. While the downsized workforce is planned to drop from 2,500 to 1,500 as facility consolidation proceeds, this will be handled via retirements and transfers to other vacancies within FAA, not layoffs. And it's not as if these were huge facilities, like military bases. Kucinich says he's trying to save a grand total of 32 jobs in Cleveland . And the center in Huron, South Dakota that freshman Sen. John Thune (R, SD) will be defending this week has less than 20 jobs.

My sources tell me that FAA, Lockheed Martin, and the White House are mobilizing for the Senate battle. That's important, because what happens on FSS will set an important precedent for further ATC reform. Last issue I noted the strong recommendation of the FAA's Management Advisory Council that, to produce the major productivity gains needed for the Next Generation Air Transportation System, the FAA must carry out major consolidation of facilities, such as TRACONs and en-route centers. Those are much larger facilities � and real economies of scale do exist in ATC that can be realized by consolidating facilities. Many of the overseas ATC corporations have already consolidated such facilities as part of their modernization efforts. But if Congress makes "jobs in my district" its overriding priority, you can kiss goodbye the prospect of meaningful gains in productivity in air traffic control.

President Bush stood firm in 2003, when the same factions in Congress attempted to legislatively declare ATC "inherently governmental" and thereby preclude any outsourcing of FAA activities. He was willing then to veto the entire FAA reauthorization bill unless that language was removed, as it eventually was. Equal determination is needed again this year.


Another TRACON Scandal

Last issue I reported on the out-of-control New York TRACON, which most reports had deemed an isolated instance. Several current and retired FAA managers emailed me that this was not the only case, and sure enough, the next few days saw a Dallas TRACON scandal hit the headlines.

This was a whistle-blower case, investigated by both the DOT Office of Inspector General (OIG) and the Office of Special Counsel, an independent federal agency whose mission involves protecting whistle-blowers. Their reports make chilling reading, on two grounds. The whistle-blower, long-time controller Anne Whiteman, reported that controllers and management at the Dallas TRACON "routinely covered up serious operational errors and deviations involving aircraft" over a period of seven years. When the OIG investigated, they found that the Dallas TRACON had its own policy for dealing with potential errors. Despite national FAA policy requiring the use of playback tools to check whether such an error occurred, at Dallas the policy was an honor system. If the controller, when asked, said there was no loss (or possible loss) of separation between aircraft, that was it, no further question asked, and no checking the data.

In response to the OIG and OSC investigations, FAA decertified one controller for committing a previously unreported error, replaced the TRACON's quality assurance manager, and placed the whole facility on a two-year probation where unannounced reviews can be made at any time. The TRACON manager has issued a new directive mandating the immediate use of playback tools, conforming the Dallas facility with national policy. So, on this issue, we may also have a special case of a problem at this TRACON, not a system-wide problem.

But the other implication of this case is far more troubling. As pointed out by the Dallas Morning News (7-5-05), FAA has had to move whistle-blower Anne Whiteman to a different facility "to protect her from vindictive co-workers." Their editorial cites fellow controllers at the Dallas TRACON "hitting [her], making threats against her, and even trying to run her off the road." So FAA's response is not to get rid of those people but to shift Whiteman to a different facility!

Sounds to me like the Dallas TRACON is still out of control. More heads need to roll there, both offending controllers and managers unable or unwilling to prevent this kind of outrageous behavior.

Footnote: A more detailed follow-up on Anne Whiteman's travails was published in the Dallas paper last Sunday. Go to: www.dallasnews.com/cgi-bin/bi/gold_print.cgi.


Progress on ATC Funding Reform

Following up on its April 2005 Trust Fund Forum, FAA Administrator Marion Blakey has sent participants a "Summary of Major Principles" as a basis for guiding the process of developing a specific proposal for the new FAA funding structure. Those eight principles are:

Blakey says there will be continued discussions with stakeholders this summer and fall, with an Administration proposal being released early in 2006.

ATC funding reform was on the agenda at the Air Traffic Control Association's one-day conference, "Right-Sizing the National Airspace System" on June 21st. Blakey reiterated some of the above points, including the user-pay means user-say principle and the need to align the costs of providing ATC services with the revenues brought into the system. She noted, again, that FAA is the only air navigation service provider (of any consequence) that does not charge users directly for services. And she noted that ATC providers in Europe are able to offer reduced user fees for those who equip their planes with important new cost-cutting ATC technology.

Airline representatives at the conference spoke up in favor of thoroughgoing reform. Air Transport Association Executive VP John Meenan suggested that the 20 existing domestic en-route centers could be replaced by three advanced-technology ones. And Continental government-affairs VP Rebecca Cox was very direct on the subject of user fees. In response to a question about whether shifting to such a system could lead to airlines ending up paying more than they do today, Cox responded, "Would we pay more for a system that works? Probably. Would we pay more for the inefficient system we have now? Absolutely not." (In fact, Reason's May 2005 ATC funding reform study pointed out that by shifting to a user-fee system in which revenue bonds were used to finance capital investments, airlines would likely pay less than they do today during an initial 8 to 10-year transition period.)

One slightly discordant note occurred at the CANSO meeting in Ireland in May. The head of the government's Joint Planning & Development Office (charged with planning the Next Generation Air Transportation System), FAA's Charlie Keegan, was asked who was going to pay for this capital-intensive new system. Instead of noting the Administrator's push for funding reform, Keegan disagreed that this is an issue, simply stating that we have to be bold. What a missed opportunity!


Comparing Apples vs. Apples in Air Traffic Control

Back in February 2003, when the controllers union published a White Paper attacking what they called ATC privatization, they threw around various unsupported allegations about overseas ATC corporations, implying that none of them could hold a candle to the FAA. Since that time, objective data has been starting to emerge; I reported on an in-progress GAO study in Issue No. 26.

Now comes a very detailed and useful international study sponsored by FAA itself, with the cooperation of Eurocontrol and six corporatized air navigation service providers: three in Europe and one each in Australia , New Zealand , and Canada . Specifically, the International Terminal Air Traffic Control Benchmark Pilot Study (February 2005) was designed to compare the performance of terminal-area ATC between FAA facilities and comparable facilities in the other countries. The methodology involved selecting six matched pairs of facilities, one FAA and one overseas from each of the six countries. The pairs were:

The findings are very interesting. Averaged over all six pairs, the U.S. controllers worked slightly more hours per year and controlled 12.5% more traffic: 4,664 movements vs. 4,164. However, once cost was taken into account, the average overseas controller was a better deal, costing the service provider an average of $27 per movement, vs. $36 at the FAA facilities�i.e., the US operations were 33.3% more costly.

But averages often conceal more than they reveal. For example, the largest non-US provider is Nav Canada , and in the comparison of Toronto with Dulles, Nav Canada comes out very well. On productivity, the overall average was 3.0 movements/controller/hour at Toronto vs. 2.8 for Dulles. During peak periods, Dulles bested Toronto , 8.2 to 6.7. But on cost, Nav Canada was far ahead. Average employment cost per controller per working hour was $160 at Dulles vs. $87 at Toronto . That led to the cost per movement being $36 at Dulles vs. $20 at Toronto . Out of the six pairs, the US one was more costly in every case except Philadelphia compared with Frankfurt , where both came in at $31.

There's a lot more detail on these results in the report's 120 pages. This is the kind of objective, apples vs. apples data that can inform the coming debate on moving the FAA's Air Traffic Organization toward a more commercial model. Assuming, that is, that anyone is interested in having a meaningful debate.


S&P Compares ATC Corporations

Another uninformed criticism of corporatized air navigation service providers (ANSPs) is that they are financially shaky. This impression was created by the short-term difficulties experienced by North Atlantic providers Nav Canada and NATS in the wake of 9/11, when traffic in their largest market plunged and took several years to recover. Nav Canada, in operation since 1996, was helped through the crunch by an accumulated reserve fund, but NATS, having started up only a few months before the terrorist attack, had no reserves and eventually had to go to its two principal owners—the Airline Group and the UK government—for additional investment.

But that was then and this is now. Today, corporatized ANSPs provide nearly all European air traffic control, as well as ATC in Australia, New Zealand, Thailand, Canada, South Africa, and a number of other countries. All are supported by fees and charges, and many finance large capital expenditures (facilities and equipment) by issuing revenue bonds. Thus, it's hardly surprising that rating agencies like Standard & Poor's would take a close interest in their financing.

Last month S&P issued a report on the four largest corporatized ANSPs: Airservices Australia , DFS (Germany), Nav Canada , and NATS (UK). All four have investment-grade ratings, ranging from AAA (Airservices) to A- (NATS). Because Airservices and DFS are government-owned, S&P considers their debt to have "implied" government backing, which is not the case for Nav Canada and NATS. All four are fully supported by fees and charges (including, in the case of DFS, government reimbursements for services provided to military aircraft).

It's interesting to see how the financial community looks at ATC providers. The success of these four ANSPs suggests that despite the larger scale of US ATC operations, a commercialized Air Traffic Organization with a comparable legal and regulatory structure would have no difficulties gaining access to the capital markets to raise the billions of dollars needed for a user-supported modernization program. Indeed, there is every reason to expect that its bonds would be rated investment-grade, like those of the four ANSPs discussed in this useful report.


FAA Terminates Obstructive "Collaboration"

It makes sense to get input from air traffic controllers on new systems they will use in their jobs. But some forms of collaboration can drag out implementation of such technology and lead to the "requirements creep" that drives up costs, a perennial FAA problem. With that in mind, the Air Traffic Organization is this month terminating the previous Administrator's program of having a cadre of controllers assigned full-time to agency headquarters. In future, controllers will be "just brought in when they are needed." Needless to say, the union (NATCA) issued a page-and-a-half long news release denouncing the agency for "discarding safety at the front door." But a recently retired manager emailed me an example of how the process often worked in practice.

"The NATCA controllers assigned to these new equipment deployments made FAA and its vendors jump through every kind of hoop before they would sign off on deployment. [When] we were installing STARS . . . I asked the NATCA representative on the project why they adapted an ARTS-style keyboard rather than the widely accepted apha-numeric keyboard used on PCs and in the en-route system. His response was 'because that's the way I wanted it.'"

Needless to say, this retired manager characterized the just-terminated program as "a most expensive and inefficient collaborative process that cost millions of dollars and delays to the implementation of new ATC equipment." Its termination is another sign of the current management's welcome effort to regain control of the organization.


News Notes

Airservices Australia Anniversary. July marks the 10th anniversary of Australia's commercialized ANSP. In a message to staff posted July 1st, the chairman and the acting CEO note some of the company's accomplishments in its first decade: first fully computerized ATC system, first to introduce reduced vertical separation (RVSM), and first to dramatically reform the structure of its pricing. They also point to savings to customers of A$140 million per year. Airservices is now providing upper-level airspace management for the Solomon Islands and Nauru and tower operations in Guam, Saipan, and Hawaii . And the company is embarking on a major program to implement Automatic Dependent Surveillance Broadcast (ADS-B) nationwide and overseas.

Nav Canada Rebuilding Reserve Fund. Canada's private, not-for-profit ANSP announced in April that it is back in the black to the point of beginning to rebuild its Rate Stabilization Account, a reserve fund set aside to prevent or minimize rate increases in times of decreased air traffic. To cope with the post-9/11 reduction in (especially) North Atlantic traffic, Nav Canada spent all the funds in this account (and then some). Those borrowings have been repaid, and the Account is now being built back to the target level of C$50 million.

NATS Back in Black. On July 1st, the UK's public-private ANSP announced its first significant profit since its creation in 2001. For the fiscal year ended March 31, 2005, NATS earned 68.8 million pounds, compared with just 1.8 million in the previous year. And in the two previous years, NATS had lost 29.1 million and 79.9 million pounds, due to reduced flight activity following 9/11. The company also announced that delays had reached a record low level, averaging just 21 seconds per flight, half the level of the previous year.

DFS Gears Up for Privatization, Competition. German ANSP Deutsche Flugsicherung (DFS) anticipates additional rate reductions of perhaps 10% next year, following 2005 reductions of between 20 and 30%. As it gears up for privatization in 2005 (the government plans to sell 74.9% to investors), DFS is cutting costs and preparing to compete across Europe . At the end of 2006, all European ANSPs will be able to offer control tower operations services anywhere in Europe, and DFS plans to compete in that market. In addition, as part of the European Single Sky initiative, en-route airspace is being reorganized across political boundaries, which also offers opportunities the company plans to pursue.


Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


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