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Reason Foundation

Air Traffic Control Reform Newsletter #5

Topics include: ATC modernization threatened by budget shortfalls; RVSM revisited; more FAA accounting system troubles; and corporatized ATC and rural areas.

Robert Poole
April 1, 2002

In this issue:

Budget Shortfalls Imperil Modernization

Once again, the FAA is facing a "huge" budget shortfall, of as much as $20 billion over the next five years, according to House Transportation Appropriations Subcommittee Chairman Harold Rogers (R., KY). "We are heading into a huge problem that will require enormous cost control measures," he said. DOT Inspector General Ken Mead pointed out that a major cause of the shortfall is reduced ticket tax revenues. But another factor squeezing modernization is the escalating cost of FAA's payroll, up 40 percent in the past four years. Since 73 percent of FAA's budget goes for payroll costs, and since airport grants (AIP) receive first priority for capital funds, ATC modernization gets the short end of the stick.

And modernization is under serious threat. Charles Keegan, program manager for FAA's Operational Evolution Plan (OEP), told the Aerospace Commission in February that the plan is behind budget and faces continued shortfalls. "We're short [on cash] now, and we will be short the next eight years." An Inspector General's report points to major schedule slippage on key modernization efforts such as WAAS, STARS, ASR-11, and AMASS—even before the current funding shortfalls. And even modest free-flight tools like Traffic Management Advisor are being held back by lack of funding. Air Transport Association vice president Jack Ryan told attendees at the recent Air Traffic Control Association symposium that TMA "has been decimated by cost reductions."

This is not the future that aviation was promised by those who wrote and pushed through AIR-21. Supposedly, this new measure would resolve the FAA's roller-coaster capital funding patterns and lay a firm funding basis for ATC modernization. Yet here we are, once again, back to the same feast-or-famine cycle. That's because AIR-21 ignored the most important of the 1997 Mineta Commission's recommendations: funding modernization by issuing long-term bonds backed by the revenue stream from fees and charges paid by ATC users. That was also the recommendation of the DOT's 1994 Air Traffic Control Corporation Study. This is the kind of capital-funding mechanism used by ATC corporations in Europe, Canada, Australia, and New Zealand.

To be sure, the revenue stream drawn upon for debt service on ATC modernization bonds would be subject to ups and downs, as aviation activity coped with the business cycle. But that's why bond issuers build in a safety factor, called a "coverage ratio," to ensure that those temporary dips in revenue do not interfere with the ability to make payments to the bondholders. Reserve funds are also generally required, to make it easier to get through down-turns in the business cycle. A good example is Nav Canada's Rate Stabilization Fund, which it is now using to minimize the need for rate increases and spending cuts. Debt service on its investment-grade bonds has never been in question.

In the present FAA funding crunch, Congress may be persuaded to put more general fund money into the agency, despite the overall federal budget deficit. But it's clear that long-overdue modernization of the ATC system will take more hits. None of which would be necessary if the funding system for ATC had been reformed along commercial lines, as recommended repeatedly during the 1990s.


RVSM Revisited

Last issue's lead story, on the successful implementation of Reduced Vertical Separation Minimums (RVSM) in Europe, the North Atlantic, and (as of this month) in northern Canada, generated some interesting feedback.

FAA Deputy Administrator Monte Belger chided us for failing to mention the FAA's "aggressive role in implementing RVSM in the North Atlantic," in cooperation with corporatized providers Nav Canada and NATs. We appreciate the opportunity to acknowledge FAA's role there. He also pointed out that RVSM has been implemented in a large part of FAA's Pacific air space.

Also reacting to the article was NATCA, always on the lookout for an opportunity to attack. Since we'd praised Nav Canada for being two and a half years ahead of FAA in implementing RVSM in domestic airspace (it cannot do southern Canada until the United States is ready, promised for November 2004), NATCA's John Carr tried to blame Nav Canada for holding up implementation of RVSM for oceanic traffic controlled by Boston Center. "This is yet another[?] example of the failures of a privatized air traffic control system," Carr ranted to a reporter at Aviation Daily. But a quick check with FAA and Nav Canada told the reporter a different story. FAA had not even notified Nav Canada about the idea until late January, and given a needed six-month planning and training period, implementation by mid-April was clearly not feasible—as FAA acknowledged.

But Carr succeeded in getting another anti-privatization headline.


FAA Cost Accounting System — Still More Delay

The FAA Reauthorization Act of 1996 called for the agency to move immediately to implement an effective, reliable, and comprehensive cost accounting system to accurately determine agency costs. The Mineta Commission, in its December 1997 report, said that the system "should be operational by October 1998."

Three and a half years after that target date, the system is still not in place. And Inspector General Ken Mead, in the OIG's second annual assessment of FAA's accounting efforts, now concludes that FAA "will not implement a credible and effective cost accounting system by Sept. 30, 2002." Thus, neither the FAA nor its yet-to-be-launched Air Traffic Organization can yet begin to function like a business, with accurate knowledge of what its various activities cost.

The OIG report lays out five major challenges. First, to be effective, the system must be implemented across all six FAA lines of business. Thus far, the system is only in place in Air Traffic Services—but even there, the crucially important labor distribution system is seriously flawed, and still being negotiated about with the unions. Second, FAA still has not defined performance measures for its programs and lines of business, to make use of the new data. Third, FAA still isn't properly allocating overhead costs for its Headquarters operation. Fourth, the current asset tracking systems are "not reliable." And fifth, FAA does not yet have an adequate system of internal controls, as required by federal accounting standards.

We�re often told that serious FAA reform cannot occur until a real accounting system is in place at FAA. But perhaps the reality is the other way around. Until there's a dramatic management overhaul of FAA, it may not be possible to get meaningful accounting systems into use.


Rural Areas Getting ATC Upgrades in Canada

Would an air traffic control corporation focus its resources on major airports and busy regions, leaving rural airports and states with inferior service? That concern has been expressed by Senators from rural states, and it�s a reasonable question to ask. The evidence from Canada suggests that a properly structured ATC corporation won't leave rural areas behind.

Last year Nav Canada announced a significant expansion of modern radar facilities in northern Canada. Two such sites were completed last year�at Yellowknife in the Northwest Territories and Kuujjuac in nothern Quebec. Four more are under way, in La Ronge and Stony Rapids, Saskatchewan; Iqaluit, Nunavit; and Chisasibi, Quebec. These six new radars are expected to save customers $170 million over the next 15 years. The program is considering adding new radars at three additional sites, and two older radars at other sites are being replaced with new ones, as part of the program.

Why is Nav Canada doing this? In part, because expanded radar coverage benefits overflights between Europe/Asia and North America, as well as local traffic in northern Canada. But it is also investing in these rural facilities because of its nature as a nonprofit, user-controlled enterprise. Its purpose is to provide ATC services for all airspace users, all of whom are represented as stakeholders on its board of directors. So it's not a question decided solely by profit-maximization criteria. Although run on commercial principles, so as to get the most value out of the funds it spends, Nav Canada is organized as a not-for-profit corporation, to serve the needs of its users. That's why modernizing ATC in the frozen north makes business sense for it to do.


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


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