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Reason Foundation

Air Traffic Control Reform Newsletter #57

Topics include: ADS-B and the consensus requirement; business jets soar where user fees prevail; pricing and bad weather; competition for control towers; and other news.

Robert Poole
October 1, 2008

In this issue:


ADS-B Implementation Still on the Slow Track

As readers of this newsletter are well aware, ADS-B is a core building block for the NextGen system that will replace manual, ground-based air traffic control with satellite-based, network-centric air traffic management. But as I've written before, coordinating the investments by FAA in needed ground stations with investments by hundreds of airlines and hundreds of thousands of private plane owners is a major problem. When aircraft operators reacted negatively to FAA's March 2008 plan with its far-off 2020 deadline for equipping all planes just with the ADS-B Out equipment (that tells controllers where the planes are but offers no benefits to the aircraft), the agency created an Aviation Rulemaking Committee representing all the stakeholders. The ARC report was released on Sept. 26th-but unfortunately, there were no breakthroughs.

Because airlines and general aviation could not agree on a faster implementation schedule, the report defaults to the ridiculously far-off 2020 ADS-B Out equipage deadline-though it does urge FAA to get serious about a strategy and deadline for ADS-B In equipage also. It suggests offering benefits to those who equip for ADS-B Out well before 2020-such as priority routes and new procedures for equipped planes. And since current benefit-cost calculations for most private planes still show costs exceeding benefits, it suggests FAA explore various incentives-mostly things like subsidies or tax credits to reduce the net equipage costs.

The 2020 deadline remains in place because the powerful general aviation groups-AOPA and NBAA-seek to protect their members from unfunded mandates for as long as possible. But as a result of the far-off deadline, GA pilots will mostly hold off from buying anything, since it's fairly likely that technology will evolve and costs will come down between now and 2020. Likewise, avionics companies may be unwilling to put ADS-B gear on the market now, rather than 6 or 8 years from now, since there won't be much demand, and they, too, may be able to produce better and cheaper gear years from now. In other words, the far-off equipage deadline becomes a self-fulfilling prophecy.

Is this really the best we can do? Given the centrality of ADS-B to NextGen, and the need to get NextGen implemented for all its capacity-expanding, congestion-relieving benefits, we need breakthroughs on this equipage issue. The idea of serious incentives for early equipage holds a lot of promise. If a full transition to ADS-B-both Out and In-could be achieved by, say, 2017, there might be enough benefits for airlines to accept the use of some of FAA's budget to provide incentives for GA to equip. The principle is already in existence, both in FAA's earlier Capstone program in Alaska (which gave ADS-B boxes-both Out and In-to hundreds of aircraft operators) and FAA's recent announcement of subsidies to help equip about 100 airline jets with $19,000 electronic flight bags equipped with moving-map displays aimed at preventing runway incursions.

One possible GA equipage idea would be a declining subsidy. Starting, say, in 2010, GA owners could get up to $5,000 to equip with an ADS-B box and display for both Out and In functions. In 2011, the amount would drop to $4,375, and each year thereafter by another $625 until reaching zero by 2018, the year in which every plane must be equipped. Assuming that 10,000 out of a possible 200,000 plane owners take advantage of the program in the first year, gradually building to 40,000 in the final year, the eight-year cost might be $462 million, or an average of $58 million per year. That's not a huge amount in an FAA facilities & equipment budget of several billion dollars per year.

And consider the benefits. Instead of full ADS-B (Out plus In) being operational by perhaps 2025, that date would be moved up to 2017, a full eight years sooner. All the other NextGen elements that depend on ADS-B could be implemented sooner, as well. And a much earlier implementation schedule would incentivize avionics companies to get products onto the market, and the larger annual sales volume would produce economies of scale, thereby reducing prices.

Breakthroughs on the cost front are also possible. MITRE Corporation has been developing a small, lightweight, battery-powered ADS-B unit for Unmanned Aerial System (UAS) applications, using the same UAT data link technology planned for all GA aircraft. (See, for example, "A lightweight, Low-Cost ADS-B System for UAS Applications," Robert C. Strain, et al., The MITRE Corporation, 2007.) I'm told that MITRE I willing to license this technology for commercial production-but using something like this for GA aircraft would depend on FAA developing certification rules for a box that uses GPS chipsets developed for the consumer market. If that produced a box that cost only a few thousand dollars, FAA might not even need a subsidy program to accompany a 2017 equipage deadline.

It's clearly time for some outside-the-box thinking, to get ADS-B implemented in a timely manner.

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Business Jet Sales Are Booming-in User Fee Countries

Many of those attending the annual convention of the National Business Aviation Association in Orlando earlier this month were surprised by the optimistic forecast for business jet sales, released at that event by Honeywell. Their annual survey of over 1,800 corporate flight departments worldwide led to a prediction of a record $25 billion worth of bizjet deliveries in 2009, with only a small drop-off in the next two years, reflecting the current recession.

The Honeywell forecast is consistent with one released a week earlier by Forecast International., which also projected an increase in 2009 followed by a couple years' pause and then continued robust growth.

What I found especially interesting about the forecasts is the extent to which bizjet sales are booming overseas. In the Honeywell forecast, a full 45% is non-North American sales (20% in Europe, 12% Latin America, 10% Asia-Pacific, and 4% Middle East/Africa).

A good example is the recent order by Jet Republic, a new European company planning to offer charter, fractional, and jet card services. It ordered 25 Learjet 60 XRs valued at $340 million, with a conditional order for 85 more. If exercised, that $1.5 billion total would be the largest business jet transaction in European history. Jet Republic CEO Jonathan Breeze told Aviation Daily that "despite the current economic climate, the private jet market is enjoying strong growth . . . [and] we believe there is significant room for improvement in the level of service provided by the private jet aviation sector."

The ironic thing about these developments is that if you believe what NBAA has been saying about the threat to business aviation posed by possible U.S. ATC user fees, these overseas developments could not be happening. User fees would supposedly increase the cost of flying to the extent that bizjet sales would be decimated, and charter and fractional operators would struggle to do business. Yet according to ICAO, the only country in all of Europe that does not charge ATC user fees is Monaco. Worldwide, only 21 out of 180 countries do not charge users directly for ATC services. Besides Monaco, they include such thriving spots as the Comoros, Benin, Lesotho, Somalia, and Togo (see Table 4 in my 2005 policy study on ATC user fees and funding: www.reason.org/ps332.pdf).

To be sure, the United States ranks only 10th in the world in GDP per capita, and the nine countries ranked higher (by the World Bank) are all in Europe. So maybe it's true that the Europeans can simply afford to pay ATC user fees, while their poor American cousins can't.

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Could Pricing Address Weather-Caused Delays?

One of the critiques of NextGen's ability to reduce delays is that it cannot prevent or make irrelevant severe thunderstorms, blizzards, or other severe weather. In the 2002 paper on which these paragraphs are based, Kevin Neels of Charles River Associates cites an analysis of FAA OPSNET data for 2000 which attributed 69% of all delays that year to weather. While some new technologies will permit landings in low-visibility conditions on closely spaced parallel runways to approach the rate experienced on clear-weather days, we are still going to have to cope with these other forms of weather.

What Neels suggests is that airlines could be given the opportunity to pay in advance for priority treatment of selected flights, when severe weather leads flow control to cancel or delay flights. His proposal builds on procedures already in place under the rubric of Collaborative Decision Making. "When conditions in the system dictate that some flights must be delayed, CDM provides the airlines that operate those flights a greater voice in decisions regarding which flights will clear the system first and which will be held back." The way it works now implies that a queue position "belongs" to the airline operating the flight, so that when an airline decides to cancel a flight that has been delayed by a ground stop, the freed-up position in the queue reverts to the airline whose flight was cancelled-which can assign another (presumably higher-priority) flight to that position.

Neels points out that this CDM process permits airlines to obtain some gains in efficiency, but that a market-priced system would enable them to do more. What limited "trading" that is now allowed among airlines takes place in real-time, during the bad-weather incident. But the market system Neels proposes would be set up in advance. Basically, it would allow airlines to pay ahead of time for priority treatment of selected flights in the event of a severe-weather disruption. It's analogous to hedging fuel purchases.

A similar problem confronts the wholesale electricity market. Electricity system operators must have reserve power available to call upon when the need arises. So they make deals in advance to have certain providers keep generation units ready to go, on short notice, at previously decided prices. In aviation, the issue is which units of production (flights) get called back into service first, following a severe-weather disruption. Under the Neels approach, airlines would be able to pay the air navigation service provider (ANSP) a premium to have specific flights designated as high-priority flights, as distinguished from interruptible flights. In countries where ATC is paid for by direct user fees, the payment could be reflected in a higher rate for en-route and terminal ATC services.

From an airline's standpoint, figuring out which flights to pay premiums for would be a matter of modeling the effect on network performance of various flights experiencing serious delays. That is a task, says Neels, on a scale comparable to that of their yield-management systems-complex, but do-able. He also ponders the implication for airline marketing and ticket prices. Premium-reliability flights would command a premium ticket price, which might mean all seats on those flights would be marketed to travelers who put a premium on reliable arrivals. And that might mean a greater distinction between business-oriented and leisure-oriented flights-or entire airlines.

In a previous issue I noted Michael Levine's observation that the airline industry may need entirely new business models to cope with a world of high fuel costs and other challenges. In advocating a creative use of pricing to cope with severe-weather disruptions, Neels may have identified some interesting alternative models.

("Pricing-Based Solutions to the Problem of Weather-Related Airport and Airway System Delay," Kevin Neels, Air Traffic Control Quarterly, Vol. 10, No. 3, 2002.)

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Competition for Control Towers?

Few Americans know that in the U.K., the provision of airport control towers is done by multiple providers-i.e., airports have a choice in who provides the control tower services. Historically, U.K. airports self-supplied, following regulations and procedures set by the Civil Aviation Authority. After NATS was established, initially as a state-owned ANSP and now as a public-private partnership with 49% government ownership, its NATS Services Ltd. (NSL) became a major provider of airport control tower services. Today NSL operates the towers at 14 of the 20 busiest U.K. airports. But those airports all have the choice of using NSL, another authorized tower company, or self-supplying.

Now this practice may spread to other countries in Europe. In 2006, the European Commission issued Regulation No. 1794/2006: A Common Charging Scheme for Air Navigation Services. This is one of the building blocks for the planned Single European Sky. It requires all EU member countries to develop common charging procedures for en-route, overflight, and terminal air navigation services, by 2010.

As part of its preparations, the U.K. Department for Transport recently completed an "assessment of contestability" of tower services at U.K. airports. See www.dft.gov.uk/consultations/closed/ecregulation17942006/assessmentcontestability.pdf It's a fascinating document. The overall conclusion is that the market for control towers in the U.K. is already contestable, as judged by a number of criteria. Multiple providers (including self-supply) exist. There have been five changes of providers at major U.K. airports since 1997. And even where airports have not changed providers, many have considered the option.

As you know, the U.K. airport market is the most privatized in the world, with outright investor ownership of nearly all the major airports. Even those still remaining in municipal hands (such as Manchester) have been corporatized, and operate on commercial principles. As privatization and corporatization have occurred, there has been a tendency toward self-supply by multi-airport companies-e.g., Liverpool switching to self-supply by Peel Airports when the latter purchased the airport, and Glasgow and Prestwick shifting to self-supply after Infratil bought them.

An interesting possibility under Single European Skies is the entry of ANSPs from one country providing tower services to airports in another country. That has already begun to happen. Austro Control, which runs towers at six airports in Austria also does so at 10 airports in Germany.

The DfT report also links airport commercialization to the airports' interest in having competition for control tower services. "Growing competition between a number of airports under diverse ownership, and the capital-intensity of airport operations (meaning that they are relatively sensitive to losses of airline business), will provide airports with a strong incentive to reduce their charges to airlines and, therefore, to reduce ANS costs."

As the U.K. and now Europe is proving, there is a lot more scope for markets in the provision of airports and air traffic control.

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News Notes

JPDO Releases NextGen Integrated Work Plan. The Joint Planning & Development Office late last month released Version 1.0 of its Integrated Work Plan, the next step in defining the nine functional areas that constitute the NextGen system. You can download it from www.jpdo.gov.

Nav Canada Cuts ATC User Fees Again. A temporary one-year reduction in service charges that was due to expire August 31, 2008 was continued for fiscal year 2009, the company announced in August. This is the third straight year of service charge reductions, making charges today 6% lower than they were three years ago. Under Nav Canada's not-for-profit charter, revenues in excess of expenses (including capital investment) are used to permit reductions in user fees. Starting from the full implementation of ATC user fees in 1999, Nav Canada's rates are now 17% below the growth of inflation, quite a boon to its customers.

Air Services Australia Sued for Delays. USA Today reports that Virgin Blue is suing Australia's corporatized ANSP for $357,000, after more than 200 flights at Sydney were delayed or cancelled over the first weekend of October. After a rash of employees called in sick (as part of a labor dispute), Air Services reduced flight movements from 48 per hour to 30 at Sydney, resulting in the delays and cancellations.

FAA Wants Feedback on Flight Service Stations. Avweb reported in August that the FAA is conducting a survey of GA pilot satisfaction with the quality of services they are now getting from Flight Service Stations. The surveys are being conducted by an independent research firm, and the responses are confidential and anonymous. The transition from direct FAA provision of Flight Service Stations to outsourced provision by Lockheed Martin had start-up problems, though AOPA in recent months has reported greatly reduced problems, based on feedback from its members.

NBAA Spends Heavily on Lobbying. During the second quarter of this year, with the FAA reauthorization bill stalled in Congress, the National Business Aviation Association spent $620,000 on lobbying the federal government, according to its disclosure form posted July 21st. In addition to Congress, NBAA lobbied the DOT, the NTSB, and the Federal Elections Commission.

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Quotable Quotes

"The only reason I use the FSS system is that I am required to personally file via FSS for all flights to and from the Washington, DC Flight Restricted Zone, within which I am based. Pre-911, I had stopped using the FSS voice briefings altogether. DUATS, commercial flight planners, and XM weather are simply better, faster, and more efficient. My PDA gives me in-cockpit weather, including NEXRAD . . . . I think the telephone briefing is as obsolete as the walk-in briefing. I'm not at all surprised that FSS use is in decline. Current thinking in NextGen is to make the flight briefing process primarily a machine-to-machine one, so this fact is well recognized."
--Private pilot, in online discussion group. Aug. 12, 2008

"One consequence of the emergence of commercial airports is that these commercial companies are more likely to exert cost pressure over ANS providers, as these airports are subject to pressures from shareholders (as well as their competitors). In addition, the emergence of airport groups is also likely to increase the degree to which smaller airports in that group are able to effectively negotiate ANS cost reductions, as the total cost of ANS provision to these groups is larger than for each individual airport, and their business is more significant to each of the competing ANS providers."
--U.K. Department for Transport, "Assessment of Contestability under Annex 1 of the Air Navigation Services Charging Regulation (EC) No 1794/2006, p. 50.

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


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