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Reason Foundation

Airport Policy and Security Newsletter #34

Topics include: Midway privatization: six first-class teams; slot auctions for LaGuardia; second-generation checkpoints; next steps on runway incursions; and other news.

Robert Poole
April 1, 2008

In this issue:


Six Teams Seek Midway Airport Lease

If there was any question whether investors would be interested in a long-term lease of Chicago's Midway Airport, it was answered in the affirmative at the beginning of April. Six high-powered teams submitted their qualifications to the city, which will presumably winnow them down to the best-qualified subset, who will then be invited to submit formal bids. With the basic terms of the lease already decided (in order to win agreement from Midway's airlines), the winner will be the firm offering the highest dollar amount.

The six teams included mostly firms that had been expected to bid-though noticeably absent were industry giants Ferrovial (which may have its hands full refinancing its costly acquisition of BAA) and Fraport (which had been rumored to be seriously interested). The six that did submit qualifications are:

The city has not released a timetable, but it's likely to announce the short-list within a couple of months, along with a formal invitation for the short-listed teams to submit their bids. Lisa Schrader, the city's deputy CFO, told Aviation Daily that they expect to close the lease transaction within 9 to 12 months, after approvals from the FAA, TSA, and the City Council.

There is much speculation as to how much will be offered for the 50-year lease. In Issue No. 32, I expressed skepticism that the figure would be in the $3 billion range that has been mentioned in many media reports, given the airport's small land area (one square mile), limited airside capacity, and already fairly well-developed retail operations. But in recent weeks I've had several knowledgeable people suggest to me that there is more potential than meets the eye at Midway. For example, as of now, there are 1,895 weekly airline departures, but as recently as 2004 that number was 2,449-so we know that a 30% increase (at least) is possible. An attorney advising one team suggested that his team had come up with a number of creative options to maximize value at the airport. Another told me that there has been recent interest by developers in acquiring land bordering Midway, in hopes of being able to negotiate joint-development deals with the winning bidder. So while I remain somewhat skeptical, I'd be pleased to be proven wrong.

If Midway does generate significant value for the city, the lease could be as precedent-setting as the city's January 2005 lease of the Chicago Skyway. That transaction focused global attention on the United States as a new market for privatization of toll roads. But for the same thing to be possible in the airport sector would require Congress to amend the Airport Privatization Pilot Program legislation it enacted in 1996 . Although it permits four air carrier airports to be leased, only one can be a large hub, which is how Midway is categorized by the FAA. The FAA's reauthorization proposal, which was largely ignored by Congress last year, had called for liberalizing the pilot program. It would probably take active lobbying by America's mayors to open up additional large-hub privatization opportunities.

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DOT Plans Slot Auctions for LaGuardia

Unwilling to give up on a market-based approach to dealing with New York airport congestion, the U.S. DOT last week unveiled a proposal to implement slot auctions at LaGuardia (LGA) over a 10-year period. It offered two versions, each of which would grandfather most existing carrier slots (for the whole 10 years) and then annually auction off a small percentage of the remaining slots over a five-year period. Under the first option, 2% of the slots would be retired during each of the first five years, resulting in a 10% reduction. Under the second option, there would be no slot retirements. Proceeds from the auction would go for New York airspace capacity improvements under the first option and to the airlines (presumably according to some formula) under the second.

I give this proposal one-and-a-half cheers, and I must give credit to DOT for persisting in trying to implement market-based allocation of limited capacity. Since the Port Authority is unwilling to make use of its newly clarified (by DOT) authority to implement market-based runway/landing charges, the only other market alternative is auctions. In principle, slot auctions should produce changed airline incentives more or less equal to what runway charges would produce. But runway pricing has the big advantage of applying to all planes (including non-scheduled ones) right from the start, whereas any likely auction system would, like this proposal, be phased in over time. Hence, its delay-reduction benefits would take longer to achieve-and in this case, would likely be modest.

Even without retiring any slots, a full auction (of all slots) would reduce congestion, since it would increase the cost to an airline of operating peak-period slots with low-revenue aircraft. The two effects that flow from this would be (1) shifting low-revenue flights to off-peak times, and (2) up-gauging from smaller to larger planes, on routes now served at high frequency by smaller regional jets (which would get fewer flights on larger jets, for the same or greater passenger throughput).

Airlines will surely protest that DOT cannot auction slots that belong to them. But DOT has established a several-decade record stating from the outset and repeatedly thereafter that slots are not property but merely permissions which can be withdrawn at any time. I'm not an attorney, but I think DOT is on solid legal ground on this point. There is also a question as to whether DOT can do this as a "rulemaking" rather than getting permission, via legislation, from Congress, and I imagine airlines will make that point, too.

Thus far, both the international and domestic airline trade associations, IATA, and ATA, have issued statements denouncing the proposal. And to my surprise, Virgin America (which thus far has not been able to gain access to LGA) criticized it as well, since new entrants will have to buy slots while incumbents keep most of theirs at no charge. Virgin is right that a truly level playing field would auction all slots, but that was much farther than DOT was willing to go.

You can read the DOT's notice of proposed rulemaking at: www.regulations.gov, Docket No. FAA-2006-25709. Comments may be made until June 16th.

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Second-Generation Checkpoints

In my last update on security screening checkpoints (Issue No. 31), I noted that TSA was finally testing alternatives to the 1960s-era X-ray machines used to screen carry-on bags-some are 2-D machines (still a big improvement) while others are four-times-more-costly 3-D X-rays. The big advantage of the latter is that laptops and liquids would not have to be removed from luggage, but the cost difference might mean it would take a decade or more before all screening lanes could be equipped.

So, on the principle that the best can be the enemy of the good, I was pleased to see TSA's announcement two weeks ago that it will be purchasing and installing 580 more of the 2-D machines this year, bringing the total to 830. Of course, using very expensive 3-D scanners for checked luggage while using only 2-D scanners for carry-ons remains a glaring inconsistency, since an aircraft-destroying amount of explosives can be carried in a roll-aboard bag just as easily (though a bit less anonymously) as in a checked bag.

There is also progress on the non-metallic-threats-hidden-under-clothing front. TSA is buying 30 more $150K millimeter wave scanning portals, after a successful test at Phoenix Sky Harbor. Initial installations will be at JFK and LAX. In these still-limited applications, the whole-body scanners will continue to be used only in secondary screening, as a voluntary alternative to pat-downs. Ideally, a device such as this would replace the magnetometer as the standard through which all passengers (except perhaps Registered Travelers) would pass, since all are now screened for metallic knives and guns, but not for things like plastic explosives or ceramic knives which are just as dangerous. The big limitation has been scanning time, but this seems close to being solved. The ProVision Portal being tested by Qantas and Melbourne (Australia) Airport requires only three seconds of dwell time per passenger; allowing twice that to include entry and exit time, that would still permit 10 passengers per minute or 600 per hour.

Further back in the R&D pipeline are several other promising technologies. Argonne National Laboratory has developed a new way to generate terahertz radiation (T-rays), which are low-energy and non-ionizing. They can be used both to see through shoes and clothing and to identify liquids as they move past a scanner. Los Alamos National Laboratory is developing magnetic resonance imaging (MRI) technology to screen liquids, under a project called SENSIT. Here again, the idea is to allow agents watching a screen to detect liquids that are dangerous, based on their chemical makeup. Both T-rays and MRI devices are still in the laboratory stage.

I'm also curious what DHS Secretary Michael Chertoff may be announcing soon. He told USA Today last month that the agency (parent of TSA) is "undertaking a sweeping review of airport security screening to try to ease passenger hassles." The review was supposed to take 30 to 45 days from the March 3 announcement, so it ought to be nearing completion as you read this.

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Next Steps on Runway Incursions

Runway incursions continue to plague many airports, and reducing this hazard is one of the top priorities of the National Transportation Safety Board. Three technologies can help, but are a long way from widespread use.

The first is as simple as giving pilots a device in the cockpit that shows them where they really are on the airfield. One of the capabilities of current Class 2 "electronic flight bags"-a kind of laptop that replaces numerous paper charts and manuals-is a moving-map display of airports, showing the pilot the "own-ship position" at the center of a depiction of the runways and taxiways. Continental and Air Canada are retrofitting many of their planes with such EFBs using Jeppeson moving-map software. (Newer planes, like Boeing's 787, will come with more-advanced Class 3 EFBs installed.) Jeppeson's Rick Ellerbrock told Aviation Week that this system could cut in half the 55% of serious (Class A and B) runway incursions caused by the pilot moving the plane to the wrong location.

The second type of system is runway status lights (RSL). It's a series of red lights installed in the pavements of runways and taxiways, controlled by a computer using inputs from airport surveillance radar. The lights turn red when a runway is occupied, warning the pilot not to enter. The first serious RSL demonstration took place at DFW Airport from 2002 to 2005, and a report by the DOT Inspector General's Office says they performed "extremely well." Incursions decreased by 70%, and the system "met or exceeded all performance criteria set by the FAA." A similar system has been installed at San Diego. But why not elsewhere?

The FAA issued an RFP last month for a national RSL rollout to 20 airports, with a contractor expected to be selected by mid-summer. But apparently the plan will be limited to airports which have or are on the schedule to get the advanced ASDE-X airport surveillance radar. That's a great technology, but the FAA has been agonizingly slow getting it installed at the 35 major airports in the current program. While the first one went into Milwaukee in 2002 and was fully operational by late 2003, about half are still to be delivered to airports, and-once delivered--it's taken an average of 22.6 months to get them fully operational. Yet the DFW program demonstrated that earlier-generation airport surveillance radar was sufficient for the RSL task, so it's hard to see why airports with major runway incursion problems like LAX (whose ASDE-X is still far from operational) or Boston (which still hasn't gotten ASDE-X) should have to wait.

The third technology to prevent runway incursions is ASDE-X itself. The overall game plan is to equip all airport ground vehicles with transponders (like planes have), so that ASDE-X can keep track of everything that moves, which would address the full range of incursions. But the big flaw is that ASDE-X as it's being installed today warns only the controller in the tower-who must then use voice radio to warn the pilot of an impending collision that may be only seconds away. The NTSB has been harping on this for years, arguing that the delays in communication and reaction time could undercut the goal of preventing incursions. I reported in ATC Reform News (No. 49, January 2008) that Honeywell and ASDE-X producer Sensis Corp. have demonstrated a system that sends the warning directly to the cockpit via the transponder used for the collision-avoidance system (TCAS) that's on all commercial and business-jet aircraft. All it takes is a software mod ification to the ASDE-X and TCAS units. But I've seen no sign of FAA moving to incorporate this life-saving innovation into their runway incursion plans.

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News Notes

NZ Airport Offer Rejected. The on-again/off-again deal under which the Canada Pension Plan Investment Board was to purchase a 40% stake in Auckland International Airport is off again-apparently for good. After the airport board had finally given a green light, its offer was approved by nearly 58% of voting shareholders. But last week the government exercised its veto power over the $1.4 billion offer, stating that the deal "would be of no particular benefit to New Zealand." It failed all nine of the recently adopted tests for foreign investment in key infrastructure, including creating or retaining jobs, boosting exports, and providing additional investments. Shares in Auckland Airport fell 10% following the announcement.

Important New Book. Over the years I've learned a lot about aviation economics and policy by reading what U.K. economist David Starkie has written. He's just come out with a new book, compiling 17 of his best papers. Aviation Markets is published by Ashgate, and the paperback edition costs £25, or about $50 (Amazon lists the hardcover for $115). The five sections of the book cover airline competition, airport privatization, economic regulation, airport competition, and infrastructure access. More details from the publisher: ashgate@bookpoint.co.uk.

Change of Command at ACI. Congratulations to Angela Gittens, who's been appointed Director General of Airports Council International-World, headquartered in Geneva. She's held top positions at Miami, Atlanta, and San Francisco airports, and has recently been VP of Airport Business Services at HNTB Corporation. And thanks for many years of leadership to Bob Aaronson, who will be handing over the reins to Gittens.

Two Different Answers Re Carbon Emissions. I was pleased to hear Dan Elwell (FAA Assistant Administrator for Policy, Planning and Environment) tell reporters that U.S. aviation can grow without increasing greenhouse gas emissions. FAA analysis suggests that despite projected air traffic growth of 4% per year, more direct routings and other changes from NextGen, plus fleet replacements, should reduce greenhouse gas emissions by about 3.5% per year; the 0.5% gap could be filled as biofuels come to market. Not so fast, argues Greenpeace's chief scientist. In a recent opinion piece (Airline Business, April 2008), Doug Parr rejects biofuels and declares flatly, "Stopping the seemingly relentless growth of flights and airport capacity at present seems the only viable option." Just so you know what we're up against.

Addendum re International Registered Traveler. A reader emailed in response to last issue's report to tell me that NEXUS (which I'd mentioned as an existing risk-based border-crossing program) has 170,000 members and is now active at all the Canadian airports I'd mentioned. Canada also now recognizes the APEC card, as of January 2008. And Customs & Border Protection has indicated the APEC card will be interoperable with their new International RT program at some point.

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Quotable Quote

"Airlines are often enthusiastic in their support of caps at airports they already serve. When a cap is established, incumbents are protected because they typically maintain their market share, and the potential for new competition is diminished. The legacy airlines' support for such a policy makes sense, because limited competition makes them more profitable and protects them from new entrants that might want to compete by offering lower fares. Although caps protect existing airline business, they also prevent airlines from adding capacity at an airport unless they are able to obtain a slot from a competitor. As a result, one of the best-known problems with slots is that they encourage airlines to "baby-sit" slots, i.e., underutilize the slot by flying multiple small aircraft into an airport to maximize the number of slots an airline can occupy at the lowest possible cost. As a result, slots do not always go to those who value them the most and who wil l use the capacity in the most efficient manner."
--D.J. Gribbin, General Counsel, U.S. DOT, testimony before the House Aviation Subcommittee, April 9, 2008.

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


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